Question 1

You and a friend are arguing over the issue of the nonneutrality of money.You believe that money is not neutral,and to prove your point you would cite all of the following except
A)large gold discoveries that increased the money supply preceded an economic boom.
B)a change in monetary institutions preceded a boom or recession.
C)a change in the leadership of the Central Bank and its policy was followed by noticeable changes in the money supply and a recession or inflation.
D)the fact that every recession was preceded by a drop in the money supply.

Accepted Answer

Option D actually supports the non-neutrality of money by suggesting that a decrease in the money supply precedes a recession. Therefore, all the other options (A, B, and C) provide evidence that supports the non-neutrality of money, while D does not.

Question 2

Which of the following equations is most likely to represent short-run aggregate supply according to the misperceptions theory?
A)Y = 6000
B)Y = 6000 + 50(P - Pᵉ)
C)P = 2
D)PY = 12,000

Accepted Answer

According to the misperceptions theory, firms may temporarily misperceive changes in the price level as changes in relative prices, leading them to adjust their output in response to changes in anticipated rather than actual prices. This implies that short-run aggregate supply (SRAS) is upward sloping, with an equation that includes a term for expected price level (Pᵉ). Choice B includes such a term and is therefore the most likely equation to represent short-run aggregate supply according to the misperceptions theory.

Question 3

If you expect a general price increase of 5% this year and the price of the hamburgers you sell increases by 10%,you would conclude that the relative price of your good has
A)declined,and you would increase your output.
B)declined,and you would decrease your output.
C)increased,and you would increase your output.
D)increased,and you would decrease your output.

Accepted Answer

The relative price of your good has increased because the price of hamburgers increased by 10%, which is higher than the general price increase of 5%. This suggests that hamburgers have become relatively more expensive compared to other goods, potentially leading to an increase in revenue per unit sold, thus incentivizing an increase in output.

Question 4

The basic classical model can account for the procyclical behaviour of money if there
A)are real business cycles caused by productivity shocks.
B)is reverse causation from future output to money.
C)are rational expectations among the public.
D)are propagation mechanisms in the economy.

Accepted Answer

The answer of The basic classical model can account for...

Question 5

According to the misperceptions theory,an anticipated decline in the money supply leads to a shift of the AD curve to the ________ and a shift of the SRAS curve to the ________.
A)left;right
B)left;left
C)right;right
D)right;left

Accepted Answer

According to the misperceptions theory, anticipated decline in the money supply leads to a shift of the AD curve to the left as consumers and firms initially believe the decline is temporary and adjust their spending accordingly, leading to a decrease in demand for goods and services. This, in turn, shifts the SRAS curve to the right as firms respond to the decreased demand by reducing their prices and production levels, causing a decrease in input prices and an increase in output prices.

Question 6

Short-run aggregate supply is greater than long-run aggregate supply in the misperceptions theory if
A)the actual price level is greater than the expected price level.
B)the actual price level equals the expected price level.
C)the actual price level is less than the expected price level.
D)output is less than its full-employment level.

Accepted Answer

In the misperceptions theory, when the actual price level is greater than the expected price level, firms perceive the price of their product to have increased relative to other prices and thus increase production, leading to a short-run aggregate supply that is greater than the long-run aggregate supply.

Question 7

According to the misperceptions theory,when the price level falls below the expected price level,
A)the economy's SRAS curve shifts to the left.
B)the economy moves along its AD curve.
C)the economy moves along its LRAS curve.
D)the economy moves along its SRAS curve.

Accepted Answer

According to the misperceptions theory, when the price level falls below the expected price level, firms may initially think their relative prices have fallen and reduce output in the short run. This leads to a contraction along the economy's SRAS curve. Therefore, the best choice is D, which states that the economy moves along its SRAS curve.

Question 8

Which of the following can be taken as an evidence for the reverse causation between the money growth and the changes in output?
A)Bank of Canada regularly increases money supply during the Christmas shopping season.
B)Bank of Canada regularly adjusts the level of money supply based on its forecast of the economic activity.
C)Prices are procyclical.
D)Productivity is procyclical.

Accepted Answer

The answer of Which of the following can be taken...

Question 9

The short-run aggregate supply curve can slope upward because
A)prices are fixed in the short run.
B)wages adjust immediately to changing economic circumstances.
C)producers have misperceptions about the aggregate price level.
D)prices adjust instantaneously.

Accepted Answer

Producers may have misperceptions about the aggregate price level, leading them to adjust production levels based on incorrect assumptions about real prices, which can cause the short-run aggregate supply curve to slope upward.

Question 10

If producers have imperfect information about the general price level and sometimes misinterpret changes in the general price level as changes in relative prices,then
A)the short-run aggregate supply curve is vertical.
B)the short-run aggregate supply curve slopes upward.
C)the aggregate demand curve is vertical.
D)the aggregate demand curve is horizontal.

Accepted Answer

If producers have imperfect information and misinterpret changes in the general price level as changes in relative prices, they may adjust production quantities in response to perceived changes in profitability. This leads to a sloping SRAS curve, as output can increase or decrease in response to changes in the price level.

Question 11

According to the misperceptions theory,when the aggregate price level is higher than expected,the aggregate quantity of ________ the full-employment level.
A)output supplied rises above
B)output supplied falls below
C)output demanded falls below
D)output demanded rises above

Accepted Answer

According to the misperceptions theory, when the aggregate price level is higher than expected, producers may mistakenly believe that only the price of their own product has increased, leading them to increase production. This results in the aggregate quantity of output supplied rising above the full-employment level.

Question 12

Friedman and Schwartz argue that money is NOT neutral because
A)theoretical models of the economy don't show monetary neutrality.
B)money is a leading,procyclical variable.
C)they found several historical incidents in which changes in the money supply were not responses to macroeconomic conditions,and output moved in the same direction as money.
D)they found no evidence that productivity changes or changes in government spending contributed to business cycles;only monetary changes preceded every recession.

Accepted Answer

Friedman and Schwartz found several historical incidents where changes in the money supply were not responses to macroeconomic conditions, and output moved in the same direction as money, indicating that money is not neutral.

Question 13

Reverse causation means that
A)expected future increases in output cause increases in the current employment.
B)expected future increases in output cause increases in the current money supply.
C)expected future increases in money supply cause increases in the current output.
D)expected future increases in employment cause increases in the current output.

Accepted Answer

The answer of Reverse causation means that
A)expected future increases in...

Question 14

Which of the following restates the basic business cycle fact that money is procyclical?
A)Changes in the behaviour of the money stock has been closely associated with changes in economic activity,nominal income,and prices.
B)Monetary changes have often had an independent origin;they have not been a reflection of changes in economic activity.
C)The interrelation between monetary and economic changes have been highly stable.
D)Both A and C are correct.

Accepted Answer

The answer of Which of the following restates the basic...

Question 15

You are likely to think that the relative price of your good has declined and you should decrease your output if
A)you expected inflation of 10% and the price of your good rose 7%.
B)you expected inflation of 10% and the price of your good rose 10%.
C)you expected inflation of 10% and the price of your good rose 13%.
D)you expected inflation of 0% and the price of your good rose 10%.

Accepted Answer

If you expected inflation of 10% and the price of your good rose only 7%, the relative price of your good has effectively declined because it did not keep up with the expected inflation rate.

Question 16

According to the misperceptions theory,an unanticipated decrease in the money supply shifts the AD curve to the ________,causing output to ________ in the short run.
A)right;rise
B)right;fall
C)left;rise
D)left;fall

Accepted Answer

According to the misperceptions theory, individuals have incorrect perceptions about changes in the aggregate price level, and may initially believe a decrease in the money supply is a decrease in the relative price of goods, causing an increase in output. As a result, the AD curve shifts to the left, causing output to fall in the short run.

Question 17

Classical economists would explain the fact that money is a leading,procyclical macroeconomic variable by pointing out that
A)money is not neutral,and changes in the nominal money supply affect real variables.
B)increasing the money supply shifts the LM curve,reducing real interest rates and causing an economic expansion.
C)increasing the money supply increases aggregate demand,causing higher levels of employment and output.
D)when money demand rises because of a beneficial productivity shock,the Central Bank increases the money supply to prevent the price level from falling.

Accepted Answer

Classical economists believe in the neutrality of money, meaning changes in the money supply do not affect real variables in the long run. However, they might argue that money is procyclical because the Central Bank adjusts the money supply in response to changes in money demand due to productivity shocks, to stabilize the price level.

Question 18

Assuming money neutrality in the classical model,a 10% increase in the nominal money supply would cause
A)a 10% increase in the real money supply.
B)a 10% decrease in the real money supply.
C)no change in the real money supply.
D)a less than 10% change in the price level due to a shift in the aggregate supply curve.

Accepted Answer

In the classical model, money neutrality assumes that changes in the nominal money supply have no impact on the real variables in the economy, such as real output and employment. Therefore, the real money supply remains unchanged with a 10% increase in the nominal money supply. This is because households and firms will adjust their spending and pricing decisions accordingly, resulting in no change in the economy's real variables.

Question 19

According to the misperceptions theory,after an unanticipated increase in the money supply has occurred,the SRAS curve must shift to the ________ to restore general equilibrium;as it does so,the price level ________.
A)right;rises
B)right;falls
C)left;rises
D)left;falls

Accepted Answer

According to the misperceptions theory, an unanticipated increase in the money supply leads to a temporary increase in output and prices. To restore equilibrium, the SRAS curve shifts left as producers realize the price level has risen, correcting their misperceptions.

Question 20

According to the misperceptions theory,when P < Pᵉ,output is ________ its full-employment level and the short-run aggregate supply curve must shift to the ________ to restore full employment.
A)below;left
B)below;right
C)above;left
D)above;right

Accepted Answer

According to the misperceptions theory, when the actual price level (P) is less than the expected price level (Pᵉ), firms perceive that the relative prices of their products have fallen, leading them to reduce output. This results in output being below its full-employment level. To restore full employment, the short-run aggregate supply curve must shift to the right.

Quiz 11: Classical Business Cycle Analysis: Market-Clearing Macroeconomics

You and a friend are arguing over the issue of the nonneutrality of money.You believe that money is not neutral,and to prove your point you would cite all of the following except

Which of the following equations is most likely to represent short-run aggregate supply according to the misperceptions theory?

If you expect a general price increase of 5% this year and the price of the hamburgers you sell increases by 10%,you would conclude that the relative price of your good has

The basic classical model can account for the procyclical behaviour of money if there

According to the misperceptions theory,an anticipated decline in the money supply leads to a shift of the AD curve to the and a shift of the SRAS curve to the .

Short-run aggregate supply is greater than long-run aggregate supply in the misperceptions theory if

According to the misperceptions theory,when the price level falls below the expected price level,

Which of the following can be taken as an evidence for the reverse causation between the money growth and the changes in output?

The short-run aggregate supply curve can slope upward because

If producers have imperfect information about the general price level and sometimes misinterpret changes in the general price level as changes in relative prices,then

According to the misperceptions theory,when the aggregate price level is higher than expected,the aggregate quantity of ________ the full-employment level.

Friedman and Schwartz argue that money is NOT neutral because

Reverse causation means that

Which of the following restates the basic business cycle fact that money is procyclical?

You are likely to think that the relative price of your good has declined and you should decrease your output if

According to the misperceptions theory,an unanticipated decrease in the money supply shifts the AD curve to the ,causing output to in the short run.

Classical economists would explain the fact that money is a leading,procyclical macroeconomic variable by pointing out that

Assuming money neutrality in the classical model,a 10% increase in the nominal money supply would cause

According to the misperceptions theory,after an unanticipated increase in the money supply has occurred,the SRAS curve must shift to the to restore general equilibrium;as it does so,the price level .

According to the misperceptions theory,when P < Pᵉ,output is its full-employment level and the short-run aggregate supply curve must shift to the to restore full employment.