Question 1

The IA line shows

Accepted Answer

A) the rate of change in the rate of inflation. 
B) the change in the rate of inflation needed to reach the target inflation rate. 
C) the point where real and potential GDP are equal. 
D) the price level in the economy at any point in time. 
E) the level of inflation in the economy at any point in time. 
A) the rate of change in the rate of inflation. 
B) the change in the rate of inflation needed to reach the target inflation rate. 
C) the point where real and potential GDP are equal. 
D) the price level in the economy at any point in time. 
E) the level of inflation in the economy at any point in time.

Question 2

Staggered wage and price setting speeds up the adjustment of wages and prices.

Accepted Answer

A) True 
 B)False

Question 3

If real GDP is greater than potential GDP,

Accepted Answer

A) the rate of inflation will not change. 
B) the price level will not change. 
C) the rate of inflation will decrease. 
D) the price level will fall. 
E) the rate of inflation will increase. 
A) the rate of inflation will not change. 
B) the price level will not change. 
C) the rate of inflation will decrease. 
D) the price level will fall. 
E) the rate of inflation will increase.

Question 4

The economic fluctuations model is older than the supply and demand model.

Accepted Answer

A) True 
 B)False

Question 5

The inflation rate the central bank tries to maintain, on average, over the long run is referred to as the

Accepted Answer

A) nominal inflation rate. 
B) target inflation rate. 
C) quantity inflation rate. 
D) real inflation rate. 
E) natural inflation rate. 
A) nominal inflation rate. 
B) target inflation rate. 
C) quantity inflation rate. 
D) real inflation rate. 
E) natural inflation rate.

Question 6

The aggregate demand curve shows the relation between two economic variables: real GDP and unemployment.

Accepted Answer

A) True 
 B)False

Question 7

When the Fed takes action to change nominal interest rates, it does so by

Accepted Answer

A) buying and selling bonds. 
B) mandating that banks change the prime rate. 
C) recommending that the president change the interest rate. 
D) recommending that Congress change the interest rate. 
E) increasing the required reserve ratio. 
A) buying and selling bonds. 
B) mandating that banks change the prime rate. 
C) recommending that the president change the interest rate. 
D) recommending that Congress change the interest rate. 
E) increasing the required reserve ratio.

Question 8

The flat inflation adjustment line describes the tendency for the inflation rate to remain at its current level, barring some persistent or major change in the economy.

Accepted Answer

A) True 
 B)False

Question 9

If the target inflation rate is 3 percent and the actual rate of inflation increases above the target rate,

Accepted Answer

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

Question 10

The relationship between real interest rates and net exports is

Accepted Answer

A) positive. 
B) not predictable. 
C) negative if imports are larger than exports. 
D) negative. 
E) positive if exports are larger than imports. 
A) positive. 
B) not predictable. 
C) negative if imports are larger than exports. 
D) negative. 
E) positive if exports are larger than imports.

Question 11

When inflation rises, the Federal Reserve will

Accepted Answer

A) act to decrease interest rates. 
B) recommend that the Treasury raise interest rates. 
C) recommend that Congress raise interest rates. 
D) do nothing. 
E) act to increase interest rates. 
A) act to decrease interest rates. 
B) recommend that the Treasury raise interest rates. 
C) recommend that Congress raise interest rates. 
D) do nothing. 
E) act to increase interest rates.

Question 12

Exhibit 24-3  
-If the central bank changes its monetary policy rule from A to B as shown in Exhibit 24-3,

Accepted Answer

A) the monetary policy rule line will shift to the right. 
B) there will be no change in the real rate of interest. 
C) the real rate of interest will decline. 
D) there has been an increase in the target inflation rate. 
E) the monetary policy rule line will shift to the left. 
A) the monetary policy rule line will shift to the right. 
B) there will be no change in the real rate of interest. 
C) the real rate of interest will decline. 
D) there has been an increase in the target inflation rate. 
E) the monetary policy rule line will shift to the left.

Question 13

Exhibit 24-6  
-According to Exhibit 24-6, what should have happened to the rate of inflation between 2005 and 2007?

Accepted Answer

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

Question 14

Ceteris paribus, a rise in U.S. interest rates will cause exports to increase.

Accepted Answer

A) True 
 B)False

Question 15

If, at the prevailing rate of inflation, real GDP is less than potential GDP, the economy has not fully recovered from a recession.

Accepted Answer

A) True 
 B)False

Question 16

The slope of the monetary policy rule line when the nominal interest rate is measured on the vertical axis is

Accepted Answer

A) less than 1. 
B) zero. 
C) greater than 1. 
D) equal to 1. 
E) equal to -1. 
A) less than 1. 
B) zero. 
C) greater than 1. 
D) equal to 1. 
E) equal to -1.

Question 17

Explain what happens to the inflation adjustment line in the long run in each of the following cases.

Accepted Answer

The answer of Explain what happens to the inflation adjustment...

Question 18

Explain how expectations and the level of demand affect a firm's wage and price decision.

Accepted Answer

Firms use the expected inflation rate in

Question 19

A rise in inflation will

Accepted Answer

A) reduce interest rates and increase real GDP. 
B) decrease interest rates and real GDP. 
C) increase interest rates and increase spending. 
D) increase interest rates and reduce real GDP. 
E) increase interest rates and real GDP. 
A) reduce interest rates and increase real GDP. 
B) decrease interest rates and real GDP. 
C) increase interest rates and increase spending. 
D) increase interest rates and reduce real GDP. 
E) increase interest rates and real GDP.

Question 20

The inflation adjustment line will shift down if there is

Accepted Answer

A) an increase in energy prices. 
B) a decrease in potential GDP. 
C) an increase in the strength of expectations concerning a recession next year. 
D) an increase in real GDP. 
E) news of the auto industry meeting the wage demands of workers. 
A) an increase in energy prices. 
B) a decrease in potential GDP. 
C) an increase in the strength of expectations concerning a recession next year. 
D) an increase in real GDP. 
E) news of the auto industry meeting the wage demands of workers.

Exam 24: The Economic Fluctuations Model

The IA line shows

Staggered wage and price setting speeds up the adjustment of wages and prices.

If real GDP is greater than potential GDP,

The economic fluctuations model is older than the supply and demand model.

The inflation rate the central bank tries to maintain, on average, over the long run is referred to as the

The aggregate demand curve shows the relation between two economic variables: real GDP and unemployment.

When the Fed takes action to change nominal interest rates, it does so by

The flat inflation adjustment line describes the tendency for the inflation rate to remain at its current level, barring some persistent or major change in the economy.

If the target inflation rate is 3 percent and the actual rate of inflation increases above the target rate,

The relationship between real interest rates and net exports is

When inflation rises, the Federal Reserve will

Exhibit 24-3 -If the central bank changes its monetary policy rule from A to B as shown in Exhibit 24-3,

Exhibit 24-6 -According to Exhibit 24-6, what should have happened to the rate of inflation between 2005 and 2007?

Ceteris paribus, a rise in U.S. interest rates will cause exports to increase.

If, at the prevailing rate of inflation, real GDP is less than potential GDP, the economy has not fully recovered from a recession.

The slope of the monetary policy rule line when the nominal interest rate is measured on the vertical axis is

Explain what happens to the inflation adjustment line in the long run in each of the following cases.

Explain how expectations and the level of demand affect a firm's wage and price decision.

A rise in inflation will

The inflation adjustment line will shift down if there is

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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