Question 1

Is the price adjustment described in this chapter the same as the price adjustment in the microeconomic supply and demand models? Explain.

Accepted Answer

The price adjustment mechanism described

Question 2

Economists refer to the purchase of a new home as

Accepted Answer

A) fixed structure investment. 
B) residential consumption. 
C) building investment. 
D) inventory investment. 
E) residential investment. 
A) fixed structure investment. 
B) residential consumption. 
C) building investment. 
D) inventory investment. 
E) residential investment.

Question 3

Which of the following is the best measure of the effects of interest rates on aggregate expenditure?

Accepted Answer

A) The real interest rate 
B) The nominal interest rate 
C) The discount rate 
D) The Treasury bill rate 
E) The federal funds rate 
A) The real interest rate 
B) The nominal interest rate 
C) The discount rate 
D) The Treasury bill rate 
E) The federal funds rate

Question 4

Exhibit 24-6  
-According to Exhibit 24-6, what should have happened to the rate of inflation between 2009 and 2012?

Accepted Answer

A) It should have increased. 
B) It should have decreased. 
C) Not enough information is given to answer this question. 
D) It should have been negative. 
E) It should have remained constant. 
A) It should have increased. 
B) It should have decreased. 
C) Not enough information is given to answer this question. 
D) It should have been negative. 
E) It should have remained constant.

Question 5

If the rate of inflation increased by 2 percent, we would expect the Fed to increase interest rates by more than 2 percent.

Accepted Answer

A) True 
 B)False

Question 6

The aggregate demand curve depends on the relationship between inflation and interest rates as well as the relationship between interest rates and real GDP.

Accepted Answer

A) True 
 B)False

Question 7

Exhibit 24-2  
-Which of the following is a valid explanation of the expenditure line shift from E1 to E2 in Exhibit 24-2?

Accepted Answer

A) A decline in government purchases 
B) An increase in taxes 
C) An increase in the interest rate 
D) A decline in the value of the dollar 
E) A fall in world interest rates 
A) A decline in government purchases 
B) An increase in taxes 
C) An increase in the interest rate 
D) A decline in the value of the dollar 
E) A fall in world interest rates

Question 8

The intersection of the inflation adjustment line and the aggregate demand curve determines the level of

Accepted Answer

A) real GDP and inflation in the long run. 
B) real GDP and inflation in the short run. 
C) potential GDP and inflation at any given time. 
D) potential GDP and the price level at any given time. 
E) real GDP and inflation at any given time. 
A) real GDP and inflation in the long run. 
B) real GDP and inflation in the short run. 
C) potential GDP and inflation at any given time. 
D) potential GDP and the price level at any given time. 
E) real GDP and inflation at any given time.

Question 9

Which of the following would cause the AD curve to shift to the right?

Accepted Answer

A) An increase in the real rate of interest 
B) A decrease in government purchases 
C) An increase in government purchases 
D) An increase in the rate of inflation 
E) A decrease in the rate of inflation 
A) An increase in the real rate of interest 
B) A decrease in government purchases 
C) An increase in government purchases 
D) An increase in the rate of inflation 
E) A decrease in the rate of inflation

Question 10

When interest rates increase, the opportunity cost of borrowing will decrease.

Accepted Answer

A) True 
 B)False

Question 11

Current price and wage behavior is dependent on past wage and price behavior.

Accepted Answer

A) True 
 B)False

Question 12

The IA line will move down if

Accepted Answer

A) potential GDP decreases. 
B) real GDP falls below potential GDP. 
C) real GDP increases relative to potential GDP. 
D) real GDP equals potential GDP. 
E) the rate of inflation increases. 
A) potential GDP decreases. 
B) real GDP falls below potential GDP. 
C) real GDP increases relative to potential GDP. 
D) real GDP equals potential GDP. 
E) the rate of inflation increases.

Question 13

Explain the relationship between the intersection of the AD curve and the IA line and the level of potential GDP.

Accepted Answer

The intersection of the AD curve and the

Question 14

The target inflation rate for many central banks is about

Accepted Answer

A) 10 percent. 
B) 2 percent. 
C) 8 percent. 
D) 0 percent. 
E) 5 percent. 
A) 10 percent. 
B) 2 percent. 
C) 8 percent. 
D) 0 percent. 
E) 5 percent.

Question 15

Exhibit 24-1
  
-According to the data in Exhibit 24-1, the percentage deviation of real GDP from potential GDP in 2009 was

Accepted Answer

A) -58.2 percent. 
B) -5.8 percent. 
C) 5.8 percent. 
D) 8.5 percent. 
E) -.7 percent. 
A) -58.2 percent. 
B) -5.8 percent. 
C) 5.8 percent. 
D) 8.5 percent. 
E) -.7 percent.

Question 16

During an economic recovery, there is

Accepted Answer

A) a rightward shift of the AD curve. 
B) movement along the IA line and the AD curve. 
C) movement along the AD curve. 
D) movement along the IA line. 
E) a leftward shift of the AD curve. 
A) a rightward shift of the AD curve. 
B) movement along the IA line and the AD curve. 
C) movement along the AD curve. 
D) movement along the IA line. 
E) a leftward shift of the AD curve.

Question 17

Which of the following would be most likely to result in an upward shift of the inflation adjustment line?

Accepted Answer

A) A fall in the target interest rate 
B) An increase in taxes 
C) A fall in consumer confidence 
D) An increase in imports 
E) An increase in commodity prices 
A) A fall in the target interest rate 
B) An increase in taxes 
C) A fall in consumer confidence 
D) An increase in imports 
E) An increase in commodity prices

Question 18

If real interest rates increase, the expenditure line

Accepted Answer

A) does not change. 
B) becomes steeper. 
C) becomes flatter. 
D) shifts down in a parallel way. 
E) shifts up in a parallel way. 
A) does not change. 
B) becomes steeper. 
C) becomes flatter. 
D) shifts down in a parallel way. 
E) shifts up in a parallel way.

Question 19

If inflation increases, the central bank acts to raise interest rates in order to

Accepted Answer

A) increase the money supply. 
B) reduce real GDP. 
C) increase real GDP. 
D) increase potential GDP. 
E) reduce potential GDP. 
A) increase the money supply. 
B) reduce real GDP. 
C) increase real GDP. 
D) increase potential GDP. 
E) reduce potential GDP.

Question 20

A change in the personal style and preferences of the Federal Reserve's chairman can cause a change in the target inflation rate.

Accepted Answer

A) True 
 B)False

Exam 24: The Economic Fluctuations Model

Is the price adjustment described in this chapter the same as the price adjustment in the microeconomic supply and demand models? Explain.

Economists refer to the purchase of a new home as

Which of the following is the best measure of the effects of interest rates on aggregate expenditure?

Exhibit 24-6 -According to Exhibit 24-6, what should have happened to the rate of inflation between 2009 and 2012?

If the rate of inflation increased by 2 percent, we would expect the Fed to increase interest rates by more than 2 percent.

The aggregate demand curve depends on the relationship between inflation and interest rates as well as the relationship between interest rates and real GDP.

Exhibit 24-2 -Which of the following is a valid explanation of the expenditure line shift from E1 to E2 in Exhibit 24-2?

The intersection of the inflation adjustment line and the aggregate demand curve determines the level of

Which of the following would cause the AD curve to shift to the right?

When interest rates increase, the opportunity cost of borrowing will decrease.

Current price and wage behavior is dependent on past wage and price behavior.

The IA line will move down if

Explain the relationship between the intersection of the AD curve and the IA line and the level of potential GDP.

The target inflation rate for many central banks is about

Exhibit 24-1 -According to the data in Exhibit 24-1, the percentage deviation of real GDP from potential GDP in 2009 was

During an economic recovery, there is

Which of the following would be most likely to result in an upward shift of the inflation adjustment line?

If real interest rates increase, the expenditure line

If inflation increases, the central bank acts to raise interest rates in order to

A change in the personal style and preferences of the Federal Reserve's chairman can cause a change in the target inflation rate.

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

Filters

Exhibit 24-2 -Which of the following is a valid explanation of the expenditure line shift from E₁ to E₂ in Exhibit 24-2?