33) The Lucas supply function, ________ the assumption that expectations are rational, implies that anticipated monetary policy changes and anticipated fiscal policy changes will have ________ on real output.

A) in combination with; a positive effect

B) in combination with; no effect

C) in contrast to; a negative effect

D) in contrast to; a positive effect

34) The Lucas supply function, ________ the assumption that expectations are rational, implies that anticipated policy changes will have ________ on real output.

A) in combination with; a positive effect

B) in combination with; no effect

C) in contrast to; a negative effect

D) in contrast to; a positive effect

35) According to the Lucas supply function, ________ the assumption that expectations are rational, change in government policy can affect real output only if the policy change is ________.

A) in combination with; expected

B) in combination with; a surprise

C) in contrast to; expected

D) in contrast to; a surprise

36) The Lucas supply function,________ the assumption that expectations are rational, implies that an ________ change in monetary policy affects the actual price level and the expected price level.

A) in combination with; announced

B) in combination with; unannounced

C) in contrast to; announced

D) in contrast to; unannounced

37) The Lucas supply function, ________ the assumption that expectations are rational, implies that an announced monetary policy change will lead to ________ price surprise.

A) in combination with; no

B) in combination with; a positive

C) in contrast to; a positive

D) in contrast to; a negative

38) The Lucas supply function, ________ the assumption that expectations are rational, implies that an announced monetary policy change will ________ output.

A) in combination with; change

B) in combination with; not change

C) in contrast to; change

D) in contrast to; not change

Refer to the information provided in Figure 18.2 below to answer the questions that follow.

Figure 18.2

39) Refer to Figure 18.2. Suppose the economy is at Point A. According to the rational expectation theory, an unanticipated decrease in money supply

A) leaves the economy at Point A.

B) moves the economy to Point B.

C) moves the economy to Point C.

D) moves the economy to Point D.

40) Refer to Figure 18.2. Suppose the economy is at Point C. According to the new classical theory, an anticipated decrease in aggregate demand

A) moves the economy to Point A.

B) moves the economy to Point B.

C) leaves the economy at Point C.

D) moves the economy to Point D.

41) The Lucas supply model, ________ the assumption that expectations are rational, leads to the conclusion that ________ policy changes can have an impact on output.

A) in combination with; only unanticipated

B) in combination with; only anticipated

C) in contrast to; both unanticipated and anticipated

D) in contrast to; neither unanticipated nor anticipated

42) Which of the following is an argument in favor of rational expectations?

A) If expectations were not rational, there would be unexploited profit opportunities available.

B) Individuals have a very good idea of what to expect from the government in terms of monetary policy but not fiscal policy.

C) It is costless for individuals and firms to form rational expectations.

D) People will continue to acquire information as long as the marginal benefit of that information is positive.

33) The Lucas supply function, ________ the assumption that expectations are rational, implies that anticipated monetary policy changes and anticipated fiscal policy changes will have ________ on real output.

A) in combination with; a positive effect

B) in combination with; no effect

C) in contrast to; a negative effect

D) in contrast to; a positive effect

34) The Lucas supply function, ________ the assumption that expectations are rational, implies that anticipated policy changes will have ________ on real output.

A) in combination with; a positive effect

B) in combination with; no effect

C) in contrast to; a negative effect

D) in contrast to; a positive effect

35) According to the Lucas supply function, ________ the assumption that expectations are rational, change in government policy can affect real output only if the policy change is ________.

A) in combination with; expected

B) in combination with; a surprise

C) in contrast to; expected

D) in contrast to; a surprise

36) The Lucas supply function,________ the assumption that expectations are rational, implies that an ________ change in monetary policy affects the actual price level and the expected price level.

A) in combination with; announced

B) in combination with; unannounced

C) in contrast to; announced

D) in contrast to; unannounced

37) The Lucas supply function, ________ the assumption that expectations are rational, implies that an announced monetary policy change will lead to ________ price surprise.

A) in combination with; no

B) in combination with; a positive

C) in contrast to; a positive

D) in contrast to; a negative

38) The Lucas supply function, ________ the assumption that expectations are rational, implies that an announced monetary policy change will ________ output.

A) in combination with; change

B) in combination with; not change

C) in contrast to; change

D) in contrast to; not change

Refer to the information provided in Figure 18.2 below to answer the questions that follow.

Figure 18.2

39) Refer to Figure 18.2. Suppose the economy is at Point A. According to the rational expectation theory, an unanticipated decrease in money supply

A) leaves the economy at Point A.

B) moves the economy to Point B.

C) moves the economy to Point C.

D) moves the economy to Point D.

40) Refer to Figure 18.2. Suppose the economy is at Point C. According to the new classical theory, an anticipated decrease in aggregate demand

A) moves the economy to Point A.

B) moves the economy to Point B.

C) leaves the economy at Point C.

D) moves the economy to Point D.

41) The Lucas supply model, ________ the assumption that expectations are rational, leads to the conclusion that ________ policy changes can have an impact on output.

A) in combination with; only unanticipated

B) in combination with; only anticipated

C) in contrast to; both unanticipated and anticipated

D) in contrast to; neither unanticipated nor anticipated

42) Which of the following is an argument in favor of rational expectations?

A) If expectations were not rational, there would be unexploited profit opportunities available.

B) Individuals have a very good idea of what to expect from the government in terms of monetary policy but not fiscal policy.

C) It is costless for individuals and firms to form rational expectations.

D) People will continue to acquire information as long as the marginal benefit of that information is positive.

33) The Lucas supply function, ________ the assumption that expectations are rational, implies that anticipated monetary policy changes and anticipated fiscal policy changes will have ________ on real output.

A) in combination with; a positive effect

B) in combination with; no effect

C) in contrast to; a negative effect

D) in contrast to; a positive effect

34) The Lucas supply function, ________ the assumption that expectations are rational, implies that anticipated policy changes will have ________ on real output.

A) in combination with; a positive effect

B) in combination with; no effect

C) in contrast to; a negative effect

D) in contrast to; a positive effect

35) According to the Lucas supply function, ________ the assumption that expectations are rational, change in government policy can affect real output only if the policy change is ________.

A) in combination with; expected

B) in combination with; a surprise

C) in contrast to; expected

D) in contrast to; a surprise

36) The Lucas supply function,________ the assumption that expectations are rational, implies that an ________ change in monetary policy affects the actual price level and the expected price level.

A) in combination with; announced

B) in combination with; unannounced

C) in contrast to; announced

D) in contrast to; unannounced

37) The Lucas supply function, ________ the assumption that expectations are rational, implies that an announced monetary policy change will lead to ________ price surprise.

A) in combination with; no

B) in combination with; a positive

C) in contrast to; a positive

D) in contrast to; a negative

38) The Lucas supply function, ________ the assumption that expectations are rational, implies that an announced monetary policy change will ________ output.

A) in combination with; change

B) in combination with; not change

C) in contrast to; change

D) in contrast to; not change

Refer to the information provided in Figure 18.2 below to answer the questions that follow.

Figure 18.2

39) Refer to Figure 18.2. Suppose the economy is at Point A. According to the rational expectation theory, an unanticipated decrease in money supply

A) leaves the economy at Point A.

B) moves the economy to Point B.

C) moves the economy to Point C.

D) moves the economy to Point D.

40) Refer to Figure 18.2. Suppose the economy is at Point C. According to the new classical theory, an anticipated decrease in aggregate demand

A) moves the economy to Point A.

B) moves the economy to Point B.

C) leaves the economy at Point C.

D) moves the economy to Point D.

41) The Lucas supply model, ________ the assumption that expectations are rational, leads to the conclusion that ________ policy changes can have an impact on output.

A) in combination with; only unanticipated

B) in combination with; only anticipated

C) in contrast to; both unanticipated and anticipated

D) in contrast to; neither unanticipated nor anticipated

42) Which of the following is an argument in favor of rational expectations?

A) If expectations were not rational, there would be unexploited profit opportunities available.

B) Individuals have a very good idea of what to expect from the government in terms of monetary policy but not fiscal policy.

C) It is costless for individuals and firms to form rational expectations.

D) People will continue to acquire information as long as the marginal benefit of that information is positive.

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