Question 1

Consider the following monetary policy rules for two countries, A and B:
A: interest rate = 1.8 (inflation -3) + 3
B: interest rate = 2 (inflation -3) + 4

Accepted Answer

The answer of Consider the following monetary policy rules for...

Question 2

If, for any given rate of inflation, the real rate of interest declines, the AD curve will shift to the left.

Accepted Answer

A) True 
 B)False

Question 3

Why do wages and prices exhibit inertia?

Accepted Answer

Staggered wage and price agreements resu

Question 4

The flat inflation adjustment line reflects the idea that

Accepted Answer

A) inflation occurs only when real GDP exceeds potential GDP. 
B) prices usually remain constant. 
C) current prices and wages do not depend on what has happened in the past. 
D) prices and wages are as likely to decline as they are to increase. 
E) inflation is partly due to inertia. 
A) inflation occurs only when real GDP exceeds potential GDP. 
B) prices usually remain constant. 
C) current prices and wages do not depend on what has happened in the past. 
D) prices and wages are as likely to decline as they are to increase. 
E) inflation is partly due to inertia.

Question 5

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

Accepted Answer

A) A decrease in the real rate of interest 
B) A decrease in the rate of inflation 
C) An increase in government purchases 
D) A decision by the Fed to decrease the nominal interest rate 
E) None of these 
A) A decrease in the real rate of interest 
B) A decrease in the rate of inflation 
C) An increase in government purchases 
D) A decision by the Fed to decrease the nominal interest rate 
E) None of these

Question 6

Which of the following statements concerning a change in government purchases is true?

Accepted Answer

A) The slope of the expenditure line and the magnitude of the AD curve's shift are negatively correlated. 
B) The slope of the expenditure line does not affect the magnitude of the AD curve's shift. 
C) The slope of the expenditure line and the magnitude of the AD curve's shift are positively correlated. 
D) The correlation between the slope of the expenditure line and the magnitude of the AD curve's shift depends negatively on the rate of inflation. 
E) The correlation between the slope of the expenditure line and the magnitude of the AD curve's shift depends positively on the rate of inflation. 
A) The slope of the expenditure line and the magnitude of the AD curve's shift are negatively correlated. 
B) The slope of the expenditure line does not affect the magnitude of the AD curve's shift. 
C) The slope of the expenditure line and the magnitude of the AD curve's shift are positively correlated. 
D) The correlation between the slope of the expenditure line and the magnitude of the AD curve's shift depends negatively on the rate of inflation. 
E) The correlation between the slope of the expenditure line and the magnitude of the AD curve's shift depends positively on the rate of inflation.

Question 7

If the central bank determines that aggregate demand is not very sensitive to changes in the interest rate,

Accepted Answer

A) the monetary policy rule line will shift up. 
B) the monetary policy rule line will become steeper. 
C) the monetary policy rule line will shift down. 
D) there will be movement along the monetary policy rule line. 
E) the monetary policy rule line will become flatter. 
A) the monetary policy rule line will shift up. 
B) the monetary policy rule line will become steeper. 
C) the monetary policy rule line will shift down. 
D) there will be movement along the monetary policy rule line. 
E) the monetary policy rule line will become flatter.

Question 8

If the Fed aims to influence economic activity, should it target the real interest rate or the nominal interest rate? If inflation changes by 2 percent, how large should the change in the nominal interest rate be?

Accepted Answer

The Fed should target the real interest

Question 9

The AD curve slopes upward because interest rates and inflation are positively correlated.

Accepted Answer

A) True 
 B)False

Question 10

If the economy is in a recession, it is likely that

Accepted Answer

A) the aggregate demand curve intersects the inflation adjustment line at a level of real GDP that is higher than potential GDP. 
B) aggregate expenditures are unequal to real GDP. 
C) the aggregate demand curve and the inflation adjustment line do not intersect. 
D) the economy is not in equilibrium and is therefore not on the aggregate demand curve. 
E) the aggregate demand curve intersects the inflation adjustment line at a level of real GDP that is less than potential GDP. 
A) the aggregate demand curve intersects the inflation adjustment line at a level of real GDP that is higher than potential GDP. 
B) aggregate expenditures are unequal to real GDP. 
C) the aggregate demand curve and the inflation adjustment line do not intersect. 
D) the economy is not in equilibrium and is therefore not on the aggregate demand curve. 
E) the aggregate demand curve intersects the inflation adjustment line at a level of real GDP that is less than potential GDP.

Question 11

If real interest rates in the rest of the world increase relative to the United States, the expenditure line will

Accepted Answer

A) become flatter. 
B) shift up. 
C) shift down. 
D) become steeper. 
E) not be affected. 
A) become flatter. 
B) shift up. 
C) shift down. 
D) become steeper. 
E) not be affected.

Question 12

The figure below plots real and potential GDP between 1971 and 1977. Given the data in the corresponding table, can changes in the rate of inflation over this period be explained by the percent deviation between real and potential GDP? Do these data support or refute the validity of the assumptions about the IA line?

Accepted Answer

In 1972 and 1973, real GDP was above pot

Question 13

Since changes in both monetary policy and fiscal policy can shift the aggregate demand curve, it doesn't matter whether we reduce income taxes or reduce the target inflation rate to increase real GDP. Both policies will have the same effect on consumption, net exports, and investment. Please answer true or false and explain.

Accepted Answer

This statement is False
 Reducing the ta

Question 14

The Fed has direct control over the federal funds rate.

Accepted Answer

A) True 
 B)False

Question 15

Name three factors that cause the IA line to shift.

Accepted Answer

The IA line can shift because

Question 16

If the economy is in a recession, inflation will be ____, and the Fed will want to ____ the interest rate in order to ____ real GDP.

Accepted Answer

A) rising; increase; decrease 
B) rising; increase; increase 
C) falling; increase; increase 
D) falling; decrease; increase 
E) falling; decrease; decrease 
A) rising; increase; decrease 
B) rising; increase; increase 
C) falling; increase; increase 
D) falling; decrease; increase 
E) falling; decrease; decrease

Question 17

The text defines the monetary policy rule as the systematic response of the real interest rate to the

Accepted Answer

A) exchange rate as decided by the Treasury. 
B) rate of inflation as decided by the central bank. 
C) rate of inflation as decided by the Treasury. 
D) exchange rate as decided by the central bank. 
E) exchange rate as decided by the banking system. 
A) exchange rate as decided by the Treasury. 
B) rate of inflation as decided by the central bank. 
C) rate of inflation as decided by the Treasury. 
D) exchange rate as decided by the central bank. 
E) exchange rate as decided by the banking system.

Question 18

If net exports become less sensitive to changes in the value of the domestic currency, they will be less sensitive to changes in interest rates.

Accepted Answer

A) True 
 B)False

Question 19

Exhibit 24-2  
-Which of the following factors cannot explain the rise in income from Ya to Yb in Exhibit 24-2?

Accepted Answer

A) An increase in investment 
B) A weaker value of the domestic currency 
C) A decline in household savings 
D) An increase in interest rates 
E) A decline in taxes 
A) An increase in investment 
B) A weaker value of the domestic currency 
C) A decline in household savings 
D) An increase in interest rates 
E) A decline in taxes

Question 20

An increase in the target inflation rate will

Accepted Answer

A) have no effect on the AD curve. 
B) cause a rightward shift of the AD curve. 
C) cause a leftward shift of the AD curve. 
D) cause a downward movement along the AD curve. 
E) cause an upward movement along the AD curve. 
A) have no effect on the AD curve. 
B) cause a rightward shift of the AD curve. 
C) cause a leftward shift of the AD curve. 
D) cause a downward movement along the AD curve. 
E) cause an upward movement along the AD curve.

Exam 24: The Economic Fluctuations Model

Consider the following monetary policy rules for two countries, A and B: A: interest rate = 1.8 (inflation -3) + 3 B: interest rate = 2 (inflation -3) + 4

If, for any given rate of inflation, the real rate of interest declines, the AD curve will shift to the left.

Why do wages and prices exhibit inertia?

The flat inflation adjustment line reflects the idea that

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

Which of the following statements concerning a change in government purchases is true?

If the central bank determines that aggregate demand is not very sensitive to changes in the interest rate,

If the Fed aims to influence economic activity, should it target the real interest rate or the nominal interest rate? If inflation changes by 2 percent, how large should the change in the nominal interest rate be?

The AD curve slopes upward because interest rates and inflation are positively correlated.

If the economy is in a recession, it is likely that

If real interest rates in the rest of the world increase relative to the United States, the expenditure line will

The Fed has direct control over the federal funds rate.

Name three factors that cause the IA line to shift.

If the economy is in a recession, inflation will be ____, and the Fed will want to ____ the interest rate in order to ____ real GDP.

The text defines the monetary policy rule as the systematic response of the real interest rate to the

If net exports become less sensitive to changes in the value of the domestic currency, they will be less sensitive to changes in interest rates.

Exhibit 24-2 -Which of the following factors cannot explain the rise in income from Ya to Yb in Exhibit 24-2?

An increase in the target inflation rate will

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

If the economy is in a recession, inflation will be , and the Fed will want to the interest rate in order to real GDP.

Exhibit 24-2 -Which of the following factors cannot explain the rise in income from Y_a to Y_b in Exhibit 24-2?