Question 1

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 ________.

Accepted Answer

According to the misperceptions theory, when there is an anticipated decline in the money supply, people expect a fall in the general price level. As a result, they will demand lower wages and lower prices for goods and services which shifts the SRAS curve to the right. The shift in SRAS will cause the equilibrium quantity of output to fall and the price level to rise. The rise in the price level will lead to a reduction in real wealth and consumption spending, resulting in a shift to the left in the aggregate demand curve. Therefore, an anticipated decline in the money supply leads to a shift of the AD curve to the left and a shift of the SRAS curve to the right. However, the question is asking for the opposite, so the answer is (A) left; right.

Question 2

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

Accepted Answer

The misperceptions theory focuses on how firms might temporarily misinterpret changes in prices as changes in the relative demand for their product, leading to a change in their output. The equation Y = 6000 + 50(P - P^e) captures this concept by indicating that output (Y) will increase by 50 for every 1 unit increase in the difference between the actual price level (P) and the expected price level (P^e). This suggests that short-run aggregate supply is positively related to unexpected changes in the price level. The other equations do not provide this type of relationship or information.

Question 3

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

Accepted Answer

In the classical model, money neutrality implies that changes in the nominal money supply do not affect real variables in the long run, only the price level. Therefore, a 10% increase in the nominal money supply would not change the real money supply, as it is determined by the economy's real variables. Thus, the correct choice is C.

Question 4

Friedman and Schwarz argue that money is not neutral because

Accepted Answer

Friedman and Schwarz 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. This suggests that money is not neutral and can have real effects on the economy.

Question 5

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

Accepted Answer

The answer of According to the misperceptions theory, when the...

Question 6

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

Accepted Answer

If producers have imperfect information about the general price level and sometimes misinterpret changes in the general price level as changes in relative prices, they may adjust their output in response to perceived changes in relative prices. This results in a sloping short-run aggregate supply curve.

Question 7

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

Accepted Answer

The misperceptions theory suggests that when there is an unanticipated increase in the money supply, producers may initially perceive this as an increase in the relative price of their goods, leading them to increase output. However, as they realize the price level has risen generally, they reduce output, causing the SRAS to shift left, and the price level rises to restore equilibrium.

Question 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

The answer of Classical economists would explain the fact that...

Question 10

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

Accepted Answer

The answer of You are likely to think that the...

Question 11

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

Accepted Answer

In the misperceptions theory, firms and workers initially form expectations based on the current price level, which includes a certain level of nominal wages. If the actual price level falls below the expected price level, firms and workers may mistakenly believe that their relative prices have fallen, leading them to produce less output and demand less labor. As a result, the economy moves along its SRAS curve, with lower output and higher unemployment. This is because firms and workers are slow to adjust their expectations and contracts to the new price level, which takes time and resources. In the long run, however, as expectations and contracts adjust, the economy returns to its natural level of output and employment along its LRAS curve.

Question 12

Reverse causation means that

Accepted Answer

The answer of Reverse causation means that
...

Question 13

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

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 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

Option D actually supports the argument that money is not neutral, as a drop in the money supply preceded every recession. Options A, B, and C also support the argument that money is not neutral, as changes in the money supply and monetary policy have observable effects on the economy.

Question 16

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

Accepted Answer

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

Question 17

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.

Accepted Answer

According to the misperceptions theory, a decrease in the money supply that is unanticipated by the public leads to higher interest rates, which cause households and firms to reduce their spending. This leads to a leftward shift of the aggregate demand curve, causing output (real GDP) to fall in the short run.

Question 18

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

Accepted Answer

The answer of According to the misperceptions theory, when P...

Question 19

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

Accepted Answer

According to the misperceptions theory, firms may mistakenly believe that an increase in the general price level is due to higher demand for their own particular output, leading to an increase in production. Therefore, if the actual price level is greater than the expected price level, firms will believe that there is an increase in demand for their output and increase production. However, in the long run, firms will realize that the increase in price level is due to an overall increase in the money supply, and adjust production accordingly, leading to a shift in the long-run aggregate supply curve to the right.

Question 20

The short-run aggregate supply curve can slope upward because

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.

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

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 .

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

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

Friedman and Schwarz argue that money is not neutral because

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

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

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

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

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, when the price level falls below the expected price level,

Reverse causation means that

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

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

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

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

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.

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

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

The short-run aggregate supply curve can slope upward because

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

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 ________.

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

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

Friedman and Schwarz argue that money is not neutral because

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

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

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

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

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, when the price level falls below the expected price level,

Reverse causation means that

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

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

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

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

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.

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.

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

The short-run aggregate supply curve can slope upward because

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 .

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

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.

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