Question 1

Which of the following is a widely-used and closely-watched forecasting tool concerning the future direction of the macro-economy?

Accepted Answer

A) the excess reserves of commercial banks 
B) the Phillips curve 
C) the index of leading indicators 
D) the current budget deficit or surplus 
E) the velocity of the M1 money supply 
A) the excess reserves of commercial banks 
B) the Phillips curve 
C) the index of leading indicators 
D) the current budget deficit or surplus 
E) the velocity of the M1 money supply

Question 2

The Phillips curve illustrates the relationship between

Accepted Answer

A) change in the money supply and change in unemployment. 
B) tax rates and tax revenues. 
C) the equilibrium level of income and the employment rate. 
D) inflation and unemployment. 
A) change in the money supply and change in unemployment. 
B) tax rates and tax revenues. 
C) the equilibrium level of income and the employment rate. 
D) inflation and unemployment.

Question 3

In order to make effective policy changes, policy makers need to know

Accepted Answer

A) where the economy is going to be six to twelve months from now. 
B) the magnitude of past recessions. 
C) Keynesian economics. 
D) the exact size of the current M1 money supply. 
A) where the economy is going to be six to twelve months from now. 
B) the magnitude of past recessions. 
C) Keynesian economics. 
D) the exact size of the current M1 money supply.

Question 4

According to the modern expectational Phillips curve, unemployment will equal the natural rate of unemployment when

Accepted Answer

A) any inflation is present. 
B) inflation turns out to be lower than what people expected. 
C) inflation turns out to be higher than what people expected. 
D) inflation turns out to be equal to what people expected. 
A) any inflation is present. 
B) inflation turns out to be lower than what people expected. 
C) inflation turns out to be higher than what people expected. 
D) inflation turns out to be equal to what people expected.

Question 5

The modern view of the Phillips curve suggests that

Accepted Answer

A) when inflation is less than anticipated, unemployment will rise above the natural rate. 
B) monetary policy will be unable to affect inflation. 
C) when people accurately anticipate inflation, expansionary monetary policy will reduce unemployment. 
D) when inflation exceeds what was anticipated, the natural rate of unemployment will rise. 
A) when inflation is less than anticipated, unemployment will rise above the natural rate. 
B) monetary policy will be unable to affect inflation. 
C) when people accurately anticipate inflation, expansionary monetary policy will reduce unemployment. 
D) when inflation exceeds what was anticipated, the natural rate of unemployment will rise.

Question 6

Which of the following contributed to the weak recovery from the 2008-2009 recession?

Accepted Answer

A) The restrictive monetary policy followed by the Fed. 
B) Government spending was increased by only a small amount. 
C) The temporary nature of the tax rebates and spending increases created uncertainty and exerted only a weak impact on aggregate demand. 
D) The budget deficits were too small to exert much impact on aggregate demand, output, and employment. 
A) The restrictive monetary policy followed by the Fed. 
B) Government spending was increased by only a small amount. 
C) The temporary nature of the tax rebates and spending increases created uncertainty and exerted only a weak impact on aggregate demand. 
D) The budget deficits were too small to exert much impact on aggregate demand, output, and employment.

Question 7

Use the figure below to answer the following question(s).
Figure 15-2  
-According to the modern expectational Phillips curve illustrated in Figure 15-2, unemployment will temporarily rise above the natural rate of unemployment when

Accepted Answer

A) inflation turns out to be lower than what people expected. 
B) inflation turns out to be higher than what people expected. 
C) inflation turns out to be equal to what people expected. 
D) all of the above are true. 
A) inflation turns out to be lower than what people expected. 
B) inflation turns out to be higher than what people expected. 
C) inflation turns out to be equal to what people expected. 
D) all of the above are true.

Question 8

Explain two reasons why economic forecasting can only be of limited use.

Accepted Answer

One reason is that changes in market con

Question 9

Economists who believe that market economies are inherently unstable argue that the crisis of 2008 was primarily the result of

Accepted Answer

A) the expansionary policies of the Fed that caused the housing boom. 
B) housing regulations that undermined sound lending practices. 
C) the leveraged lending practices of banks and the fear that retarded both consumption and investment in the latter half of 2008. 
D) persistently high interest rates during the decade leading up to the crisis. 
A) the expansionary policies of the Fed that caused the housing boom. 
B) housing regulations that undermined sound lending practices. 
C) the leveraged lending practices of banks and the fear that retarded both consumption and investment in the latter half of 2008. 
D) persistently high interest rates during the decade leading up to the crisis.

Question 10

The 25 years prior to the crisis of 2008-2009 were

Accepted Answer

A) characterized by more instability than the first 50 years of the twentieth century. 
B) the most stable economic quarter of a century in American history. 
C) characterized by more monetary and price instability than any era other than the 1970s. 
D) a period of historically slow growth and high unemployment. 
A) characterized by more instability than the first 50 years of the twentieth century. 
B) the most stable economic quarter of a century in American history. 
C) characterized by more monetary and price instability than any era other than the 1970s. 
D) a period of historically slow growth and high unemployment.

Question 11

The rational expectations hypothesis assumes that individuals will

Accepted Answer

A) never make forecasting errors. 
B) be as likely to overestimate as to underestimate the future rate of inflation. 
C) continually make systematic forecasting errors. 
D) ignore past forecasting errors when formulating predictions. 
A) never make forecasting errors. 
B) be as likely to overestimate as to underestimate the future rate of inflation. 
C) continually make systematic forecasting errors. 
D) ignore past forecasting errors when formulating predictions.

Question 12

Under the adaptive expectations hypothesis, which of the following is the effect of a shift to a more expansionary monetary policy?

Accepted Answer

A) In the short run, the real rate of output will be unaffected, but in the long run, it will increase. 
B) In the short run, the real rate of output will increase, but in the long run, it will be unchanged. 
C) There will be a permanent increase in the real rate of output, but the inflation rate will also be a little higher. 
D) In the short run, the impact on the real rate of output is uncertain, but in the long run, output will increase. 
A) In the short run, the real rate of output will be unaffected, but in the long run, it will increase. 
B) In the short run, the real rate of output will increase, but in the long run, it will be unchanged. 
C) There will be a permanent increase in the real rate of output, but the inflation rate will also be a little higher. 
D) In the short run, the impact on the real rate of output is uncertain, but in the long run, output will increase.

Question 13

The rational expectations theory indicates that expansionary policy will

Accepted Answer

A) stimulate real output in the long run but not in the short run. 
B) expand real output and employment if the public quickly anticipates the effects of the expansionary policy. 
C) equalize real and nominal interest rates during lengthy periods of inflation. 
D) fail to increase employment because individuals will anticipate it and take actions that will offset its impact. 
A) stimulate real output in the long run but not in the short run. 
B) expand real output and employment if the public quickly anticipates the effects of the expansionary policy. 
C) equalize real and nominal interest rates during lengthy periods of inflation. 
D) fail to increase employment because individuals will anticipate it and take actions that will offset its impact.

Question 14

Under adaptive expectations, the short-term effect of an unanticipated shift to a more expansionary macroeconomic policy will be a

Accepted Answer

A) temporary reduction in the unemployment rate. 
B) permanent reduction in the unemployment rate. 
C) temporary reduction in the inflation rate. 
D) permanent reduction in the inflation rate. 
A) temporary reduction in the unemployment rate. 
B) permanent reduction in the unemployment rate. 
C) temporary reduction in the inflation rate. 
D) permanent reduction in the inflation rate.

Question 15

Which of the following contributed to the weak recovery from the 2008-2009 recession?

Accepted Answer

A) the restrictive monetary policy followed by the Fed 
B) constant policy changes that created uncertainty and thereby retarded private business investment 
C) sharp reductions in federal spending that were designed to achieve a balanced federal budget 
D) failure to run budget deficits that were large enough to exert an impact on aggregate demand 
A) the restrictive monetary policy followed by the Fed 
B) constant policy changes that created uncertainty and thereby retarded private business investment 
C) sharp reductions in federal spending that were designed to achieve a balanced federal budget 
D) failure to run budget deficits that were large enough to exert an impact on aggregate demand

Question 16

In the twentieth century, fluctuations in real GDP were

Accepted Answer

A) less severe during the last 50 years than was true during the first half of the century. 
B) virtually eliminated as the result of the countercyclical application of fiscal policy. 
C) more severe during the last 50 years than was true during the first half of the century. 
D) primarily the result of a fiscal policy that has persistently balanced the federal budget. 
A) less severe during the last 50 years than was true during the first half of the century. 
B) virtually eliminated as the result of the countercyclical application of fiscal policy. 
C) more severe during the last 50 years than was true during the first half of the century. 
D) primarily the result of a fiscal policy that has persistently balanced the federal budget.

Question 17

In response to the recession of 2008-2009, the fiscal policy of the federal government was

Accepted Answer

A) highly expansionary, and this Keynesian stimulus promoted a rapid recovery. 
B) highly expansionary, but this was largely offset by the Fed's restrictive monetary policy 
C) highly restrictive, but this was largely offset by the Fed's highly expansionary monetary policy 
D) highly expansionary, but the unemployment rate nonetheless remained high during 2010 and 2011 
A) highly expansionary, and this Keynesian stimulus promoted a rapid recovery. 
B) highly expansionary, but this was largely offset by the Fed's restrictive monetary policy 
C) highly restrictive, but this was largely offset by the Fed's highly expansionary monetary policy 
D) highly expansionary, but the unemployment rate nonetheless remained high during 2010 and 2011

Question 18

According to the modern expectational Phillips curve, unemployment will temporarily fall below the natural rate of unemployment when

Accepted Answer

A) any inflation is present. 
B) inflation turns out to be lower than what people expected. 
C) inflation turns out to be higher than what people expected. 
D) inflation turns out to be equal to what people expected. 
A) any inflation is present. 
B) inflation turns out to be lower than what people expected. 
C) inflation turns out to be higher than what people expected. 
D) inflation turns out to be equal to what people expected.

Question 19

Activists believe that

Accepted Answer

A) discretionary changes in macroeconomic policy can help smooth the ups and downs of the business cycle. 
B) balancing the federal budget is of primary importance to economic stability. 
C) the economy's self-correcting mechanism, if not stifled by perverse policies, will prevent prolonged periods of high unemployment. 
D) the M1 money supply should be increased at a steady annual rate. 
A) discretionary changes in macroeconomic policy can help smooth the ups and downs of the business cycle. 
B) balancing the federal budget is of primary importance to economic stability. 
C) the economy's self-correcting mechanism, if not stifled by perverse policies, will prevent prolonged periods of high unemployment. 
D) the M1 money supply should be increased at a steady annual rate.

Question 20

When persons underestimate inflation (when actual inflation exceeds the expected rate), actual unemployment will

Accepted Answer

A) exceed the natural rate of unemployment. 
B) equal the natural rate of unemployment. 
C) fall below the natural rate of unemployment. 
D) increase if the government is running a budget deficit and decrease if a budget surplus is present. 
A) exceed the natural rate of unemployment. 
B) equal the natural rate of unemployment. 
C) fall below the natural rate of unemployment. 
D) increase if the government is running a budget deficit and decrease if a budget surplus is present.

Which of the following is a widely-used and closely-watched forecasting tool concerning the future direction of the macro-economy?

The Phillips curve illustrates the relationship between

In order to make effective policy changes, policy makers need to know

According to the modern expectational Phillips curve, unemployment will equal the natural rate of unemployment when

The modern view of the Phillips curve suggests that

Which of the following contributed to the weak recovery from the 2008-2009 recession?

Use the figure below to answer the following question(s). Figure 15-2 -According to the modern expectational Phillips curve illustrated in Figure 15-2, unemployment will temporarily rise above the natural rate of unemployment when

Explain two reasons why economic forecasting can only be of limited use.

Economists who believe that market economies are inherently unstable argue that the crisis of 2008 was primarily the result of

The 25 years prior to the crisis of 2008-2009 were

The rational expectations hypothesis assumes that individuals will

Under the adaptive expectations hypothesis, which of the following is the effect of a shift to a more expansionary monetary policy?

The rational expectations theory indicates that expansionary policy will

Under adaptive expectations, the short-term effect of an unanticipated shift to a more expansionary macroeconomic policy will be a

Which of the following contributed to the weak recovery from the 2008-2009 recession?

In the twentieth century, fluctuations in real GDP were

In response to the recession of 2008-2009, the fiscal policy of the federal government was

According to the modern expectational Phillips curve, unemployment will temporarily fall below the natural rate of unemployment when

Activists believe that

When persons underestimate inflation (when actual inflation exceeds the expected rate), actual unemployment will

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 15: Stabilization Policy, Output, and Employment

Which of the following is a widely-used and closely-watched forecasting tool concerning the future direction of the macro-economy?

The Phillips curve illustrates the relationship between

In order to make effective policy changes, policy makers need to know

According to the modern expectational Phillips curve, unemployment will equal the natural rate of unemployment when

The modern view of the Phillips curve suggests that

Which of the following contributed to the weak recovery from the 2008-2009 recession?

Use the figure below to answer the following question(s). Figure 15-2 -According to the modern expectational Phillips curve illustrated in Figure 15-2, unemployment will temporarily rise above the natural rate of unemployment when

Explain two reasons why economic forecasting can only be of limited use.

Economists who believe that market economies are inherently unstable argue that the crisis of 2008 was primarily the result of

The 25 years prior to the crisis of 2008-2009 were

The rational expectations hypothesis assumes that individuals will

Under the adaptive expectations hypothesis, which of the following is the effect of a shift to a more expansionary monetary policy?

The rational expectations theory indicates that expansionary policy will

Under adaptive expectations, the short-term effect of an unanticipated shift to a more expansionary macroeconomic policy will be a

Which of the following contributed to the weak recovery from the 2008-2009 recession?

In the twentieth century, fluctuations in real GDP were

In response to the recession of 2008-2009, the fiscal policy of the federal government was

According to the modern expectational Phillips curve, unemployment will temporarily fall below the natural rate of unemployment when

Activists believe that

When persons underestimate inflation (when actual inflation exceeds the expected rate), actual unemployment will

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters