Question 1

Different business cycle models

Accepted Answer

A)  have similar implications for monetary and fiscal policy. 
B)  all justify active government stabilization policy. 
C)  have contradictory implications for monetary and fiscal policy. 
D)  all imply that active government intervention is detrimental. 
E)  support monetary policy but not fiscal policy. 
A)  have similar implications for monetary and fiscal policy. 
B)  all justify active government stabilization policy. 
C)  have contradictory implications for monetary and fiscal policy. 
D)  all imply that active government intervention is detrimental. 
E)  support monetary policy but not fiscal policy.

Question 2

In the New Keynesian model, an increase in current total factor productivity

Accepted Answer

A)  shifts output supply right and opens a negative output gap. 
B)  shifts output demand right and opens a positive output gap. 
C)  shifts output demand left and opens a negative output gap. 
D)  shifts output supply left and opens a negative output gap. 
E)  shifts output supply right and opens a positive output gap. 
A)  shifts output supply right and opens a negative output gap. 
B)  shifts output demand right and opens a positive output gap. 
C)  shifts output demand left and opens a negative output gap. 
D)  shifts output supply left and opens a negative output gap. 
E)  shifts output supply right and opens a positive output gap.

Question 3

The Yd(IS)curve in the New Keynesian model is identical to which of the following in the intertemporal monetary model?

Accepted Answer

A)  the output supply curve 
B)  the output demand curve 
C)  the labour demand curve 
D)  the labour supply curve 
E)  the total factor productivity curve 
A)  the output supply curve 
B)  the output demand curve 
C)  the labour demand curve 
D)  the labour supply curve 
E)  the total factor productivity curve

Question 4

The key difference between Keynesian and Classical economists is

Accepted Answer

A)  Keynesians favour a role for government in managing the economy. 
B)  Classical economists favour a role for government in managing the economy. 
C)  Keynesians believe wages and prices are perfectly flexible. 
D)  Classical economists propose a "menu cost" model. 
E)  Keynesians believe that monetary and fiscal policies are detrimental to the economy. 
A)  Keynesians favour a role for government in managing the economy. 
B)  Classical economists favour a role for government in managing the economy. 
C)  Keynesians believe wages and prices are perfectly flexible. 
D)  Classical economists propose a "menu cost" model. 
E)  Keynesians believe that monetary and fiscal policies are detrimental to the economy.

Question 5

The main difference between the New Keynesian model and the basic monetary intertemporal model is that in the New Keynesian model,

Accepted Answer

A)  the price level is sticky in the short run. 
B)  wages are sticky in the short run. 
C)  menu costs are insignificant. 
D)  firms are backward-looking. 
E)  prices adjust quickly to equate the supply and demand for goods. 
A)  the price level is sticky in the short run. 
B)  wages are sticky in the short run. 
C)  menu costs are insignificant. 
D)  firms are backward-looking. 
E)  prices adjust quickly to equate the supply and demand for goods.

Question 6

In the New Keynesian model, the output demand curve represents combinations of

Accepted Answer

A)  the price level and the level of output at which the goods market and the labour market are in equilibrium. 
B)  the price level and the level of output at which the goods market is in equilibrium. 
C)  the real interest rate and the level of output at which the goods market and the labour market are in equilibrium. 
D)  the real interest rate and the level of output at which the goods market is in equilibrium. 
E)  the real interest rate and the price level at which the goods market is in equilibrium. 
A)  the price level and the level of output at which the goods market and the labour market are in equilibrium. 
B)  the price level and the level of output at which the goods market is in equilibrium. 
C)  the real interest rate and the level of output at which the goods market and the labour market are in equilibrium. 
D)  the real interest rate and the level of output at which the goods market is in equilibrium. 
E)  the real interest rate and the price level at which the goods market is in equilibrium.

Question 7

In the New Keynesian model, an increase in the money supply

Accepted Answer

A)  increases output and increases the real interest rate. 
B)  increases output and decreases the real interest rate. 
C)  decreases output and increases the real interest rate. 
D)  decreases output and decreases the real interest rate. 
E)  decreases output and increases the real wage rate. 
A)  increases output and increases the real interest rate. 
B)  increases output and decreases the real interest rate. 
C)  decreases output and increases the real interest rate. 
D)  decreases output and decreases the real interest rate. 
E)  decreases output and increases the real wage rate.

Question 8

The New Keynesian model has the property that in the short run,

Accepted Answer

A)  government policy is neutral. 
B)  the Bank of Canada is neutral. 
C)  total factor productivity is neutral. 
D)  money is neutral. 
E)  money is not neutral. 
A)  government policy is neutral. 
B)  the Bank of Canada is neutral. 
C)  total factor productivity is neutral. 
D)  money is neutral. 
E)  money is not neutral.

Question 9

Changes in the money supply in the New Keynesian model is not a likely explanation of the typical business cycle, because the model counterfactually predicts that

Accepted Answer

A)  consumption is procyclical and the price level is procyclical. 
B)  the price level is procyclical and the real wage is countercyclical. 
C)  the real wage is countercyclical and the real money supply is procyclical. 
D)  the real money supply is procyclical and consumption is procyclical. 
E)  consumption is procyclical and the real wage is countercyclical. 
A)  consumption is procyclical and the price level is procyclical. 
B)  the price level is procyclical and the real wage is countercyclical. 
C)  the real wage is countercyclical and the real money supply is procyclical. 
D)  the real money supply is procyclical and consumption is procyclical. 
E)  consumption is procyclical and the real wage is countercyclical.

Question 10

In the New Keynesian sticky wage model, an increase in the money supply

Accepted Answer

A)  shifts the output supply curve to the right. 
B)  shifts the output supply curve to the left. 
C)  shifts the output demand curve to the right. 
D)  shifts the output demand curve to the left. 
E)  immediately closes the output gap. 
A)  shifts the output supply curve to the right. 
B)  shifts the output supply curve to the left. 
C)  shifts the output demand curve to the right. 
D)  shifts the output demand curve to the left. 
E)  immediately closes the output gap.

Question 11

A traditional liquidity trap is problematic for a New Keynesian policy maker because there is a

Accepted Answer

A)  strong incentive to create inflation in the long run. 
B)  positive output gap but the interest rate cannot go below zero. 
C)  strong incentive to create deflation in the long run. 
D)  negative output gap but the interest rate cannot go below zero. 
E)  negative output gap but the interest rate target remains too low. 
A)  strong incentive to create inflation in the long run. 
B)  positive output gap but the interest rate cannot go below zero. 
C)  strong incentive to create deflation in the long run. 
D)  negative output gap but the interest rate cannot go below zero. 
E)  negative output gap but the interest rate target remains too low.

Question 12

Changes in the money supply in the New Keynesian model are not a likely explanation of the typical business cycle, because the model counterfactually predicts that

Accepted Answer

A)  consumption is procyclical. 
B)  the real wage is countercyclical. 
C)  the real wage is procyclical. 
D)  employment is procyclical. 
E)  investment is procyclical. 
A)  consumption is procyclical. 
B)  the real wage is countercyclical. 
C)  the real wage is procyclical. 
D)  employment is procyclical. 
E)  investment is procyclical.

Question 13

Stabilization policy refers to using government policy

Accepted Answer

A)  to promote technology development. 
B)  to alter commodity prices. 
C)  to promote competition among firms and industries. 
D)  to set up a legal system. 
E)  to smooth out business cycles. 
A)  to promote technology development. 
B)  to alter commodity prices. 
C)  to promote competition among firms and industries. 
D)  to set up a legal system. 
E)  to smooth out business cycles.

Question 14

To support the argument for an active role for government in stabilizing the economy, it must be true that

Accepted Answer

A)  consumers are not rational and that not all wages and prices are flexible. 
B)  not all wages and prices are flexible and that government must be able to react quickly enough. 
C)  government must be able to react quickly enough and that shocks to the economy be primarily due to aggregate supply shocks. 
D)  shocks to the economy be primarily due to aggregate supply shocks and that consumers are not rational. 
E)  consumers are not rational and shocks to the economy are primarily due to aggregate demand. 
A)  consumers are not rational and that not all wages and prices are flexible. 
B)  not all wages and prices are flexible and that government must be able to react quickly enough. 
C)  government must be able to react quickly enough and that shocks to the economy be primarily due to aggregate supply shocks. 
D)  shocks to the economy be primarily due to aggregate supply shocks and that consumers are not rational. 
E)  consumers are not rational and shocks to the economy are primarily due to aggregate demand.

Question 15

In the New Keynesian model, an increase in current government spending shifts

Accepted Answer

A)  the output supply curve to the right. 
B)  the output supply curve to the left. 
C)  the output demand curve to the right. 
D)  the output demand curve to the left. 
E)  the production function up. 
A)  the output supply curve to the right. 
B)  the output supply curve to the left. 
C)  the output demand curve to the right. 
D)  the output demand curve to the left. 
E)  the production function up.

Question 16

The New Keynesian model and the monetary intertemporal model is essentially identical except that

Accepted Answer

A)  nominal and real interest rates are permitted to fluctuate. 
B)  Bank of Canada policy is restricted. 
C)  total factor productivity is neutral. 
D)  money is neutral. 
E)  the price level is not sufficiently flexible for the goods market to clear in the short run. 
A)  nominal and real interest rates are permitted to fluctuate. 
B)  Bank of Canada policy is restricted. 
C)  total factor productivity is neutral. 
D)  money is neutral. 
E)  the price level is not sufficiently flexible for the goods market to clear in the short run.

Question 17

The Yd(IS)curve is downward sloping to reflect the

Accepted Answer

A)  positive relationship between aggregate output and total factor productivity. 
B)  positive relationship between aggregate output and employment. 
C)  positive relationship between aggregate output and the real wage rate. 
D)  negative relationship between aggregate output and the real interest rate. 
E)  negative relationship between aggregate output and the real wage rate. 
A)  positive relationship between aggregate output and total factor productivity. 
B)  positive relationship between aggregate output and employment. 
C)  positive relationship between aggregate output and the real wage rate. 
D)  negative relationship between aggregate output and the real interest rate. 
E)  negative relationship between aggregate output and the real wage rate.

Question 18

The Yd(IS)curve in the New Keynesian model represents output demand at different levels of

Accepted Answer

A)  the price level. 
B)  the real interest rate. 
C)  the nominal wage rate. 
D)  total factor productivity. 
E)  real wage rate. 
A)  the price level. 
B)  the real interest rate. 
C)  the nominal wage rate. 
D)  total factor productivity. 
E)  real wage rate.

Question 19

The Keynesian transmission mechanism for monetary policy asserts that changes in the money supply

Accepted Answer

A)  affect real interest rates, which affect the level of aggregate demand. 
B)  affect real interest rates, which affect the level of aggregate supply. 
C)  affect the price level, which affects the level of aggregate demand. 
D)  affect the price level, which affects the level of aggregate supply. 
E)  affect the price level, which affects the IS curve. 
A)  affect real interest rates, which affect the level of aggregate demand. 
B)  affect real interest rates, which affect the level of aggregate supply. 
C)  affect the price level, which affects the level of aggregate demand. 
D)  affect the price level, which affects the level of aggregate supply. 
E)  affect the price level, which affects the IS curve.

Question 20

A classical objection to Keynesian sticky price models is that

Accepted Answer

A)  it is easier for firms to change prices rather than change output. 
B)  it is cheaper for firms to change output rather than change prices. 
C)  sticky price models are internally inconsistent. 
D)  real shocks are more important than nominal shocks. 
E)  nominal wages are always fixed. 
A)  it is easier for firms to change prices rather than change output. 
B)  it is cheaper for firms to change output rather than change prices. 
C)  sticky price models are internally inconsistent. 
D)  real shocks are more important than nominal shocks. 
E)  nominal wages are always fixed.

Different business cycle models

In the New Keynesian model, an increase in current total factor productivity

The Y^d(IS)curve in the New Keynesian model is identical to which of the following in the intertemporal monetary model?

The key difference between Keynesian and Classical economists is

The main difference between the New Keynesian model and the basic monetary intertemporal model is that in the New Keynesian model,

In the New Keynesian model, the output demand curve represents combinations of

In the New Keynesian model, an increase in the money supply

The New Keynesian model has the property that in the short run,

Changes in the money supply in the New Keynesian model is not a likely explanation of the typical business cycle, because the model counterfactually predicts that

In the New Keynesian sticky wage model, an increase in the money supply

A traditional liquidity trap is problematic for a New Keynesian policy maker because there is a

Changes in the money supply in the New Keynesian model are not a likely explanation of the typical business cycle, because the model counterfactually predicts that

Stabilization policy refers to using government policy

To support the argument for an active role for government in stabilizing the economy, it must be true that

In the New Keynesian model, an increase in current government spending shifts

The New Keynesian model and the monetary intertemporal model is essentially identical except that

The Y^d(IS)curve is downward sloping to reflect the

The Y^d(IS)curve in the New Keynesian model represents output demand at different levels of

The Keynesian transmission mechanism for monetary policy asserts that changes in the money supply

A classical objection to Keynesian sticky price models is that

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters

Exam 14: New Keynesian Economics: Sticky Prices

Different business cycle models

In the New Keynesian model, an increase in current total factor productivity

The Yd(IS)curve in the New Keynesian model is identical to which of the following in the intertemporal monetary model?

The key difference between Keynesian and Classical economists is

The main difference between the New Keynesian model and the basic monetary intertemporal model is that in the New Keynesian model,

In the New Keynesian model, the output demand curve represents combinations of

In the New Keynesian model, an increase in the money supply

The New Keynesian model has the property that in the short run,

Changes in the money supply in the New Keynesian model is not a likely explanation of the typical business cycle, because the model counterfactually predicts that

In the New Keynesian sticky wage model, an increase in the money supply

A traditional liquidity trap is problematic for a New Keynesian policy maker because there is a

Changes in the money supply in the New Keynesian model are not a likely explanation of the typical business cycle, because the model counterfactually predicts that

Stabilization policy refers to using government policy

To support the argument for an active role for government in stabilizing the economy, it must be true that

In the New Keynesian model, an increase in current government spending shifts

The New Keynesian model and the monetary intertemporal model is essentially identical except that

The Yd(IS)curve is downward sloping to reflect the

The Yd(IS)curve in the New Keynesian model represents output demand at different levels of

The Keynesian transmission mechanism for monetary policy asserts that changes in the money supply

A classical objection to Keynesian sticky price models is that

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters

The Y^d(IS)curve in the New Keynesian model is identical to which of the following in the intertemporal monetary model?

The Y^d(IS)curve is downward sloping to reflect the

The Y^d(IS)curve in the New Keynesian model represents output demand at different levels of