Question 1

Which of the following contributed the most to the economic stability and strong growth of real GDP during the 1980s and 1990s?

Accepted Answer

A) the rapid growth of government expenditures throughout most of the period 
B) congressional policies that persistently balance the budget 
C) modifications in fiscal policy that stimulated aggregate demand during economic slowdowns and restrained it during periods of economic boom 
D) Federal Reserve policies that kept the inflation rate low and relatively stable 
A) the rapid growth of government expenditures throughout most of the period 
B) congressional policies that persistently balance the budget 
C) modifications in fiscal policy that stimulated aggregate demand during economic slowdowns and restrained it during periods of economic boom 
D) Federal Reserve policies that kept the inflation rate low and relatively stable

Question 2

Incorporation of expectations into economic decision making and the economic experience of recent decades indicate that in the long run

Accepted Answer

A) inflation relates directly to unemployment. 
B) inflation is inversely related to unemployment. 
C) there is no trade-off between inflation and unemployment. 
D) high unemployment is a primary cause of inflation. 
A) inflation relates directly to unemployment. 
B) inflation is inversely related to unemployment. 
C) there is no trade-off between inflation and unemployment. 
D) high unemployment is a primary cause of inflation.

Question 3

Which of the following best reflects the nonactivist view of stabilization policy?

Accepted Answer

A) Monetary and fiscal policies exert little impact on the economy. 
B) Discretionary policy changes often make matters worse. 
C) Fiscal policy should be used to help stabilize the economy;monetary policy should not. 
D) Expansionary monetary policy is the primary source of rapid economic growth. 
A) Monetary and fiscal policies exert little impact on the economy. 
B) Discretionary policy changes often make matters worse. 
C) Fiscal policy should be used to help stabilize the economy;monetary policy should not. 
D) Expansionary monetary policy is the primary source of rapid economic growth.

Question 4

Which of the following is true regarding economic fluctuations in the United States?

Accepted Answer

A) Since World War II,economic ups and downs have been more moderate than before the war. 
B) Prior to World War II,real GDP annual increases of more than 5 percent were unheard of. 
C) Real GDP grew rapidly during the 1930s. 
D) The 1920s was a period of prolonged economic stagnation and high unemployment. 
A) Since World War II,economic ups and downs have been more moderate than before the war. 
B) Prior to World War II,real GDP annual increases of more than 5 percent were unheard of. 
C) Real GDP grew rapidly during the 1930s. 
D) The 1920s was a period of prolonged economic stagnation and high unemployment.

Question 5

Suppose the annual rate of inflation has been 3 percent and the annual growth rate of the money supply has been 5 percent during the last few years.In the last twelve months,however,the monetary authorities have increased the money supply at a 12 percent annual rate.The expected inflation rate for the next period will be:

Accepted Answer

A) lower than 3 percent under both the adaptive and rational expectations hypotheses. 
B) 3 percent under the adaptive expectations hypothesis. 
C) 3 percent under the rational expectations hypothesis. 
D) higher than 3 percent under both the adaptive and rational expectations hypotheses. 
A) lower than 3 percent under both the adaptive and rational expectations hypotheses. 
B) 3 percent under the adaptive expectations hypothesis. 
C) 3 percent under the rational expectations hypothesis. 
D) higher than 3 percent under both the adaptive and rational expectations hypotheses.

Question 6

The index of leading indicators is

Accepted Answer

A) an alphabetical listing of all the most popular indicators in the economy for a given month. 
B) a composite index of indicators that provides information on the future direction of the economy. 
C) an alphabetical listing of the most important indicators of the current economic well-being of the U.S.economy. 
D) a composite index of the most important indicators of the current economic well-being of the U.S.economy. 
A) an alphabetical listing of all the most popular indicators in the economy for a given month. 
B) a composite index of indicators that provides information on the future direction of the economy. 
C) an alphabetical listing of the most important indicators of the current economic well-being of the U.S.economy. 
D) a composite index of the most important indicators of the current economic well-being of the U.S.economy.

Question 7

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

Accepted Answer

A) approximately 33 percent of the time. 
B) approximately 20 percent of the time. 
C) 17 months. 
D) This is a trick question;there was no recession during this period. 
A) approximately 33 percent of the time. 
B) approximately 20 percent of the time. 
C) 17 months. 
D) This is a trick question;there was no recession during this period.

Question 8

The adaptive expectations hypothesis implies that people

Accepted Answer

A) adjust their expectations quickly to policy changes. 
B) expect the next period to be pretty much like the recent past. 
C) will always be correct in their forecast for the next period. 
D) change their expectations about the future if policy changes. 
A) adjust their expectations quickly to policy changes. 
B) expect the next period to be pretty much like the recent past. 
C) will always be correct in their forecast for the next period. 
D) change their expectations about the future if policy changes.

Question 9

Under the adaptive expectations hypothesis,how will a shift to a more expansionary monetary policy affect the economy?

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 10

During the last century,the percent of time the U.S.economy has been in recession has

Accepted Answer

A) risen substantially. 
B) stayed about the same. 
C) risen slightly. 
D) fallen. 
A) risen substantially. 
B) stayed about the same. 
C) risen slightly. 
D) fallen.

Question 11

If the monetary authorities follow policies that keep the annual rate of inflation steady and low (for example,2 percent),which of the following is most likely to occur?

Accepted Answer

A) a high rate of unemployment because people will anticipate a higher rate of inflation 
B) considerable fluctuations in real GDP because the monetary authorities are not constantly adjusting monetary policy in light of current business conditions 
C) higher real interest rates because decision makers will fail to anticipate the 2 percent rate of inflation 
D) an unemployment rate that is at or near the natural rate of unemployment because the actual rate of inflation will not be much different than what people expect 
A) a high rate of unemployment because people will anticipate a higher rate of inflation 
B) considerable fluctuations in real GDP because the monetary authorities are not constantly adjusting monetary policy in light of current business conditions 
C) higher real interest rates because decision makers will fail to anticipate the 2 percent rate of inflation 
D) an unemployment rate that is at or near the natural rate of unemployment because the actual rate of inflation will not be much different than what people expect

Question 12

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 13

The rational expectations hypothesis implies that discretionary macropolicy may be

Accepted Answer

A) relatively ineffective,even in the short run. 
B) relatively effective in the short run but ineffective in the long run. 
C) effective both in the short run and long run. 
D) effective in the long run because decision makers will continually make systematic,predictable errors. 
A) relatively ineffective,even in the short run. 
B) relatively effective in the short run but ineffective in the long run. 
C) effective both in the short run and long run. 
D) effective in the long run because decision makers will continually make systematic,predictable errors.

Question 14

(I)Rational expectations adherents believe that decision makers base their future expectations on actual outcomes observed during recent periods.
(II)The adaptive expectations hypothesis states that decision makers weigh all available evidence when forming expectations about future economic events.

Accepted Answer

A) I is true;II is false. 
B) I is false;II is true. 
C) Both I and II are true. 
D) Both I and II are false. 
A) I is true;II is false. 
B) I is false;II is true. 
C) Both I and II are true. 
D) Both I and II are false.

Question 15

The index of leading indicators has

Accepted Answer

A) turned down prior to six of the eight recessions since 1959. 
B) turned up prior to each of the periods of inflation since 1959. 
C) turned down prior to each of the eight recessions since 1959,but it has also falsely forecast several others. 
D) turned down only eight times since 1959,and each downturn has been followed by a recession. 
A) turned down prior to six of the eight recessions since 1959. 
B) turned up prior to each of the periods of inflation since 1959. 
C) turned down prior to each of the eight recessions since 1959,but it has also falsely forecast several others. 
D) turned down only eight times since 1959,and each downturn has been followed by a recession.

Question 16

The time between implementation of a macro-policy change and when the change exerts its primary influence is called the

Accepted Answer

A) impact lag. 
B) recognition lag. 
C) administrative lag. 
D) tax reform lag. 
A) impact lag. 
B) recognition lag. 
C) administrative lag. 
D) tax reform lag.

Question 17

Suppose the inflation rate of a country falls from 8 percent during 2002-2004 to 6 percent in 2005-2007,under the adaptive expectations hypothesis what will the expected rate of inflation at the beginning of 2008?

Accepted Answer

A) 2 percent 
B) 4 percent 
C) 6 percent 
D) 8 percent 
A) 2 percent 
B) 4 percent 
C) 6 percent 
D) 8 percent

Question 18

Which combination of signals would be a strong indication that Fed policy is too expansionary and that a shift to a more restrictive policy is in order?

Accepted Answer

A) commodity prices are falling and the dollar is appreciating. 
B) commodity prices are rising and the dollar is depreciating. 
C) commodity prices are rising and the dollar is appreciating. 
D) commodity prices are falling and the dollar is depreciating. 
A) commodity prices are falling and the dollar is appreciating. 
B) commodity prices are rising and the dollar is depreciating. 
C) commodity prices are rising and the dollar is appreciating. 
D) commodity prices are falling and the dollar is depreciating.

Question 19

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 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 20

Which combination of signals is indicative that Fed policy is restrictive and that a shift to a more expansionary policy is in order?

Accepted Answer

A) Commodity prices are falling,and the dollar is appreciating. 
B) Commodity prices are rising,and the dollar is appreciating. 
C) Commodity prices are rising,and the dollar is depreciating. 
D) Commodity prices are falling,and the dollar is depreciating. 
A) Commodity prices are falling,and the dollar is appreciating. 
B) Commodity prices are rising,and the dollar is appreciating. 
C) Commodity prices are rising,and the dollar is depreciating. 
D) Commodity prices are falling,and the dollar is depreciating.

Exam 15: Stabilization Policy, output, and Employment

Which of the following contributed the most to the economic stability and strong growth of real GDP during the 1980s and 1990s?

Incorporation of expectations into economic decision making and the economic experience of recent decades indicate that in the long run

Which of the following best reflects the nonactivist view of stabilization policy?

Which of the following is true regarding economic fluctuations in the United States?

The index of leading indicators is

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

The adaptive expectations hypothesis implies that people

Under the adaptive expectations hypothesis,how will a shift to a more expansionary monetary policy affect the economy?

During the last century,the percent of time the U.S.economy has been in recession has

If the monetary authorities follow policies that keep the annual rate of inflation steady and low (for example,2 percent),which of the following is most likely to occur?

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

The rational expectations hypothesis implies that discretionary macropolicy may be

(I)Rational expectations adherents believe that decision makers base their future expectations on actual outcomes observed during recent periods. (II)The adaptive expectations hypothesis states that decision makers weigh all available evidence when forming expectations about future economic events.

The index of leading indicators has

The time between implementation of a macro-policy change and when the change exerts its primary influence is called the

Suppose the inflation rate of a country falls from 8 percent during 2002-2004 to 6 percent in 2005-2007,under the adaptive expectations hypothesis what will the expected rate of inflation at the beginning of 2008?

Which combination of signals would be a strong indication that Fed policy is too expansionary and that a shift to a more restrictive policy is in order?

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 economy to move

Which combination of signals is indicative that Fed policy is restrictive and that a shift to a more expansionary policy is in order?

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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