Question 1

The vertical long-run Phillips curve

Accepted Answer

A)  shows the Fed's employment options 
B)  is vertical because the Fed refuses to change the unemployment rate in the long run 
C)  indicates that the Fed cannot affect the unemployment rate in the long run 
D)  is fixed permanently 
E)  measures recessionary pressures 
A)  shows the Fed's employment options 
B)  is vertical because the Fed refuses to change the unemployment rate in the long run 
C)  indicates that the Fed cannot affect the unemployment rate in the long run 
D)  is fixed permanently 
E)  measures recessionary pressures

Question 2

Which of the following is an opportunity cost of cyclical unemployment?

Accepted Answer

A)  A higher wage rate 
B)  A lower interest rate 
C)  Lower taxes paid by the employed 
D)  Costs of updating prices 
E)  Lost earnings of the unemployed. 
A)  A higher wage rate 
B)  A lower interest rate 
C)  Lower taxes paid by the employed 
D)  Costs of updating prices 
E)  Lost earnings of the unemployed.

Question 3

What could be a reason for a rising inflation rate?

Accepted Answer

A)  A decrease in government spending 
B)  A supply shock that shifts the aggregate supply curve downward 
C)  Unemployment below the natural rate 
D)  Growing consumer pessimism 
E)  A negative spending shock. 
A)  A decrease in government spending 
B)  A supply shock that shifts the aggregate supply curve downward 
C)  Unemployment below the natural rate 
D)  Growing consumer pessimism 
E)  A negative spending shock.

Question 4

The Fed's efforts to attain full employment are complicated by

Accepted Answer

A)  the persistence of cyclical unemployment 
B)  the instability of the inflation rate 
C)  new legislation that attempts to avoid financial panics 
D)  the difficulty of determining what normal unemployment means 
E)  conflicting objectives among its member banks 
A)  the persistence of cyclical unemployment 
B)  the instability of the inflation rate 
C)  new legislation that attempts to avoid financial panics 
D)  the difficulty of determining what normal unemployment means 
E)  conflicting objectives among its member banks

Question 5

What would happen if the Fed tried to keep employment above the full-employment level?

Accepted Answer

A)  The long-run aggregate supply curve would shift to the right. 
B)  The aggregate supply curve would shift downward. 
C)  Unemployment would increase. 
D)  The price level would increase. 
E)  The aggregate demand curve would shift to the left. 
A)  The long-run aggregate supply curve would shift to the right. 
B)  The aggregate supply curve would shift downward. 
C)  Unemployment would increase. 
D)  The price level would increase. 
E)  The aggregate demand curve would shift to the left.

Question 6

In the long run,the Fed can change the inflation rate but not the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is true about the short-run Phillips curve?

Accepted Answer

A)  The Fed can only shift the curve in the short run. 
B)  In the short run,the Fed can shift the curve,but in the long run,the Fed can only move along it. 
C)  In both the short run and the long run,the Fed can only shift the curve,it can never move along the curve. 
D)  In both the short run and the long run,the Fed can only move the economy along the curve;it can never shift the curve. 
E)  In the short run,the Fed can move the economy along the curve,but in the long run,the Fed can only chose which short run Phillips curve to be on. 
A)  The Fed can only shift the curve in the short run. 
B)  In the short run,the Fed can shift the curve,but in the long run,the Fed can only move along it. 
C)  In both the short run and the long run,the Fed can only shift the curve,it can never move along the curve. 
D)  In both the short run and the long run,the Fed can only move the economy along the curve;it can never shift the curve. 
E)  In the short run,the Fed can move the economy along the curve,but in the long run,the Fed can only chose which short run Phillips curve to be on.

Question 8

If the Fed has a goal of stable real GDP and the government announces a tax cut,which of the following would occur?

Accepted Answer

A)  Money demand would not change,real GDP would not change,the interest rate would decrease,and there would be partial crowding out. 
B)  Money demand would not change,real GDP would not change,the interest rate would increase,and there would be complete crowding out. 
C)  Money demand would increase,real GDP would not change,the interest rate would increase,and there would be partial crowding out. 
D)  Money demand would not change,real GDP would increase,the interest rate would decrease,and there would be complete crowding out. 
E)  Money demand would increase,real GDP would not change,the interest rate would decrease,and there would be complete crowding out. 
A)  Money demand would not change,real GDP would not change,the interest rate would decrease,and there would be partial crowding out. 
B)  Money demand would not change,real GDP would not change,the interest rate would increase,and there would be complete crowding out. 
C)  Money demand would increase,real GDP would not change,the interest rate would increase,and there would be partial crowding out. 
D)  Money demand would not change,real GDP would increase,the interest rate would decrease,and there would be complete crowding out. 
E)  Money demand would increase,real GDP would not change,the interest rate would decrease,and there would be complete crowding out.

Question 9

The Phillips curve reflects

Accepted Answer

A)  the short-run tradeoff between inflation and unemployment 
B)  short- and long-run tradeoffs between unemployment and inflation 
C)  the long-run tradeoff between inflation and unemployment 
D)  the income distribution effects of inflation 
E)  short-run fluctuations in GDP 
A)  the short-run tradeoff between inflation and unemployment 
B)  short- and long-run tradeoffs between unemployment and inflation 
C)  the long-run tradeoff between inflation and unemployment 
D)  the income distribution effects of inflation 
E)  short-run fluctuations in GDP

Question 10

Since the Federal Reserve Banking Act of 1978,what has been the Fed's chief responsibility?

Accepted Answer

A)  Encouraging investment 
B)  Regulating foreign trade 
C)  Minimizing the interest payments on the national debt 
D)  Achieving a low and stable rate of inflation 
E)  Keeping the interest rate low. 
A)  Encouraging investment 
B)  Regulating foreign trade 
C)  Minimizing the interest payments on the national debt 
D)  Achieving a low and stable rate of inflation 
E)  Keeping the interest rate low.

Question 11

Even if the Fed attempts to control an asset bubble by raising interest rates to any reasonable degree,it is not clear that overly-optimistic investors would respond.

Accepted Answer

A) True 
 B)False

Question 12

The natural rate of unemployment

Accepted Answer

A)  is always constant. 
B)  is always equal to 5%. 
C)  can vary over time and from country to country. 
D)  has been rising in recent years in the U.S. 
E)  is very similar across countries. 
A)  is always constant. 
B)  is always equal to 5%. 
C)  can vary over time and from country to country. 
D)  has been rising in recent years in the U.S. 
E)  is very similar across countries.

Question 13

If there is a sudden increase in government spending,which of the following should the Fed do if it wants to keep the price level steady?

Accepted Answer

A)  Do nothing,since the self-correcting mechanism will adjust the economy 
B)  Sell bonds in the open market 
C)  Wait,since the price level usually does not change when government spending increases 
D)  Decrease the required reserve ratio 
E)  Buy bonds in the open market. 
A)  Do nothing,since the self-correcting mechanism will adjust the economy 
B)  Sell bonds in the open market 
C)  Wait,since the price level usually does not change when government spending increases 
D)  Decrease the required reserve ratio 
E)  Buy bonds in the open market.

Question 14

In the long run,if the Fed lowers the inflation rate and holds it at that new rate,

Accepted Answer

A)  a zero inflation rate will be reached 
B)  a recession will not occur 
C)  inflationary expectations will fall 
D)  the natural rate of unemployment will rise 
E)  structural unemployment will start to decrease 
A)  a zero inflation rate will be reached 
B)  a recession will not occur 
C)  inflationary expectations will fall 
D)  the natural rate of unemployment will rise 
E)  structural unemployment will start to decrease

Question 15

If money demand changes for some reason other than a spending shock,the Fed can stabilize

Accepted Answer

A)  GDP without changing the interest rate 
B)  GDP,but at the expense of interest rate stability 
C)  GDP by keeping the interest rate stable 
D)  the price level by keeping the interest rate stable 
E)  the price level and GDP by stabilizing the interest rate 
A)  GDP without changing the interest rate 
B)  GDP,but at the expense of interest rate stability 
C)  GDP by keeping the interest rate stable 
D)  the price level by keeping the interest rate stable 
E)  the price level and GDP by stabilizing the interest rate

Question 16

If the actual inflation rate is equal to the expected rate,which of the following will happen?

Accepted Answer

A)  inflationary expectations will increase and the Phillips curve will shift downward in the short run. 
B)  inflationary expectations will not change and the Phillips curve will remain in its current position in the short run. 
C)  inflationary expectations will decrease and the Phillips curve will shift downward in the short run. 
D)  inflationary expectations will stay constant and the Phillips curve will shift downward in the short run. 
E)  inflationary expectations will not change and the Phillips curve will become horizontal in the short run. 
A)  inflationary expectations will increase and the Phillips curve will shift downward in the short run. 
B)  inflationary expectations will not change and the Phillips curve will remain in its current position in the short run. 
C)  inflationary expectations will decrease and the Phillips curve will shift downward in the short run. 
D)  inflationary expectations will stay constant and the Phillips curve will shift downward in the short run. 
E)  inflationary expectations will not change and the Phillips curve will become horizontal in the short run.

Question 17

The Federal Reserve Banking Act of 1978

Accepted Answer

A)  attempted to guarantee stability of the banking system 
B)  was a reaction to the savings and loan crisis 
C)  added full employment to the list of objectives for the Fed 
D)  strengthened deposit insurance programs 
E)  pledged the Fed to keep the inflation rate low 
A)  attempted to guarantee stability of the banking system 
B)  was a reaction to the savings and loan crisis 
C)  added full employment to the list of objectives for the Fed 
D)  strengthened deposit insurance programs 
E)  pledged the Fed to keep the inflation rate low

Question 18

Newspaper reports about good news in the economy are often followed by declines in stock and bond prices because

Accepted Answer

A)  the Fed reacts in anticipation of the news to prevent speculation 
B)  financial markets are often irrational 
C)  financial markets prefer recessions to spending shocks 
D)  stock and bond holders fear the Fed's reaction to possible overheating 
E)  newspapers may be confused about the performance of financial markets 
A)  the Fed reacts in anticipation of the news to prevent speculation 
B)  financial markets are often irrational 
C)  financial markets prefer recessions to spending shocks 
D)  stock and bond holders fear the Fed's reaction to possible overheating 
E)  newspapers may be confused about the performance of financial markets

Question 19

How can the Fed reduce a continuing inflation?

Accepted Answer

A)  By slowing the continuing downward shift of the aggregate supply curve 
B)  By increasing the money supply 
C)  By slowing the continuing leftward shift of the aggregate demand curve 
D)  By decreasing the required reserve ratio 
E)  By slowing the continuing rightward shift of the aggregate demand curve. 
A)  By slowing the continuing downward shift of the aggregate supply curve 
B)  By increasing the money supply 
C)  By slowing the continuing leftward shift of the aggregate demand curve 
D)  By decreasing the required reserve ratio 
E)  By slowing the continuing rightward shift of the aggregate demand curve.

Question 20

If the Fed wanted to prevent a change in money demand from affecting real GDP,which of the following responses would it choose?

Accepted Answer

A)  A neutralization response 
B)  A constant interest rate response 
C)  A constant money supply response 
D)  A constant tax rate response 
E)  A constant government spending response. 
A)  A neutralization response 
B)  A constant interest rate response 
C)  A constant money supply response 
D)  A constant tax rate response 
E)  A constant government spending response.

The vertical long-run Phillips curve

Which of the following is an opportunity cost of cyclical unemployment?

What could be a reason for a rising inflation rate?

The Fed's efforts to attain full employment are complicated by

What would happen if the Fed tried to keep employment above the full-employment level?

In the long run,the Fed can change the inflation rate but not the unemployment rate.

Which of the following is true about the short-run Phillips curve?

If the Fed has a goal of stable real GDP and the government announces a tax cut,which of the following would occur?

The Phillips curve reflects

Since the Federal Reserve Banking Act of 1978,what has been the Fed's chief responsibility?

Even if the Fed attempts to control an asset bubble by raising interest rates to any reasonable degree,it is not clear that overly-optimistic investors would respond.

The natural rate of unemployment

If there is a sudden increase in government spending,which of the following should the Fed do if it wants to keep the price level steady?

In the long run,if the Fed lowers the inflation rate and holds it at that new rate,

If money demand changes for some reason other than a spending shock,the Fed can stabilize

If the actual inflation rate is equal to the expected rate,which of the following will happen?

The Federal Reserve Banking Act of 1978

Newspaper reports about good news in the economy are often followed by declines in stock and bond prices because

How can the Fed reduce a continuing inflation?

If the Fed wanted to prevent a change in money demand from affecting real GDP,which of the following responses would it choose?

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Exchange Rates and Macroeconomic Policy

Filters

Exam 16: Inflation and Monetary Policy

The vertical long-run Phillips curve

Which of the following is an opportunity cost of cyclical unemployment?

What could be a reason for a rising inflation rate?

The Fed's efforts to attain full employment are complicated by

What would happen if the Fed tried to keep employment above the full-employment level?

In the long run,the Fed can change the inflation rate but not the unemployment rate.

Which of the following is true about the short-run Phillips curve?

If the Fed has a goal of stable real GDP and the government announces a tax cut,which of the following would occur?

The Phillips curve reflects

Since the Federal Reserve Banking Act of 1978,what has been the Fed's chief responsibility?

Even if the Fed attempts to control an asset bubble by raising interest rates to any reasonable degree,it is not clear that overly-optimistic investors would respond.

The natural rate of unemployment

If there is a sudden increase in government spending,which of the following should the Fed do if it wants to keep the price level steady?

In the long run,if the Fed lowers the inflation rate and holds it at that new rate,

If money demand changes for some reason other than a spending shock,the Fed can stabilize

If the actual inflation rate is equal to the expected rate,which of the following will happen?

The Federal Reserve Banking Act of 1978

Newspaper reports about good news in the economy are often followed by declines in stock and bond prices because

How can the Fed reduce a continuing inflation?

If the Fed wanted to prevent a change in money demand from affecting real GDP,which of the following responses would it choose?

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Exchange Rates and Macroeconomic Policy

Filters