Question 1

Computer forecasting models have

Accepted Answer

A) been able to forecast changes in the growth rate of real GDP with considerable accuracy. 
B) had only limited success predicting turns in key economic variables such as real GDP. 
C) been able to accurately forecast the future direction of inflation but not real GDP. 
D) been able to accurately forecast the future direction of real GDP but not inflation. 
A) been able to forecast changes in the growth rate of real GDP with considerable accuracy. 
B) had only limited success predicting turns in key economic variables such as real GDP. 
C) been able to accurately forecast the future direction of inflation but not real GDP. 
D) been able to accurately forecast the future direction of real GDP but not inflation.

Question 2

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 3

Which of the following is a major area of disagreement between activists and nonactivists?

Accepted Answer

A) Activists believe discretionary macroeconomic policy can be applied in a manner that will enhance economic stability.Nonactivists disagree. 
B) Activists believe monetary policy is more potent than fiscal policy.Nonactivists disagree. 
C) Activists believe changes in monetary and fiscal policy exert their effects instantaneously.Nonactivists think they work only with a substantial lag. 
D) Nonactivists think macroeconomic policy is sometimes motivated by the pursuit of political gain.Activists disagree. 
A) Activists believe discretionary macroeconomic policy can be applied in a manner that will enhance economic stability.Nonactivists disagree. 
B) Activists believe monetary policy is more potent than fiscal policy.Nonactivists disagree. 
C) Activists believe changes in monetary and fiscal policy exert their effects instantaneously.Nonactivists think they work only with a substantial lag. 
D) Nonactivists think macroeconomic policy is sometimes motivated by the pursuit of political gain.Activists disagree.

Question 4

What will actual unemployment be (in relation to the natural rate)in each of the following cases? Use a graph of the modern Phillips curve in your answer.
a.Decision makers underestimate inflation.
b.Decision makers overestimate inflation.
c.Decision makers correctly forecast inflation.

Accepted Answer

a.Actual unemployment will fal

Question 5

During the 1900-1950 period,

Accepted Answer

A) the growth of real GDP was more stable than has been the case since 1950. 
B) unemployment seldom exceeded 4 percent of the labor force. 
C) double-digit swings in real GDP during a single year were not uncommon. 
D) the money supply was increased at a constant annual rate of between 4 percent and 6 percent throughout the period. 
A) the growth of real GDP was more stable than has been the case since 1950. 
B) unemployment seldom exceeded 4 percent of the labor force. 
C) double-digit swings in real GDP during a single year were not uncommon. 
D) the money supply was increased at a constant annual rate of between 4 percent and 6 percent throughout the period.

Question 6

Use the table below to choose the correct answer.
 
According to the adaptive expectations hypothesis,at the beginning of period 3,decision makers would expect inflation during period 3 to be

Accepted Answer

A) 2 percent. 
B) 5 percent. 
C) 7 percent. 
D) 8 percent. 
A) 2 percent. 
B) 5 percent. 
C) 7 percent. 
D) 8 percent.

Question 7

Starting from an initial long-run equilibrium,under the adaptive expectations hypothesis,a shift to a more expansionary policy will increase

Accepted Answer

A) prices and unemployment in the long run. 
B) real output in the short run but not in the long run. 
C) real output in the long run but not in the short run. 
D) real output in both the long run and the short run. 
A) prices and unemployment in the long run. 
B) real output in the short run but not in the long run. 
C) real output in the long run but not in the short run. 
D) real output in both the long run and the short run.

Question 8

The index of leading indicators was developed to provide more reliable information on

Accepted Answer

A) the expected future direction of the economy. 
B) the future profitability of the leading companies in various industries. 
C) where the economy has been in the recent past. 
D) the extent to which the economy's existing plant and equipment capacity is being used. 
A) the expected future direction of the economy. 
B) the future profitability of the leading companies in various industries. 
C) where the economy has been in the recent past. 
D) the extent to which the economy's existing plant and equipment capacity is being used.

Question 9

Explain the three lags that make it difficult to time changes in discretionary policy properly.

Accepted Answer

The recognition lag is the period betwee

Question 10

Figure 15-3
  
-As shown in Figure 15-3,if people behave according to adaptive expectations theory,an increase in the aggregate demand curve from AD₁ to AD₂ will cause

Accepted Answer

A) labor to adjust nominal wages sluggishly. 
B) the aggregate supply curve to shift from SRAS₁ to SRAS₂ 
C) the price level to eventually rise from 100 to 110. 
D) All of the above. 
A) labor to adjust nominal wages sluggishly. 
B) the aggregate supply curve to shift from SRAS₁ to SRAS₂ 
C) the price level to eventually rise from 100 to 110. 
D) All of the above.

Question 11

Use the Modern Expectational Phillips curve diagram below to answer the following question(s).
Figure 15-4
  
-Refer to Figure 15-4.According to the modern expectational Phillips curve,unemployment will temporarily be above the natural rate of unemployment when

Accepted Answer

A) any inflation is present. 
B) people expected inflation to be higher than what actually occurred. 
C) people expected inflation to be lower than what actually occurred. 
D) people correctly anticipated the inflation rate. 
A) any inflation is present. 
B) people expected inflation to be higher than what actually occurred. 
C) people expected inflation to be lower than what actually occurred. 
D) people correctly anticipated the inflation rate.

Question 12

If the government accelerates money supply growth and enlarges the budget deficit to stimulate aggregate demand,the rational expectations hypothesis indicates that decision makers will

Accepted Answer

A) ignore the policy until it exerts an observable impact on prices,output,and employment. 
B) quickly take steps to adjust their decision making in light of the more expansionary policies. 
C) be fooled at the outset but eventually adjust their decision making in accordance with the change in policy. 
D) be unaware that this policy change has been implemented until a higher rate of inflation is observed. 
A) ignore the policy until it exerts an observable impact on prices,output,and employment. 
B) quickly take steps to adjust their decision making in light of the more expansionary policies. 
C) be fooled at the outset but eventually adjust their decision making in accordance with the change in policy. 
D) be unaware that this policy change has been implemented until a higher rate of inflation is observed.

Question 13

The rational expectations hypothesis implies that use of discretionary macro-policy as a stabilization tool will

Accepted Answer

A) be ineffective,even in the short run. 
B) be effective in the short run but ineffective in the long run. 
C) be effective both in the short run and long run. 
D) make it possible to trade-off a higher rate of inflation for a lower rate of unemployment. 
A) be ineffective,even in the short run. 
B) be effective in the short run but ineffective in the long run. 
C) be effective both in the short run and long run. 
D) make it possible to trade-off a higher rate of inflation for a lower rate of unemployment.

Question 14

Modern Phillips curve analysis indicates that if people

Accepted Answer

A) underestimate inflation,actual unemployment will be below the natural rate. 
B) overestimate inflation,actual unemployment will be below the natural rate. 
C) accurately estimate inflation,actual unemployment will be less than the natural rate. 
D) accurately estimate inflation,actual unemployment will be below the natural rate. 
A) underestimate inflation,actual unemployment will be below the natural rate. 
B) overestimate inflation,actual unemployment will be below the natural rate. 
C) accurately estimate inflation,actual unemployment will be less than the natural rate. 
D) accurately estimate inflation,actual unemployment will be below the natural rate.

Question 15

Figure 15-3
  
-As shown in Figure 15-3,if people behave according to adaptive expectations theory,an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move

Accepted Answer

A) directly from 100 to 110 and then remain at 110. 
B) directly from 100 to 105 and then remain at 105. 
C) from 100 to 105 initially and then eventually move back to 100. 
D) from 100 to 105 initially and then eventually move to 110. 
A) directly from 100 to 110 and then remain at 110. 
B) directly from 100 to 105 and then remain at 105. 
C) from 100 to 105 initially and then eventually move back to 100. 
D) from 100 to 105 initially and then eventually move to 110.

Question 16

When there is an abrupt increase in the rate of inflation,

Accepted Answer

A) the actual rate of inflation will tend to fall below the natural rate. 
B) the actual rate of inflation will tend to rise above the natural rate. 
C) the actual and natural rate of inflation will generally be equal. 
D) the natural rate of unemployment will tend to rise. 
A) the actual rate of inflation will tend to fall below the natural rate. 
B) the actual rate of inflation will tend to rise above the natural rate. 
C) the actual and natural rate of inflation will generally be equal. 
D) the natural rate of unemployment will tend to rise.

Question 17

According to the adaptive expectations hypothesis,

Accepted Answer

A) inflation will cause the long-run unemployment rate to decline. 
B) the economic record during the current period strongly influences decision-maker expectations about the future. 
C) decision makers will consider the expected impact of policy changes when forming their expectations about the future rate of inflation. 
D) future inflation will adapt to conform with the expectations of decision makers. 
A) inflation will cause the long-run unemployment rate to decline. 
B) the economic record during the current period strongly influences decision-maker expectations about the future. 
C) decision makers will consider the expected impact of policy changes when forming their expectations about the future rate of inflation. 
D) future inflation will adapt to conform with the expectations of decision makers.

Question 18

What are the proper monetary and fiscal responses to a recession under the activist view and the nonactivist view?

Accepted Answer

The activist view holds that the governm

Question 19

During the 1960s,most economists believed macropolicy

Accepted Answer

A) that caused inflation would permanently reduce unemployment. 
B) that caused inflation would permanently increase unemployment. 
C) could not be utilized to reduce unemployment. 
D) did not affect inflation. 
A) that caused inflation would permanently reduce unemployment. 
B) that caused inflation would permanently increase unemployment. 
C) could not be utilized to reduce unemployment. 
D) did not affect inflation.

Question 20

Compared to the 1910-1960 period,economic fluctuations during the past 50 years have been less severe.Most economists believe that this increased stability is primarily the result of

Accepted Answer

A) more stable monetary policy. 
B) the smaller budget deficits of recent decades. 
C) regulations that promoted more affordable housing. 
D) greater stability of stock prices as measured by the Dow Jones Industrial Average. 
A) more stable monetary policy. 
B) the smaller budget deficits of recent decades. 
C) regulations that promoted more affordable housing. 
D) greater stability of stock prices as measured by the Dow Jones Industrial Average.

Exam 15: Stabilization Policy, output, and Employment

Computer forecasting models have

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

Which of the following is a major area of disagreement between activists and nonactivists?

What will actual unemployment be (in relation to the natural rate)in each of the following cases? Use a graph of the modern Phillips curve in your answer. a.Decision makers underestimate inflation. b.Decision makers overestimate inflation. c.Decision makers correctly forecast inflation.

During the 1900-1950 period,

Use the table below to choose the correct answer. According to the adaptive expectations hypothesis,at the beginning of period 3,decision makers would expect inflation during period 3 to be

Starting from an initial long-run equilibrium,under the adaptive expectations hypothesis,a shift to a more expansionary policy will increase

The index of leading indicators was developed to provide more reliable information on

Explain the three lags that make it difficult to time changes in discretionary policy properly.

Figure 15-3 -As shown in Figure 15-3,if people behave according to adaptive expectations theory,an increase in the aggregate demand curve from AD₁ to AD₂ will cause

Use the Modern Expectational Phillips curve diagram below to answer the following question(s). Figure 15-4 -Refer to Figure 15-4.According to the modern expectational Phillips curve,unemployment will temporarily be above the natural rate of unemployment when

If the government accelerates money supply growth and enlarges the budget deficit to stimulate aggregate demand,the rational expectations hypothesis indicates that decision makers will

The rational expectations hypothesis implies that use of discretionary macro-policy as a stabilization tool will

Modern Phillips curve analysis indicates that if people

Figure 15-3 -As shown in Figure 15-3,if people behave according to adaptive expectations theory,an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move

When there is an abrupt increase in the rate of inflation,

According to the adaptive expectations hypothesis,

What are the proper monetary and fiscal responses to a recession under the activist view and the nonactivist view?

During the 1960s,most economists believed macropolicy

Compared to the 1910-1960 period,economic fluctuations during the past 50 years have been less severe.Most economists believe that this increased stability is primarily the result of

The Economic Approach

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Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

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Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

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

Fiscal Policy: the Keynesian View and Historical Perspective

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Amoney and the Banking System

Modern Macroeconomics and Monetary Policy

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Great Debates in Economics: Keynes Versus Hayek

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Lessons From the Great Depression

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