Question 1

The Lucas supply function, in combination with the assumption that expectations are rational, implies that if a monetary policy change is announced to the public,

Accepted Answer

The Lucas supply function, combined with rational expectations, implies that if a monetary policy change is fully anticipated (announced to the public), there will be no price surprise, as agents adjust their expectations accordingly.

Question 2

According to the new classical theory, economic policies are effective

Accepted Answer

According to the new classical theory, economic policies, particularly monetary policies, are effective only if they are unanticipated. This is because individuals and businesses make decisions based on rational expectations, and if a policy change is anticipated, they will adjust their behavior in advance, neutralizing the policy's intended effects.

Question 3

Real business cycle theory is an attempt to explain business cycle fluctuations under the assumptions of

Accepted Answer

Real business cycle theory assumes that markets always clear and that individuals and firms have rational expectations regarding economic conditions. The theory emphasizes the role of productivity shocks and technological advancements in driving business cycle fluctuations. It does not assume any government intervention or trade regulation, wage and price controls, or closed economies and fiscal spending.

Question 4

The Lucas supply function, in combination with the assumption that expectations are rational, implies that if a monetary policy change is announced to the public, the actual price level

Accepted Answer

When expectations are rational, individuals use all available information, including announced policy changes, to form their expectations. Therefore, both the actual and expected price levels adjust in the same way to the announcement.

Question 5

According to the Lucas supply function, if people's expectations are ________, then the amount of output they produce is not related to the price level.

Accepted Answer

According to the Lucas supply function, if people's expectations are on target, then they already anticipate changes in the price level and adjust their production accordingly. Therefore, the amount of output they produce is not related to the price level.

Question 6

According to the Lucas supply function, ________ affect(s) actual and expected price levels in different ways.

Accepted Answer

According to the Lucas supply function, any unanticipated policy change affects actual and expected price levels in different ways. This is because if a policy change is announced, people and firms can adjust their behavior in anticipation of the future impact of the policy change. However, if a policy change is unanticipated, people and firms cannot adjust their behavior beforehand, and the actual impact of the policy change on price levels may differ from what was expected.

Question 7

According to the Lucas supply function, ________ will have an effect on real output.

Accepted Answer

According to the Lucas supply function, any unanticipated policy changes (whether fiscal or monetary) will have an effect on real output. This is because the function takes into account the expectations and behavior of consumers and firms in response to policy changes, which can vary depending on whether the changes were anticipated or not. Therefore, option B is the best choice.

Question 8

Supporters of supply-side economics claim that ________ tax policies were quite successful in stimulating the economy because throughout most of the 1980s, federal receipts continued to rise even though tax rates had been cut.

Accepted Answer

Supporters of supply-side economics attribute the economic growth of the 1980s to the tax policies implemented by President Ronald Reagan, which involved significant tax cuts for individuals and businesses. These tax cuts were designed to stimulate economic growth by allowing individuals and businesses to invest more of their money and resources back into the economy. Despite these tax cuts, federal receipts continued to rise throughout most of the 1980s, which supporters of supply-side economics see as evidence of the success of their approach.

Question 9

According to the Lucas supply function, ________ no effect on real output.

Accepted Answer

The Lucas supply function suggests that only unanticipated policy changes can affect real output. Announced policy changes are anticipated and thus have no effect on real output.

Question 10

The Lucas supply function states that real output will not change from its fixed level

Accepted Answer

The Lucas supply function is based on the concept of rational expectations, which means that economic agents have accurate information about the future and adjust their behavior accordingly. Therefore, if there is no price surprise, the agents will not change their behavior and real output will stay at its fixed level. Positive or negative price surprises, on the other hand, can lead to changes in behavior and therefore affect real output.

Question 11

The Lucas supply function states that real output can change from its fixed level

Accepted Answer

The Lucas supply function posits that real output deviates from its natural level only if there are unexpected changes in the price level, meaning both positive and negative price surprises can cause changes in output. This reflects the idea that firms adjust their production based on unexpected changes in prices, not on the direction of the change.

Question 12

New Keynesian economics assumes rational expectations and

Accepted Answer

New Keynesian economics assumes rational expectations and sticky prices and wages. This means that prices and wages do not adjust instantly to changes in supply and demand, which can result in short-term fluctuations in the economy. Rational expectations, on the other hand, assume that people make decisions based on all available information and that they form accurate expectations of future market conditions.

Question 13

According to the Lucas supply function, the economy will produce ________ output when prices are unexpectedly ________ than when prices are at their expected level.

Accepted Answer

The Lucas supply function suggests that if prices are unexpectedly higher, firms will increase their output because they mistake the higher prices for an increase in the relative price of their products, rather than an overall increase in the price level.

Question 14

The Lucas supply function, in combination with the assumption that expectations are rational, implies that if a monetary policy change is announced to the public,

Accepted Answer

According to the Lucas supply function and rational expectations, changes in nominal variables (such as money supply) do not have a long-term impact on real variables (such as output). In the short run, there may be some adjustment, but over time expectations adjust and the economy returns to the natural rate of output. Therefore, there will be no significant change in real output in response to a monetary policy change.

Question 15

According to the real business cycle theory, ________ decrease the marginal product of labor, which causes real wages and output to decrease.

Accepted Answer

According to the real business cycle theory, negative technology shocks, such as a decrease in productivity or innovation, reduce the marginal product of labor. This decrease in productivity leads to a decrease in real wages and output. Positive technology shocks can increase the marginal product of labor and lead to an increase in real wages and output. Changes in the money supply are not related to the real business cycle theory.

Question 16

According to new classical economists, if the Fed ________ the money supply after it announces it will do so, output remains constant and the price level ________.

Accepted Answer

The answer of According to new classical economists, if the...

Question 17

Related to the Economics in Practice on p. 325: Surveys by the bank of England suggest that consumers are

Accepted Answer

According to the Economics in Practice on p. 325, surveys by the Bank of England suggest that consumers are more influenced by their own experiences than by actual government numbers.

Question 18

According to the Lucas supply function, the amount of output produced is ________ to the price level if people's expectations of the price level are on target.

Accepted Answer

According to the Lucas supply function, if people's expectations of the price level are on target, the amount of output produced is not related to the price level. This is because in this scenario, the economy is operating at its potential output level, and any changes in the price level will not affect the level of output. However, if people's expectations of the price level are not on target, the amount of output produced will be affected by changes in the price level.

Question 19

According to the Lucas supply function, ________ affect(s) both actual and expected price levels in the same way.

Accepted Answer

The Lucas supply function suggests that only anticipated or announced policy changes affect both actual and expected price levels in the same way, as agents adjust their expectations accordingly.

Question 20

The Lucas supply function, ________ the assumption that expectations are rational, implies that ________ policy changes will have no effect on real output.

Accepted Answer

The Lucas supply function, when combined with the assumption of rational expectations, suggests that announced policy changes will have no effect on real output because individuals will have already adjusted their expectations and behaviors accordingly.

Quiz 17: Alternative Views in Macroeconomics

The Lucas supply function, in combination with the assumption that expectations are rational, implies that if a monetary policy change is announced to the public,

According to the new classical theory, economic policies are effective

Real business cycle theory is an attempt to explain business cycle fluctuations under the assumptions of

The Lucas supply function, in combination with the assumption that expectations are rational, implies that if a monetary policy change is announced to the public, the actual price level

According to the Lucas supply function, if people's expectations are ________, then the amount of output they produce is not related to the price level.

According to the Lucas supply function, ________ affect(s) actual and expected price levels in different ways.

According to the Lucas supply function, ________ will have an effect on real output.

Supporters of supply-side economics claim that ________ tax policies were quite successful in stimulating the economy because throughout most of the 1980s, federal receipts continued to rise even though tax rates had been cut.

According to the Lucas supply function, ________ no effect on real output.

The Lucas supply function states that real output will not change from its fixed level

The Lucas supply function states that real output can change from its fixed level

New Keynesian economics assumes rational expectations and

According to the Lucas supply function, the economy will produce output when prices are unexpectedly than when prices are at their expected level.

The Lucas supply function, in combination with the assumption that expectations are rational, implies that if a monetary policy change is announced to the public,

According to the real business cycle theory, ________ decrease the marginal product of labor, which causes real wages and output to decrease.

According to new classical economists, if the Fed the money supply after it announces it will do so, output remains constant and the price level .

Related to the Economics in Practice on p. 325: Surveys by the bank of England suggest that consumers are

According to the Lucas supply function, the amount of output produced is ________ to the price level if people's expectations of the price level are on target.

According to the Lucas supply function, ________ affect(s) both actual and expected price levels in the same way.

The Lucas supply function, the assumption that expectations are rational, implies that policy changes will have no effect on real output.