If workers and firms have rational expectations, they understand that ________ monetary policy will raise the inflation rate, so actual inflation ________ expected inflation.
A) contractionary; will be equal to
B) contractionary; will be less than
C) expansionary; will be greater than
D) expansionary; will be equal to
E) expansionary; will be less than
Ques. 2With a monetary growth rule as proposed by the monetarists, during a recession the rate of growth of the money supply would
A) not change.
B) increase.
C) decrease.
D) decrease or increase depending on economic conditions.
Ques. 3A decrease in individual income taxes ________ disposable income, which ________ consumption spending.
A) decreases; increases B) increases; increases
C) increases; decreases D) decreases; decreases
Ques. 4The multiplier is calculated as the
A) change in autonomous expenditure/ change in real GDP.
B) change in real GDP/ change in induced spending.
C) change in real GDP/ change in autonomous expenditure.
D) change in nominal GDP/ change in autonomous expenditure.
Ques. 5An increase in government spending will result in an increase in the price level and an increase in real GDP in the long run.
Indicate whether the statement is true or false
Ques. 6The major criticism of real business cycle models is
A) positive technology shocks actually push real GDP above the economy's potential GDP.
B) this model relies too heavily on monetary explanations for fluctuations in real GDP.
C) negative technology shocks actually push real GDP below the economy's potential GDP
D) negative technology shocks are uncommon and can't explain all business cycle fluctuations.
Ques. 7To combat a recession with discretionary fiscal policy, Congress and the president should
A) decrease taxes to increase consumer disposable income.
B) decrease government spending to balance the budget.
C) lower interest rates and increase investment by increasing the money supply.
D) raise taxes on interest and dividends, but not on personal income.
Ques. 8Monetarists think that the Fed should use ________ as a target when conducting monetary policy.
A) the inflation rate
B) the Treasury bill rate
C) the money supply
D) the federal funds rate
E) the unemployment rate
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