Question 1

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 2

If decision makers adjust fully to demand stimulus policies,persistent expansionary macro-policy will lead to

Accepted Answer

A) inflation with no lasting reductions in unemployment. 
B) a permanent reduction in unemployment. 
C) lower interest rates. 
D) more rapid economic growth. 
A) inflation with no lasting reductions in unemployment. 
B) a permanent reduction in unemployment. 
C) lower interest rates. 
D) more rapid economic growth.

Question 3

Assume that during the last several years,the annual rate of inflation was 2 percent and the annual growth rate of the money supply was 6 percent.During the last 12 months,however,the monetary authorities have held the supply of money constant.The expected inflation rate for the next period will be

Accepted Answer

A) higher than 2 percent under the rational expectations hypothesis. 
B) 2 percent under the adaptive expectations hypothesis. 
C) lower than 2 percent under both the adaptive and rational expectations hypotheses. 
D) higher than 2 percent under both the adaptive and rational expectations hypotheses. 
A) higher than 2 percent under the rational expectations hypothesis. 
B) 2 percent under the adaptive expectations hypothesis. 
C) lower than 2 percent under both the adaptive and rational expectations hypotheses. 
D) higher than 2 percent under both the adaptive and rational expectations hypotheses.

Question 4

The variables in the index of leading indicators are included in the index because

Accepted Answer

A) they turn down prior to a deflation and turn up prior to an inflation. 
B) they generally lag behind turns in the business cycle. 
C) they turn down prior to a recession and turn up before the beginning of a business expansion. 
D) they provide a comprehensive measure of the current state of the economy. 
A) they turn down prior to a deflation and turn up prior to an inflation. 
B) they generally lag behind turns in the business cycle. 
C) they turn down prior to a recession and turn up before the beginning of a business expansion. 
D) they provide a comprehensive measure of the current state of the economy.

Question 5

Between 1983 and 2007,the U.S.economy was in recession approximately

Accepted Answer

A) 6 percent of the time. 
B) 20 percent of the time 
C) 30 percent of the time 
D) This is a trick question;the U.S.economy has not experienced a recession during this period. 
A) 6 percent of the time. 
B) 20 percent of the time 
C) 30 percent of the time 
D) This is a trick question;the U.S.economy has not experienced a recession during this period.

Question 6

The policy response to the recession of 2008-2009 provided an experiment on the potency of Keynesian fiscal policy.In what respect was this true?

Accepted Answer

A) The money supply increased rapidly and the short-term interest rates were pushed to near zero just as the Keynesian model of fiscal policy recommends. 
B) Government spending increased sharply and the budget deficits were large just as the Keynesian model of fiscal policy recommends. 
C) The money supply increased rapidly and the budget was shifted toward a surplus just as the Keynesian model recommends. 
D) The federal budget was balanced just as the Keynesian model indicates would be prudent policy during a recession. 
A) The money supply increased rapidly and the short-term interest rates were pushed to near zero just as the Keynesian model of fiscal policy recommends. 
B) Government spending increased sharply and the budget deficits were large just as the Keynesian model of fiscal policy recommends. 
C) The money supply increased rapidly and the budget was shifted toward a surplus just as the Keynesian model recommends. 
D) The federal budget was balanced just as the Keynesian model indicates would be prudent policy during a recession.

Question 7

Which of the following reduced the effectiveness of the Fed's low interest rate policy during the aftermath of the 2008-2009 recession?

Accepted Answer

A) The heavy indebtedness of households. 
B) The reduction in the earnings derived from savings accounts,certificates of deposits,and other forms of savings used by many Americans. 
C) The increased fear of inflation fueled by the Fed's expansionary monetary policy. 
D) All of the above. 
A) The heavy indebtedness of households. 
B) The reduction in the earnings derived from savings accounts,certificates of deposits,and other forms of savings used by many Americans. 
C) The increased fear of inflation fueled by the Fed's expansionary monetary policy. 
D) All of the above.

Question 8

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

Accepted Answer

A) directly from E₁ to E₃ and then remain at E₃. 
B) directly from E₁ to E₂ and then remain at E₂. 
C) from E₁ to E₂ initially and then eventually move back to E₁. 
D) from E₁ to E₂ initially and then eventually move to E₃. 
A) directly from E₁ to E₃ and then remain at E₃. 
B) directly from E₁ to E₂ and then remain at E₂. 
C) from E₁ to E₂ initially and then eventually move back to E₁. 
D) from E₁ to E₂ initially and then eventually move to E₃.

Question 9

Computer forecasting models are most accurate at predicting the economy when

Accepted Answer

A) inflation is accelerating. 
B) there is a turn in the business cycle. 
C) economic conditions are relatively stable. 
D) supply shocks impact the economy. 
A) inflation is accelerating. 
B) there is a turn in the business cycle. 
C) economic conditions are relatively stable. 
D) supply shocks impact the economy.

Question 10

Under the rational expectations hypothesis,which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Accepted Answer

A) higher prices and no change in real output 
B) higher prices and expansion in real output 
C) no change in prices but an expansion in real output 
D) no change in either prices or real output 
A) higher prices and no change in real output 
B) higher prices and expansion in real output 
C) no change in prices but an expansion in real output 
D) no change in either prices or real output

Question 11

Stop-go policy that shifts between expansionary monetary policy and restrictive monetary policy will most likely

Accepted Answer

A) promote economic stability and attract investment. 
B) lead to price stability because the restrictive policies will offset the effects of expansionary policies. 
C) create an environment of uncertainty,which will result in economic instability. 
D) help promote economic stability because changes in monetary policy will quickly exert a predictable impact on the economy. 
A) promote economic stability and attract investment. 
B) lead to price stability because the restrictive policies will offset the effects of expansionary policies. 
C) create an environment of uncertainty,which will result in economic instability. 
D) help promote economic stability because changes in monetary policy will quickly exert a predictable impact on the economy.

Question 12

Under rational expectations,which of the following will likely be an initial effect of an unanticipated shift to a more restrictive macroeconomic policy?

Accepted Answer

A) a short-run decrease in output and a long-run decrease in inflation 
B) no change in output even in the short run,only a permanent decrease in inflation 
C) a short-run decrease in inflation and a long-run decrease in output 
D) lower inflation and lower output in the long run 
A) a short-run decrease in output and a long-run decrease in inflation 
B) no change in output even in the short run,only a permanent decrease in inflation 
C) a short-run decrease in inflation and a long-run decrease in output 
D) lower inflation and lower output in the long run

Question 13

Activists believe that

Accepted Answer

A) the M1 money supply should be increased at a steady rate annually. 
B) taxes should be increased during a recession in order to balance the federal budget. 
C) the economy's self-correcting mechanism,if not stifled by perverse policies,will prevent prolonged periods of high unemployment. 
D) discretionary changes in macroeconomic policy can help smooth the business cycle of a market economy. 
A) the M1 money supply should be increased at a steady rate annually. 
B) taxes should be increased during a recession in order to balance the federal budget. 
C) the economy's self-correcting mechanism,if not stifled by perverse policies,will prevent prolonged periods of high unemployment. 
D) discretionary changes in macroeconomic policy can help smooth the business cycle of a market economy.

Question 14

Which of the following is true?

Accepted Answer

A) When the inflation rate is steady-when it is neither rising nor falling-the actual rate of unemployment will equal the economy's natural rate of unemployment. 
B) When the inflation rate is higher than was anticipated,unemployment will exceed the natural rate. 
C) Demand stimulus policies will lead to inflation without permanently reducing the unemployment rate. 
D) Both a and c are true;b is false. 
A) When the inflation rate is steady-when it is neither rising nor falling-the actual rate of unemployment will equal the economy's natural rate of unemployment. 
B) When the inflation rate is higher than was anticipated,unemployment will exceed the natural rate. 
C) Demand stimulus policies will lead to inflation without permanently reducing the unemployment rate. 
D) Both a and c are true;b is false.

Question 15

Economic analysis suggests that countercyclical macro-policy will

Accepted Answer

A) be difficult to time properly because of uncertainty about the future direction of the economy. 
B) be difficult to implement because we do not know whether monetary policy is transmitted through the interest rate,or whether it affects aggregate demand directly. 
C) reduce the natural rate of unemployment when macro-policy is persistently expansionary. 
D) help reduce economic instability if,and only if,we are willing to tolerate double-digit inflation. 
A) be difficult to time properly because of uncertainty about the future direction of the economy. 
B) be difficult to implement because we do not know whether monetary policy is transmitted through the interest rate,or whether it affects aggregate demand directly. 
C) reduce the natural rate of unemployment when macro-policy is persistently expansionary. 
D) help reduce economic instability if,and only if,we are willing to tolerate double-digit inflation.

Question 16

In terms of the Phillips curve,the experience of the 1970s indicates that macro-policy

Accepted Answer

A) can permanently reduce unemployment if we are willing to tolerate higher inflation. 
B) can reduce unemployment in the long run if we are willing to tolerate higher inflation. 
C) may be able to reduce unemployment but cannot retard inflation. 
D) may be able to reduce unemployment in the short run,but there is little evidence that expansionary policies can reduce unemployment permanently. 
A) can permanently reduce unemployment if we are willing to tolerate higher inflation. 
B) can reduce unemployment in the long run if we are willing to tolerate higher inflation. 
C) may be able to reduce unemployment but cannot retard inflation. 
D) may be able to reduce unemployment in the short run,but there is little evidence that expansionary policies can reduce unemployment permanently.

Question 17

The interval between the recognition of a need for a policy change and when the policy change is instituted is called the:

Accepted Answer

A) recognition lag. 
B) impact lag. 
C) policy lag. 
D) administrative lag. 
A) recognition lag. 
B) impact lag. 
C) policy lag. 
D) administrative lag.

Question 18

Which of the following would suggest that monetary policy is restrictive?

Accepted Answer

A) falling commodity prices 
B) depreciation of the foreign exchange value of the dollar 
C) a rising M1 money supply 
D) an increase in the rate of inflation 
A) falling commodity prices 
B) depreciation of the foreign exchange value of the dollar 
C) a rising M1 money supply 
D) an increase in the rate of inflation

Question 19

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 20

The Phillips curve depicts the relationship between

Accepted Answer

A) the federal debt and unemployment. 
B) wage rates and aggregate demand. 
C) the equilibrium level of income and the employment rate. 
D) inflation and unemployment. 
A) the federal debt and unemployment. 
B) wage rates and aggregate demand. 
C) the equilibrium level of income and the employment rate. 
D) inflation and unemployment.

Exam 15: Stabilization Policy, output, and Employment

The Phillips curve illustrates the relationship between

If decision makers adjust fully to demand stimulus policies,persistent expansionary macro-policy will lead to

Assume that during the last several years,the annual rate of inflation was 2 percent and the annual growth rate of the money supply was 6 percent.During the last 12 months,however,the monetary authorities have held the supply of money constant.The expected inflation rate for the next period will be

The variables in the index of leading indicators are included in the index because

Between 1983 and 2007,the U.S.economy was in recession approximately

The policy response to the recession of 2008-2009 provided an experiment on the potency of Keynesian fiscal policy.In what respect was this true?

Which of the following reduced the effectiveness of the Fed's low interest rate policy during the aftermath of the 2008-2009 recession?

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

Computer forecasting models are most accurate at predicting the economy when

Under the rational expectations hypothesis,which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Stop-go policy that shifts between expansionary monetary policy and restrictive monetary policy will most likely

Under rational expectations,which of the following will likely be an initial effect of an unanticipated shift to a more restrictive macroeconomic policy?

Activists believe that

Which of the following is true?

Economic analysis suggests that countercyclical macro-policy will

In terms of the Phillips curve,the experience of the 1970s indicates that macro-policy

The interval between the recognition of a need for a policy change and when the policy change is instituted is called the:

Which of the following would suggest that monetary policy is restrictive?

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

The Phillips curve depicts the relationship between

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

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

Fiscal Policy, incentives, and Secondary Effects

Amoney 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

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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