Question 1

The aggregate demand curve shows the level of spending for each price level in the economy.

Accepted Answer

A) True 
 B)False

Question 2

When real GDP is above potential GDP, the inflation adjustment line IA shifts up.

Accepted Answer

A) True 
 B)False

Question 3

The inflation adjustment line is flat because

Accepted Answer

A) firms cannot change prices in the short run. 
B) prices are not responsive to changes in real GDP. 
C) the Fed cannot change monetary policy in the short run. 
D) prices are not responsive to changes in aggregate demand. 
E) firms adjust output first and price later. 
A) firms cannot change prices in the short run. 
B) prices are not responsive to changes in real GDP. 
C) the Fed cannot change monetary policy in the short run. 
D) prices are not responsive to changes in aggregate demand. 
E) firms adjust output first and price later.

Question 4

What does it mean to claim that the Fed has a policy rule pertaining to inflation?

Accepted Answer

This means that the Fed has a systematic

Question 5

When inflation rises, the Fed typically raises interest rates to reduce spending.

Accepted Answer

A) True 
 B)False

Question 6

The following table gives a numerical example of an aggregate demand/inflation curve.

Accepted Answer

The answer of The following table gives a numerical example...

Question 7

Explain how real interest rates affect investment expenditures.

Accepted Answer

Changes in the real interest rate affect

Question 8

An increase in imports will

Accepted Answer

A) cause a downward movement along the AD curve. 
B) cause an upward movement along the AD curve. 
C) shift the AD curve to the right. 
D) shift the AD curve to the left. 
E) have no effect on the AD curve. 
A) cause a downward movement along the AD curve. 
B) cause an upward movement along the AD curve. 
C) shift the AD curve to the right. 
D) shift the AD curve to the left. 
E) have no effect on the AD curve.

Question 9

Staggered price and wage setting means that

Accepted Answer

A) inflation tends to increase over time. 
B) inflation tends to decrease over time. 
C) prices are adjusted at a different time of the year than wages. 
D) at any given time the majority of prices and wages are fixed. 
E) past changes in wages and prices have no impact on current changes in wages and prices. 
A) inflation tends to increase over time. 
B) inflation tends to decrease over time. 
C) prices are adjusted at a different time of the year than wages. 
D) at any given time the majority of prices and wages are fixed. 
E) past changes in wages and prices have no impact on current changes in wages and prices.

Question 10

Real interest rates and investment are

Accepted Answer

A) negatively correlated because higher real interest rates make it easier for the firm to borrow funds. 
B) negatively correlated because higher real interest rates will increase the firm's profits. 
C) positively correlated because higher real interest rates make it easier for the firm to borrow funds. 
D) negatively correlated because higher real interest rates make borrowing by firms more costly. 
E) positively correlated because higher real interest rates make borrowing by firms less costly. 
A) negatively correlated because higher real interest rates make it easier for the firm to borrow funds. 
B) negatively correlated because higher real interest rates will increase the firm's profits. 
C) positively correlated because higher real interest rates make it easier for the firm to borrow funds. 
D) negatively correlated because higher real interest rates make borrowing by firms more costly. 
E) positively correlated because higher real interest rates make borrowing by firms less costly.

Question 11

The best way to approach the debate in Congress over the 2009 stimulus bill is

Accepted Answer

A) to side with the Democrats' position. 
B) to side with the Republicans' position. 
C) to evaluate the underlying economic arguments used by each party and come to your own informed conclusion as to whose arguments are more valid. 
D) to consider the position of both parties as equally valid, because that is how democracies work. 
E) to support the bill because it was prepared by the President's able advisers. 
A) to side with the Democrats' position. 
B) to side with the Republicans' position. 
C) to evaluate the underlying economic arguments used by each party and come to your own informed conclusion as to whose arguments are more valid. 
D) to consider the position of both parties as equally valid, because that is how democracies work. 
E) to support the bill because it was prepared by the President's able advisers.

Question 12

When real GDP is above potential GDP, inflation will increase.

Accepted Answer

A) True 
 B)False

Question 13

When inflation increases,

Accepted Answer

A) the Fed lowers interest rates and the aggregate demand curve shifts to the left. 
B) there is an upward movement along the aggregate demand curve. 
C) the Fed raises interest rates and the aggregate demand curve shifts to the right. 
D) there is a downward movement along the aggregate demand curve. 
E) the Fed raises interest rates and the aggregate demand curve shifts to the left. 
A) the Fed lowers interest rates and the aggregate demand curve shifts to the left. 
B) there is an upward movement along the aggregate demand curve. 
C) the Fed raises interest rates and the aggregate demand curve shifts to the right. 
D) there is a downward movement along the aggregate demand curve. 
E) the Fed raises interest rates and the aggregate demand curve shifts to the left.

Question 14

A higher value of the domestic currency

Accepted Answer

A) means cheaper exports and more expensive imports. 
B) means more expensive exports and cheaper imports. 
C) means cheaper exports and cheaper imports. 
D) means more expensive exports and more expensive imports. 
E) has no effect on exports and imports. 
A) means cheaper exports and more expensive imports. 
B) means more expensive exports and cheaper imports. 
C) means cheaper exports and cheaper imports. 
D) means more expensive exports and more expensive imports. 
E) has no effect on exports and imports.

Question 15

In the United States, inflation is the responsibility of

Accepted Answer

A) the market. 
B) the president. 
C) the Federal Reserve. 
D) Congress. 
E) the U.S.Treasury. 
A) the market. 
B) the president. 
C) the Federal Reserve. 
D) Congress. 
E) the U.S.Treasury.

Question 16

Suppose the Fed is considering three different policy rules, as shown in the following table.

Accepted Answer

The answer of Suppose the Fed is considering three different...

Question 17

Explain clearly why the AD curve slopes downward.

Accepted Answer

According to the monetary policy rule, a

Question 18

According to the spending allocation model, what would cause the real interest rate to increase? According to the monetary policy rule, what causes the real interest rate to increase? Are the two models compatible?

Accepted Answer

According to the spending allocation mod

Question 19

The Fed considers what is happening to the inflation rate only when deciding whether to change the target federal funds rate.

Accepted Answer

A) True 
 B)False

Question 20

The economic fluctuations model is used to determine

Accepted Answer

A) real GDP and inflation. 
B) potential GDP and inflation. 
C) inflation and unemployment. 
D) potential GDP and real GDP. 
E) real GDP and unemployment. 
A) real GDP and inflation. 
B) potential GDP and inflation. 
C) inflation and unemployment. 
D) potential GDP and real GDP. 
E) real GDP and unemployment.

Exam 24: The Economic Fluctuations Model

The aggregate demand curve shows the level of spending for each price level in the economy.

When real GDP is above potential GDP, the inflation adjustment line IA shifts up.

The inflation adjustment line is flat because

What does it mean to claim that the Fed has a policy rule pertaining to inflation?

When inflation rises, the Fed typically raises interest rates to reduce spending.

The following table gives a numerical example of an aggregate demand/inflation curve.

Explain how real interest rates affect investment expenditures.

An increase in imports will

Staggered price and wage setting means that

Real interest rates and investment are

The best way to approach the debate in Congress over the 2009 stimulus bill is

When real GDP is above potential GDP, inflation will increase.

When inflation increases,

A higher value of the domestic currency

In the United States, inflation is the responsibility of

Suppose the Fed is considering three different policy rules, as shown in the following table.

Explain clearly why the AD curve slopes downward.

According to the spending allocation model, what would cause the real interest rate to increase? According to the monetary policy rule, what causes the real interest rate to increase? Are the two models compatible?

The Fed considers what is happening to the inflation rate only when deciding whether to change the target federal funds rate.

The economic fluctuations model is used to determine

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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