Question 1

The intertemporal substitution effect is the factor that creates business cycles in the Keynesian theory of the business cycle.

Accepted Answer

A) True 
 B)False  False

Question 2

The position of the long-run Phillips curve is determined by

Accepted Answer

A)  the inflation rate. 
B)  the natural unemployment rate. 
C)  the quantity of money. 
D)  the expected inflation rate. 
A)  the inflation rate. 
B)  the natural unemployment rate. 
C)  the quantity of money. 
D)  the expected inflation rate. B

Question 3

-The figure above shows the initial aggregate demand curve, AD0, the initial short-run aggregate supply curve, SAS0, and the long-run aggregate supply curve, LAS. The points in the figure show possible combinations of real GDP and the price level at which the economy of Atlantia is in macroeconomic equilibrium. The economy is initially at point A. Then, the government increases its expenditure on goods and services. Draw the new aggregate demand and short-run aggregate supply curves in the figure to show the effects of this event on Atlantiaʹs real GDP and price level.
a) What happens to Atlantiaʹs potential GDP?
b) In the short run, what happens to aggregate supply and aggregate demand?
c) What are the new short-run equilibrium real GDP and price level?
d) In the long run, what happens to the short-run aggregate supply and aggregate demand?
e) What are the new long-run equilibrium real GDP and price level?

Accepted Answer

a) Atlantiaʹs potential GDP is not affected. Potential GDP depends on the economyʹs factors of production and available technology, not on aggregate spending.

b) See the figure above. The increase in government expenditure increases aggregate demand. The aggregate demand curve shifts from AD₀to AD₁. Because there is no change in potential GDP and no change in the money wage rate, short run aggregate supply is not affected. The short-run aggregate supply curve remains at SAS₀.
c) In the short run the economy is at point B, where real GDP is $400 million and the price level is 105.
d) Because at point B real GDP is above potential GDP, unemployment is less than the natural rate so the tight conditions in the labor market means that the money wage rate begins to rise. As it does, short -run aggregate supply decreases. The short-run aggregate supply curve shifts from SAS₀to SAS₁. Because nothing further affects aggregate demand, the aggregate demand curve remains at AD₁.
e) In the long run the economy is at point D, where real GDP is $300 million and the price level is 115.

Question 4

Initially, demand-pull inflation will

Accepted Answer

A)  increase both the price level and increase real GDP. 
B)  increase the price level and decrease real GDP. 
C)  increase the price level and not change real GDP. 
D)  shift the aggregate supply curve rightward. 
A)  increase both the price level and increase real GDP. 
B)  increase the price level and decrease real GDP. 
C)  increase the price level and not change real GDP. 
D)  shift the aggregate supply curve rightward.

Question 5

The short-run Phillips curve intersects the long-run Phillips curve at the

Accepted Answer

A)  nominal interest rate. 
B)  natural inflation rate. 
C)  natural interest rate. 
D)  expected inflation rate. 
A)  nominal interest rate. 
B)  natural inflation rate. 
C)  natural interest rate. 
D)  expected inflation rate.

Question 6

-In the above figure, what might have shifted the short-run Phillips curve from SRPC1 to SRPC2 while leaving the long-run Phillips curve unchanged at LRPC?

Accepted Answer

A)  The expected inflation rate increased. 
B)  The expected inflation rate decreased. 
C)  The natural unemployment rate increased. 
D)  The natural unemployment rate decreased. 
A)  The expected inflation rate increased. 
B)  The expected inflation rate decreased. 
C)  The natural unemployment rate increased. 
D)  The natural unemployment rate decreased.

Question 7

-In the above figure, suppose the economy starts at point A. The short-run response to an increase in the growth rate of the quantity of money in monetarist business cycle theory moves the economy to point

Accepted Answer

A)  B. 
B)  D. 
C)  C. 
D)  E. 
A)  B. 
B)  D. 
C)  C. 
D)  E.

Question 8

Both new Keynesian and new classical cycle theories claim that __________.

Accepted Answer

A)  expected changes in the quantity of money can trigger a business cycle 
B)  unexpected changes in aggregate demand trigger a business cycle 
C)  shifts in the SAS curve are the main impulse for a business cycle 
D)  animal spirits can trigger a business cycle 
A)  expected changes in the quantity of money can trigger a business cycle 
B)  unexpected changes in aggregate demand trigger a business cycle 
C)  shifts in the SAS curve are the main impulse for a business cycle 
D)  animal spirits can trigger a business cycle

Question 9

What, according to the monetarist theory of the business cycle, leads to changes in real GDP?

Accepted Answer

A)  an unanticipated change in aggregate demand 
B)  a change in the growth rate of the quantity of money 
C)  a change in the growth rate in tax revenue 
D)  a change in profit expectations 
A)  an unanticipated change in aggregate demand 
B)  a change in the growth rate of the quantity of money 
C)  a change in the growth rate in tax revenue 
D)  a change in profit expectations

Question 10

For monetarists the main cause of economic fluctuations is changes in

Accepted Answer

A)  investment. 
B)  consumption expenditure. 
C)  the levels of household debt. 
D)  the growth rate of the quantity of money. 
A)  investment. 
B)  consumption expenditure. 
C)  the levels of household debt. 
D)  the growth rate of the quantity of money.

Question 11

-The figure above shows the initial aggregate demand curve, AD0, the initial short-run aggregate supply curve, SAS0, and the long-run aggregate supply curve, LAS. The points in the figure show possible combinations of real GDP and the price level at which the economy of Atlantia is in macroeconomic equilibrium. The economy is initially at point A. Atlantiaʹs Central Bank then increases the quantity of money year after year. Draw the necessary curves in the figure to show the effects of this on Atlantiaʹs real GDP and price level.
a) What happens to Atlantiaʹs potential GDP?
b) In the short run, what happens to aggregate supply and aggregate demand?
c) What are the new short-run equilibrium real GDP and price level?
d) In the long run, what happens to aggregate supply and aggregate demand?
e) In the long run, what process is unfolding?

Accepted Answer

a) Atlantiaʹs potential GDP is not affec

Question 12

Cost-push inflation starts with

Accepted Answer

A)  an increase in aggregate demand. 
B)  a decrease in short-run aggregate supply. 
C)  a decrease in aggregate demand. 
D)  an increase in short-run aggregate supply. 
A)  an increase in aggregate demand. 
B)  a decrease in short-run aggregate supply. 
C)  a decrease in aggregate demand. 
D)  an increase in short-run aggregate supply.

Question 13

As far as cost-push inflation goes, the United States

Accepted Answer

A)  experienced this type of inflation in the 1970s. 
B)  has never experienced this type of inflation. 
C)  experienced this type of inflation during the 1990s. 
D)  has experienced only this type of inflation. 
A)  experienced this type of inflation in the 1970s. 
B)  has never experienced this type of inflation. 
C)  experienced this type of inflation during the 1990s. 
D)  has experienced only this type of inflation.

Question 14

Both the new classical and new Keynesian business cycle theories agree that

Accepted Answer

A)  the money wage rate is influenced by rational expectations of the price level. 
B)  expected changes in aggregate demand lead to the business cycle. 
C)  unexpected changes in aggregate demand cannot result in a business cycle. 
D)  the long-term nature of wage contracts allow expected changes in the price level to cause business cycles. 
A)  the money wage rate is influenced by rational expectations of the price level. 
B)  expected changes in aggregate demand lead to the business cycle. 
C)  unexpected changes in aggregate demand cannot result in a business cycle. 
D)  the long-term nature of wage contracts allow expected changes in the price level to cause business cycles.

Question 15

The factor leading to business cycles in the Keynesian model is__________ .

Accepted Answer

A)  a speed up in money growth 
B)  changes in business confidence 
C)  unanticipated changes in aggregate supply 
D)  unanticipated changes in aggregate demand 
A)  a speed up in money growth 
B)  changes in business confidence 
C)  unanticipated changes in aggregate supply 
D)  unanticipated changes in aggregate demand

Question 16

What is the factor that leads to business cycles in the new Keynesian cycle theory?

Accepted Answer

The major factor in the new Ke

Question 17

Suppose that a severe shock that decreases the demand for loanable funds hits the United States. Which of the following can we expect to occur according to the real business cycle model?

Accepted Answer

A)  The real wage rate will fall. 
B)  The real interest rate will fall. 
C)  People will work fewer hours. 
D)  All of the above are true. 
A)  The real wage rate will fall. 
B)  The real interest rate will fall. 
C)  People will work fewer hours. 
D)  All of the above are true.

Question 18

A rational expectation is

Accepted Answer

A)  the forecast that automatically carries over from past forecasts. 
B)  the best possible forecast based upon all relevant information. 
C)  a forecast devoid of all emotions. 
D)  a forecast which perfectly foretells the future. 
A)  the forecast that automatically carries over from past forecasts. 
B)  the best possible forecast based upon all relevant information. 
C)  a forecast devoid of all emotions. 
D)  a forecast which perfectly foretells the future.

Question 19

Cost-push inflation can start with

Accepted Answer

A)  higher money wage rates. 
B)  an increase in government expenditure. 
C)  an increase in transfer payments. 
D)  lower taxes. 
A)  higher money wage rates. 
B)  an increase in government expenditure. 
C)  an increase in transfer payments. 
D)  lower taxes.

Question 20

According to real business cycle theory, a fall in the real interest rate current labor supply and_________ current employment.

Accepted Answer

A)  decreases; increases 
B)  decreases; decreases 
C)  increases; increases 
D)  increases; decreases 
A)  decreases; increases 
B)  decreases; decreases 
C)  increases; increases 
D)  increases; decreases

The intertemporal substitution effect is the factor that creates business cycles in the Keynesian theory of the business cycle.

The position of the long-run Phillips curve is determined by

Initially, demand-pull inflation will

The short-run Phillips curve intersects the long-run Phillips curve at the

-In the above figure, what might have shifted the short-run Phillips curve from SRPC₁to SRPC₂ while leaving the long-run Phillips curve unchanged at LRPC?

-In the above figure, suppose the economy starts at point A. The short-run response to an increase in the growth rate of the quantity of money in monetarist business cycle theory moves the economy to point

Both new Keynesian and new classical cycle theories claim that __________.

What, according to the monetarist theory of the business cycle, leads to changes in real GDP?

For monetarists the main cause of economic fluctuations is changes in

Cost-push inflation starts with

As far as cost-push inflation goes, the United States

Both the new classical and new Keynesian business cycle theories agree that

The factor leading to business cycles in the Keynesian model is__________ .

What is the factor that leads to business cycles in the new Keynesian cycle theory?

Suppose that a severe shock that decreases the demand for loanable funds hits the United States. Which of the following can we expect to occur according to the real business cycle model?

A rational expectation is

Cost-push inflation can start with

According to real business cycle theory, a fall in the real interest rate current labor supply and_________ current employment.

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: the Keynesian Model

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

Exam 12: U.S Inflation, Unemployment, and Business Cycle

The intertemporal substitution effect is the factor that creates business cycles in the Keynesian theory of the business cycle.

The position of the long-run Phillips curve is determined by

Initially, demand-pull inflation will

The short-run Phillips curve intersects the long-run Phillips curve at the

-In the above figure, what might have shifted the short-run Phillips curve from SRPC1 to SRPC2 while leaving the long-run Phillips curve unchanged at LRPC?

-In the above figure, suppose the economy starts at point A. The short-run response to an increase in the growth rate of the quantity of money in monetarist business cycle theory moves the economy to point

Both new Keynesian and new classical cycle theories claim that __________.

What, according to the monetarist theory of the business cycle, leads to changes in real GDP?

For monetarists the main cause of economic fluctuations is changes in

Cost-push inflation starts with

As far as cost-push inflation goes, the United States

Both the new classical and new Keynesian business cycle theories agree that

The factor leading to business cycles in the Keynesian model is__________ .

What is the factor that leads to business cycles in the new Keynesian cycle theory?

Suppose that a severe shock that decreases the demand for loanable funds hits the United States. Which of the following can we expect to occur according to the real business cycle model?

A rational expectation is

Cost-push inflation can start with

According to real business cycle theory, a fall in the real interest rate current labor supply and_________ current employment.

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: the Keynesian Model

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

-In the above figure, what might have shifted the short-run Phillips curve from SRPC₁to SRPC₂ while leaving the long-run Phillips curve unchanged at LRPC?