Question 1

Which of the following occurred during and following the 2008-2009 recession?

Accepted Answer

A) Unemployment benefits were extended from their normal 26 weeks to up to 99 weeks. 
B) The Federal Reserve more than doubled the size of the monetary base. 
C) The federal budget deficit expanded to approximately 10 percent of GDP. 
D) All of the above are true. 
A) Unemployment benefits were extended from their normal 26 weeks to up to 99 weeks. 
B) The Federal Reserve more than doubled the size of the monetary base. 
C) The federal budget deficit expanded to approximately 10 percent of GDP. 
D) All of the above are true.

Question 2

Which of the following variables are included in the index of leading indicators?

Accepted Answer

A) new orders placed with manufacturers,length of average workweek,permits for new housing starts 
B) changes in the M1 money supply,number of new credit cards,political stance of current politicians 
C) average worker salary,average number of children per family,current standard of living 
D) labor-force participation rate,household debt as a share of disposable income,the real interest rate 
A) new orders placed with manufacturers,length of average workweek,permits for new housing starts 
B) changes in the M1 money supply,number of new credit cards,political stance of current politicians 
C) average worker salary,average number of children per family,current standard of living 
D) labor-force participation rate,household debt as a share of disposable income,the real interest rate

Question 3

The integration of expectations into macroeconomic analysis indicates that

Accepted Answer

A) fiscal policy is more potent than monetary policy. 
B) monetary policy is more potent than fiscal policy. 
C) once people come to expect a given rate of inflation,the inflation will neither stimulate real output nor reduce unemployment. 
D) higher rates of inflation will lead to lower rates of unemployment in the long run but not in the short run. 
A) fiscal policy is more potent than monetary policy. 
B) monetary policy is more potent than fiscal policy. 
C) once people come to expect a given rate of inflation,the inflation will neither stimulate real output nor reduce unemployment. 
D) higher rates of inflation will lead to lower rates of unemployment in the long run but not in the short run.

Question 4

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 5

Which of the following was an important source of economic stability during the two decades following the recovery from the 1982 recession?

Accepted Answer

A) countercyclical fiscal policy instituted by Congress 
B) a substantial increase in government spending as a share of the economy 
C) monetary policy that kept the inflation rate low and relatively steady 
D) balanced federal budgets throughout the period 
A) countercyclical fiscal policy instituted by Congress 
B) a substantial increase in government spending as a share of the economy 
C) monetary policy that kept the inflation rate low and relatively steady 
D) balanced federal budgets throughout the period

Question 6

How has macro-policy changed since the 1970s? How have the views of economists on the trade-off between inflation and unemployment changed?

Accepted Answer

In the 1970s,expansionary policies were

Question 7

Which of the following is part of the modern view of the Phillips curve?

Accepted Answer

A) When inflation exceeds what was anticipated,unemployment falls below the natural rate. 
B) When inflation is less than anticipated,unemployment will rise above the natural rate. 
C) Demand stimulus policies can temporarily reduce unemployment,but in the long run,their primary impact will be on prices (inflation). 
D) All of the above are correct. 
A) When inflation exceeds what was anticipated,unemployment falls below the natural rate. 
B) When inflation is less than anticipated,unemployment will rise above the natural rate. 
C) Demand stimulus policies can temporarily reduce unemployment,but in the long run,their primary impact will be on prices (inflation). 
D) All of the above are correct.

Question 8

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

Accepted Answer

A) a higher general level of prices but little or no change in real output 
B) a higher general level of prices and an expansion in real output 
C) no change in the general level of prices and a reduction in real output 
D) no change in either the general level of prices or real output 
A) a higher general level of prices but little or no change in real output 
B) a higher general level of prices and an expansion in real output 
C) no change in the general level of prices and a reduction in real output 
D) no change in either the general level of prices or real output

Question 9

Which of the following is an area of substantial agreement among macroeconomists?

Accepted Answer

A) Expansionary policies that lead to inflation can keep the actual rate of unemployment below the natural rate. 
B) It is relatively easy to time shifts in monetary policy in a manner that will promote economic stability. 
C) Price stability is a proper goal of monetary policy. 
D) It is relatively easy to time shifts in fiscal policy in a manner that will promote economic stability. 
A) Expansionary policies that lead to inflation can keep the actual rate of unemployment below the natural rate. 
B) It is relatively easy to time shifts in monetary policy in a manner that will promote economic stability. 
C) Price stability is a proper goal of monetary policy. 
D) It is relatively easy to time shifts in fiscal policy in a manner that will promote economic stability.

Question 10

Under the adaptive expectations theory,people persistently

Accepted Answer

A) underestimate inflation when it is slowing down. 
B) overestimate inflation when it is accelerating. 
C) underestimate inflation when it is accelerating. 
D) adapt to the prevailing inflation rate quickly. 
A) underestimate inflation when it is slowing down. 
B) overestimate inflation when it is accelerating. 
C) underestimate inflation when it is accelerating. 
D) adapt to the prevailing inflation rate quickly.

Question 11

What are the macroeconomic policy implications of the rational expectations hypothesis? What should policy makers do and not do?

Accepted Answer

The hypothesis implies that macro-policy

Question 12

During the recession of 2008-2009,the length of time qualified workers were permitted to draw unemployment benefits was increased from 26 to up to 99 weeks.Economic theory indicates that this extension would

Accepted Answer

A) reduce the opportunity cost of job search and lead to longer spells of unemployment. 
B) increase the opportunity cost of job search and lead to shorter spells of unemployment. 
C) reduce the long-term rate of unemployment. 
D) increase the current supply of labor and make it easier for employers to hire workers. 
A) reduce the opportunity cost of job search and lead to longer spells of unemployment. 
B) increase the opportunity cost of job search and lead to shorter spells of unemployment. 
C) reduce the long-term rate of unemployment. 
D) increase the current supply of labor and make it easier for employers to hire workers.

Question 13

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 14

Activists and nonactivists both believe that

Accepted Answer

A) the self-corrective mechanism of a market economy works quite well. 
B) macro-policy should seek to minimize economic fluctuations,keep the inflation rate low,and establish an environment consistent with strong economic growth. 
C) discretionary monetary and fiscal policy can be used successfully to speed the adjustment process and reduce the swings of the business cycle. 
D) policies that stimulate aggregate demand can reduce the long-term rate of unemployment. 
A) the self-corrective mechanism of a market economy works quite well. 
B) macro-policy should seek to minimize economic fluctuations,keep the inflation rate low,and establish an environment consistent with strong economic growth. 
C) discretionary monetary and fiscal policy can be used successfully to speed the adjustment process and reduce the swings of the business cycle. 
D) policies that stimulate aggregate demand can reduce the long-term rate of unemployment.

Question 15

Which group is most likely to argue that an increase in government spending will be more effective than a reduction in taxes as a tool to promote recovery?

Accepted Answer

A) monetarists 
B) Keynesian economists 
C) supply-side economists 
D) new classical economists 
E) All of the above;there is a consensus on this issue. 
A) monetarists 
B) Keynesian economists 
C) supply-side economists 
D) new classical economists 
E) All of the above;there is a consensus on this issue.

Question 16

Use the figure below to answer the following question.
Figure 15-5
  
-Refer to Figure 15-5.If the economy were currently operating at point A in the exhibit and expansionary policy were enacted that would shift AD₁ to AD₂,

Accepted Answer

A) if people have adaptive expectations,the economy would move to point B in the short run. 
B) if people have rational expectations,the economy would move to point C in the short run. 
C) in the long run,the economy would move to point C regardless of how expectations are formed. 
D) all of the above are true. 
A) if people have adaptive expectations,the economy would move to point B in the short run. 
B) if people have rational expectations,the economy would move to point C in the short run. 
C) in the long run,the economy would move to point C regardless of how expectations are formed. 
D) all of the above are true.

Question 17

The theory according to which individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy)is called

Accepted Answer

A) the adaptive expectations hypothesis. 
B) the permanent income theory. 
C) the rational expectations hypothesis. 
D) Laffer curve analysis. 
A) the adaptive expectations hypothesis. 
B) the permanent income theory. 
C) the rational expectations hypothesis. 
D) Laffer curve analysis.

Question 18

Economists who believe that policy errors are the source of economic instability argue that the crisis of 2008 was primarily the result of

Accepted Answer

A) housing regulations that undermined sound lending practices and Fed policies that generated the housing boom and bust. 
B) the stock market crash. 
C) the actions of speculators who drove up the world price of oil,the domestic price of gasoline,and other energy sources. 
D) persistently high interest rates during the decade leading up to the crisis. 
A) housing regulations that undermined sound lending practices and Fed policies that generated the housing boom and bust. 
B) the stock market crash. 
C) the actions of speculators who drove up the world price of oil,the domestic price of gasoline,and other energy sources. 
D) persistently high interest rates during the decade leading up to the crisis.

Question 19

According to the rational expectations theory,which of the following will affect the levels of output and employment?

Accepted Answer

A) expansionary monetary policy that is fully anticipated 
B) contractionary monetary policy that is fully anticipated 
C) changes in monetary policy that are unanticipated 
D) changes in fiscal policy that are anticipated 
A) expansionary monetary policy that is fully anticipated 
B) contractionary monetary policy that is fully anticipated 
C) changes in monetary policy that are unanticipated 
D) changes in fiscal policy that are anticipated

Question 20

Under the rational expectations hypothesis,which of the following is the most likely short-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

Exam 15: Stabilization Policy, output, and Employment

Which of the following occurred during and following the 2008-2009 recession?

Which of the following variables are included in the index of leading indicators?

The integration of expectations into macroeconomic analysis indicates that

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

Which of the following was an important source of economic stability during the two decades following the recovery from the 1982 recession?

How has macro-policy changed since the 1970s? How have the views of economists on the trade-off between inflation and unemployment changed?

Which of the following is part of the modern view of the Phillips curve?

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

Which of the following is an area of substantial agreement among macroeconomists?

Under the adaptive expectations theory,people persistently

What are the macroeconomic policy implications of the rational expectations hypothesis? What should policy makers do and not do?

During the recession of 2008-2009,the length of time qualified workers were permitted to draw unemployment benefits was increased from 26 to up to 99 weeks.Economic theory indicates that this extension would

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

Activists and nonactivists both believe that

Which group is most likely to argue that an increase in government spending will be more effective than a reduction in taxes as a tool to promote recovery?

Use the figure below to answer the following question. Figure 15-5 -Refer to Figure 15-5.If the economy were currently operating at point A in the exhibit and expansionary policy were enacted that would shift AD₁ to AD₂,

The theory according to which individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy)is called

Economists who believe that policy errors are the source of economic instability argue that the crisis of 2008 was primarily the result of

According to the rational expectations theory,which of the following will affect the levels of output and employment?

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

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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