Question 1

According to the modern expectational Phillips curve,unemployment will temporarily rise above 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 2

The main policy conclusion of the rational expectations theory is

Accepted Answer

A) fiscal policy lags are so long and variable that such policy is worthless,but monetary policy can stimulate output. 
B) monetary policy lags are so long and variable that such policy is worthless,but fiscal policy can stimulate output. 
C) both monetary and fiscal policy will affect real output if firms and households correctly anticipate the effects of changes in government policy. 
D) neither monetary nor fiscal policy will affect real output if firms and households correctly anticipate the effects of changes in government policy. 
A) fiscal policy lags are so long and variable that such policy is worthless,but monetary policy can stimulate output. 
B) monetary policy lags are so long and variable that such policy is worthless,but fiscal policy can stimulate output. 
C) both monetary and fiscal policy will affect real output if firms and households correctly anticipate the effects of changes in government policy. 
D) neither monetary nor fiscal policy will affect real output if firms and households correctly anticipate the effects of changes in government policy.

Question 3

When persons underestimate inflation (when actual inflation exceeds the expected rate),actual unemployment will

Accepted Answer

A) exceed the natural rate of unemployment. 
B) equal the natural rate of unemployment. 
C) fall below the natural rate of unemployment. 
D) increase if the government is running a budget deficit and decrease if a budget surplus is present. 
A) exceed the natural rate of unemployment. 
B) equal the natural rate of unemployment. 
C) fall below the natural rate of unemployment. 
D) increase if the government is running a budget deficit and decrease if a budget surplus is present.

Question 4

Compared to the 1910-1960 period,during the past 50 years the severity of macroeconomic fluctuations has

Accepted Answer

A) increased. 
B) decreased. 
C) changed little. 
D) increased,but the general level of prices has been more stable. 
A) increased. 
B) decreased. 
C) changed little. 
D) increased,but the general level of prices has been more stable.

Question 5

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

Accepted Answer

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

Question 6

Under adaptive 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 7

In order to make effective policy changes,policy makers need to know

Accepted Answer

A) where the economy is going to be six to twelve months from now. 
B) the magnitude of past recessions. 
C) Keynesian economics. 
D) the exact size of the current M1 money supply. 
A) where the economy is going to be six to twelve months from now. 
B) the magnitude of past recessions. 
C) Keynesian economics. 
D) the exact size of the current M1 money supply.

Question 8

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 fall below 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 9

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

Accepted Answer

A) they are good indicators of the current rate of inflation. 
B) they generally lag behind turns in the business cycle. 
C) of their tendency to lead (or predict)turns in the business cycle. 
D) they are good indicators of the current state of the economy. 
A) they are good indicators of the current rate of inflation. 
B) they generally lag behind turns in the business cycle. 
C) of their tendency to lead (or predict)turns in the business cycle. 
D) they are good indicators of the current state of the economy.

Question 10

Systematic overestimation or underestimation of inflation will

Accepted Answer

A) occur under rational expectations but not under adaptive expectations. 
B) occur under adaptive expectations but not under rational expectations. 
C) occur under both rational and adaptive expectations. 
D) not occur under either rational or adaptive expectations. 
A) occur under rational expectations but not under adaptive expectations. 
B) occur under adaptive expectations but not under rational expectations. 
C) occur under both rational and adaptive expectations. 
D) not occur under either rational or adaptive expectations.

Question 11

The rational expectations theory indicates that expansionary policy will

Accepted Answer

A) stimulate real output in the long run but not in the short run. 
B) expand real output and employment if the public quickly anticipates the effects of the expansionary policy. 
C) equalize real and nominal interest rates during lengthy periods of inflation. 
D) fail to increase employment because individuals will anticipate it and take actions that will offset its impact. 
A) stimulate real output in the long run but not in the short run. 
B) expand real output and employment if the public quickly anticipates the effects of the expansionary policy. 
C) equalize real and nominal interest rates during lengthy periods of inflation. 
D) fail to increase employment because individuals will anticipate it and take actions that will offset its impact.

Question 12

Which one of the following accurately states the view of activists who favor discretionary stabilization policy?

Accepted Answer

A) Neither monetary nor fiscal policy will exert an impact on the real level of economic activity. 
B) Since we have only limited ability to forecast the future direction of the economy,the best policy is to do nothing. 
C) Our ability to forecast the future direction of economic activity is quite good,and therefore,discretionary macroeconomic policy is now capable of eliminating fluctuations in the business cycle if policy makers would follow the advice of leading economists. 
D) The index of leading indicators and other forecasting tools provide policy makers with valuable information that permits them to institute stabilizing changes in macroeconomic policy. 
A) Neither monetary nor fiscal policy will exert an impact on the real level of economic activity. 
B) Since we have only limited ability to forecast the future direction of the economy,the best policy is to do nothing. 
C) Our ability to forecast the future direction of economic activity is quite good,and therefore,discretionary macroeconomic policy is now capable of eliminating fluctuations in the business cycle if policy makers would follow the advice of leading economists. 
D) The index of leading indicators and other forecasting tools provide policy makers with valuable information that permits them to institute stabilizing changes in macroeconomic policy.

Question 13

The view that 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 hypothesis. 
C) the rational expectations hypothesis. 
D) the Phillips curve. 
A) the adaptive expectations hypothesis. 
B) the permanent income hypothesis. 
C) the rational expectations hypothesis. 
D) the Phillips curve.

Question 14

In response to the recession of 2008-2009,the fiscal policy of the federal government was

Accepted Answer

A) highly expansionary,and this Keynesian stimulus promoted a rapid recovery. 
B) highly expansionary,but this was largely offset by the Fed's restrictive monetary policy 
C) highly restrictive,but this was largely offset by the Fed's highly expansionary monetary policy 
D) highly expansionary,but the unemployment rate nonetheless remained high during 2010 and 2011 
A) highly expansionary,and this Keynesian stimulus promoted a rapid recovery. 
B) highly expansionary,but this was largely offset by the Fed's restrictive monetary policy 
C) highly restrictive,but this was largely offset by the Fed's highly expansionary monetary policy 
D) highly expansionary,but the unemployment rate nonetheless remained high during 2010 and 2011

Question 15

During and following the recession of 2008-2009,private investment was

Accepted Answer

A) strong,and this should increase the future productivity of workers. 
B) strong,and this will tend to weaken the future productivity of workers. 
C) weak,and this will tend to reduce the future productivity of workers. 
D) weak,and this will tend to increase the future productivity of workers. 
A) strong,and this should increase the future productivity of workers. 
B) strong,and this will tend to weaken the future productivity of workers. 
C) weak,and this will tend to reduce the future productivity of workers. 
D) weak,and this will tend to increase the future productivity of workers.

Question 16

According to the modern view of the Phillips curve,expansionary macroeconomic policy that leads to inflation will reduce unemployment

Accepted Answer

A) only if people underestimate the inflationary side effects of the policy. 
B) only if people overestimate the inflationary side effects of the policy. 
C) if people accurately anticipate the inflationary side effects of the policy. 
D) only if monetary policy provides the macroeconomic stimulus. 
A) only if people underestimate the inflationary side effects of the policy. 
B) only if people overestimate the inflationary side effects of the policy. 
C) if people accurately anticipate the inflationary side effects of the policy. 
D) only if monetary policy provides the macroeconomic stimulus.

Question 17

The modern view of the Phillips curve suggests that

Accepted Answer

A) when inflation is less than anticipated,unemployment will fall below the natural rate. 
B) when inflation is steady,actual unemployment will equal the natural rate of unemployment. 
C) systematic demand stimulus policies will be unable to affect prices in the long run. 
D) there will be a trade-off between inflation and unemployment in the long run. 
A) when inflation is less than anticipated,unemployment will fall below the natural rate. 
B) when inflation is steady,actual unemployment will equal the natural rate of unemployment. 
C) systematic demand stimulus policies will be unable to affect prices in the long run. 
D) there will be a trade-off between inflation and unemployment in the long run.

Question 18

When it comes to macro-policy,most economists now agree that

Accepted Answer

A) policy should be constantly changing in response to business cycle conditions. 
B) policy changes should exert stimulus during inflationary booms and restraint during downturns. 
C) given our ability to forecast economic conditions,policy changes easily can be implemented in a timely manner. 
D) policy changes are difficult to time correctly,and therefore constant shifts in policy are likely to be a source of economic instability. 
A) policy should be constantly changing in response to business cycle conditions. 
B) policy changes should exert stimulus during inflationary booms and restraint during downturns. 
C) given our ability to forecast economic conditions,policy changes easily can be implemented in a timely manner. 
D) policy changes are difficult to time correctly,and therefore constant shifts in policy are likely to be a source of economic instability.

Question 19

The view that decision-maker expectations are based on actual outcomes observed during the recent past is called the

Accepted Answer

A) rational expectations hypothesis. 
B) adaptive expectations hypothesis. 
C) permanent income theory. 
D) recognition lag. 
A) rational expectations hypothesis. 
B) adaptive expectations hypothesis. 
C) permanent income theory. 
D) recognition lag.

Question 20

Activists believe that

Accepted Answer

A) discretionary changes in macroeconomic policy can help smooth the ups and downs of the business cycle. 
B) balancing the federal budget is of primary importance to economic stability. 
C) the economy's self-correcting mechanism,if not stifled by perverse policies,will prevent prolonged periods of high unemployment. 
D) the M1 money supply should be increased at a steady annual rate. 
A) discretionary changes in macroeconomic policy can help smooth the ups and downs of the business cycle. 
B) balancing the federal budget is of primary importance to economic stability. 
C) the economy's self-correcting mechanism,if not stifled by perverse policies,will prevent prolonged periods of high unemployment. 
D) the M1 money supply should be increased at a steady annual rate.

Exam 15: Stabilization Policy, output, and Employment

According to the modern expectational Phillips curve,unemployment will temporarily rise above the natural rate of unemployment when

The main policy conclusion of the rational expectations theory is

When persons underestimate inflation (when actual inflation exceeds the expected rate),actual unemployment will

Compared to the 1910-1960 period,during the past 50 years the severity of macroeconomic fluctuations has

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

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

In order to make effective policy changes,policy makers need to know

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 fall below the natural rate of unemployment when

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

Systematic overestimation or underestimation of inflation will

The rational expectations theory indicates that expansionary policy will

Which one of the following accurately states the view of activists who favor discretionary stabilization policy?

The view that 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

In response to the recession of 2008-2009,the fiscal policy of the federal government was

During and following the recession of 2008-2009,private investment was

According to the modern view of the Phillips curve,expansionary macroeconomic policy that leads to inflation will reduce unemployment

The modern view of the Phillips curve suggests that

When it comes to macro-policy,most economists now agree that

The view that decision-maker expectations are based on actual outcomes observed during the recent past is called the

Activists believe that

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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