Question 1

What are the two theories about how expectations are formed? Discuss each.

Accepted Answer

The two theories are adaptive and ration

Question 2

The modern view of the Phillips curve indicates that expansionary macroeconomic policy

Accepted Answer

A) will reduce the unemployment rate if policy makers are willing to accept the required rate of inflation. 
B) will reduce the unemployment rate only when people underestimate the inflationary effects of the expansionary policy. 
C) will reduce the unemployment rate only when people overestimate the inflationary effects of the expansionary policy. 
D) will reduce the unemployment rate if people accurately anticipate the inflationary effects of the expansionary policy. 
A) will reduce the unemployment rate if policy makers are willing to accept the required rate of inflation. 
B) will reduce the unemployment rate only when people underestimate the inflationary effects of the expansionary policy. 
C) will reduce the unemployment rate only when people overestimate the inflationary effects of the expansionary policy. 
D) will reduce the unemployment rate if people accurately anticipate the inflationary effects of the expansionary policy.

Question 3

The 25 years prior to the crisis of 2008-2009 were

Accepted Answer

A) characterized by more instability than the first 50 years of the twentieth century. 
B) the most stable economic quarter of a century in American history. 
C) characterized by more monetary and price instability than any era other than the 1970s. 
D) a period of historically slow growth and high unemployment. 
A) characterized by more instability than the first 50 years of the twentieth century. 
B) the most stable economic quarter of a century in American history. 
C) characterized by more monetary and price instability than any era other than the 1970s. 
D) a period of historically slow growth and high unemployment.

Question 4

What is the Phillips curve? What is the difference between the original Phillips curve and the "modern" view of the Phillips curve? What problems caused the abandonment of the ideas behind the original Phillips curve?

Accepted Answer

The Phillips curve is a graph showing th

Question 5

In the twentieth century,fluctuations in real GDP were

Accepted Answer

A) less severe during the last 50 years than was true during the first half of the century. 
B) virtually eliminated as the result of the countercyclical application of fiscal policy. 
C) more severe during the last 50 years than was true during the first half of the century. 
D) primarily the result of a fiscal policy that has persistently balanced the federal budget. 
A) less severe during the last 50 years than was true during the first half of the century. 
B) virtually eliminated as the result of the countercyclical application of fiscal policy. 
C) more severe during the last 50 years than was true during the first half of the century. 
D) primarily the result of a fiscal policy that has persistently balanced the federal budget.

Question 6

Economists who believe that market economies are inherently unstable argue that the crisis of 2008 was primarily the result of

Accepted Answer

A) the expansionary policies of the Fed that caused the housing boom. 
B) housing regulations that undermined sound lending practices. 
C) the leveraged lending practices of banks and the fear that retarded both consumption and investment in the latter half of 2008. 
D) persistently high interest rates during the decade leading up to the crisis. 
A) the expansionary policies of the Fed that caused the housing boom. 
B) housing regulations that undermined sound lending practices. 
C) the leveraged lending practices of banks and the fear that retarded both consumption and investment in the latter half of 2008. 
D) persistently high interest rates during the decade leading up to the crisis.

Question 7

According to the rational expectations theory,expansionary monetary policy will

Accepted Answer

A) reduce inflation. 
B) lead to inflation and the higher rate of inflation will be quickly anticipated. 
C) reduce unemployment because people will generally underestimate the inflationary side effects of the monetary expansion. 
D) accelerate inflation in the short run,but in the long run the primary effect will be an increase in employment. 
A) reduce inflation. 
B) lead to inflation and the higher rate of inflation will be quickly anticipated. 
C) reduce unemployment because people will generally underestimate the inflationary side effects of the monetary expansion. 
D) accelerate inflation in the short run,but in the long run the primary effect will be an increase in employment.

Question 8

According to the theory of rational expectations,the government can influence output

Accepted Answer

A) with appropriate fiscal and monetary policy. 
B) in the short run,but not in the long run. 
C) without affecting the price level. 
D) only by making unexpected changes that impact aggregate demand. 
A) with appropriate fiscal and monetary policy. 
B) in the short run,but not in the long run. 
C) without affecting the price level. 
D) only by making unexpected changes that impact aggregate demand.

Question 9

Suppose that during the last five years the rate of inflation was 3 percent each year and the money supply had grown 6 percent annually during the period.However,during the last nine months,the Fed has expanded bank reserves more rapidly and the money supply has been growing at a 12 percent annual rate.As a result,the expected inflation rate for the next period will be

Accepted Answer

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

Question 10

Explain two reasons why economic forecasting can only be of limited use.

Accepted Answer

One reason is that changes in market con

Question 11

Under which of the following conditions will the actual rate of unemployment tend to rise above the natural rate of unemployment?

Accepted Answer

A) Prices are stable and have been for the last four years. 
B) Inflation is 3 percent and was widely anticipated more than a year ago. 
C) Expansionary monetary policies lead to an unexpected increase in inflation from 3 percent to 7 percent. 
D) Restrictive monetary policies lead to an unexpected reduction in inflation from 6 percent to 2 percent. 
A) Prices are stable and have been for the last four years. 
B) Inflation is 3 percent and was widely anticipated more than a year ago. 
C) Expansionary monetary policies lead to an unexpected increase in inflation from 3 percent to 7 percent. 
D) Restrictive monetary policies lead to an unexpected reduction in inflation from 6 percent to 2 percent.

Question 12

An unanticipated shift to a more expansionary monetary policy that permanently increases the rate of inflation from 2 to 6 percent will

Accepted Answer

A) reduce unemployment in the short run,but unemployment will return to the natural rate in the long run. 
B) reduce unemployment in the short run,but unemployment will exceed the natural rate in the long run. 
C) increase unemployment in the short run,but unemployment will return to the natural rate in the long run. 
D) exert an unpredictable impact on unemployment in the short run,but unemployment will return to the natural rate in the long run. 
A) reduce unemployment in the short run,but unemployment will return to the natural rate in the long run. 
B) reduce unemployment in the short run,but unemployment will exceed the natural rate in the long run. 
C) increase unemployment in the short run,but unemployment will return to the natural rate in the long run. 
D) exert an unpredictable impact on unemployment in the short run,but unemployment will return to the natural rate in the long run.

Question 13

An individual who had rational expectations would be most likely to

Accepted Answer

A) ignore information about all current policies of both the government and the Fed. 
B) always disagree with the expectations of someone who believed in adaptive expectations. 
C) use all pertinent information when formulating views about the future. 
D) never anticipate stable prices because monetary authorities continually expand the supply of money rapidly. 
A) ignore information about all current policies of both the government and the Fed. 
B) always disagree with the expectations of someone who believed in adaptive expectations. 
C) use all pertinent information when formulating views about the future. 
D) never anticipate stable prices because monetary authorities continually expand the supply of money rapidly.

Question 14

The time period between when economic conditions change and when policy makers are aware of the change is called the

Accepted Answer

A) index of leading indicators. 
B) administrative lag. 
C) recognition lag. 
D) impact lag. 
A) index of leading indicators. 
B) administrative lag. 
C) recognition lag. 
D) impact lag.

Question 15

Compared with the recovery from the recession of 1981-82,the recovery from the recession of 2008-09 was characterized by

Accepted Answer

A) more rapid growth of real GDP. 
B) a more rapid decline in the rate of unemployment. 
C) larger increases in both government spending and budget deficits as a share of GDP. 
D) higher interest rates and a more restrictive monetary policy. 
A) more rapid growth of real GDP. 
B) a more rapid decline in the rate of unemployment. 
C) larger increases in both government spending and budget deficits as a share of GDP. 
D) higher interest rates and a more restrictive monetary policy.

Question 16

Compared to the severe recession of 1981-1982,the growth of real GDP during the first two years of recovery from the 2008-2009 recession was

Accepted Answer

A) much more rapid and the unemployment rate fell by a smaller amount after the more recent recession. 
B) slower and the unemployment rate fell by a smaller amount after the more recent recession. 
C) more rapid but the unemployment rate fell by a smaller amount after the more recent recession. 
D) similar and the decline in the rate of unemployment was almost identical during the recovery from each of these recessions. 
A) much more rapid and the unemployment rate fell by a smaller amount after the more recent recession. 
B) slower and the unemployment rate fell by a smaller amount after the more recent recession. 
C) more rapid but the unemployment rate fell by a smaller amount after the more recent recession. 
D) similar and the decline in the rate of unemployment was almost identical during the recovery from each of these recessions.

Question 17

According to the adaptive expectations hypothesis,

Accepted Answer

A) people will adapt to whatever income they are earning. 
B) the more people save,the less total savings will be available to the economy. 
C) the anticipated rate of inflation is based on the actual rates of inflation experienced during the recent past. 
D) the expected rate of inflation is adapted to macropolicy changes. 
A) people will adapt to whatever income they are earning. 
B) the more people save,the less total savings will be available to the economy. 
C) the anticipated rate of inflation is based on the actual rates of inflation experienced during the recent past. 
D) the expected rate of inflation is adapted to macropolicy changes.

Exam 15: Stabilization Policy, output, and Employment

What are the two theories about how expectations are formed? Discuss each.

The modern view of the Phillips curve indicates that expansionary macroeconomic policy

The 25 years prior to the crisis of 2008-2009 were

What is the Phillips curve? What is the difference between the original Phillips curve and the "modern" view of the Phillips curve? What problems caused the abandonment of the ideas behind the original Phillips curve?

In the twentieth century,fluctuations in real GDP were

Economists who believe that market economies are inherently unstable argue that the crisis of 2008 was primarily the result of

According to the rational expectations theory,expansionary monetary policy will

According to the theory of rational expectations,the government can influence output

Explain two reasons why economic forecasting can only be of limited use.

Under which of the following conditions will the actual rate of unemployment tend to rise above the natural rate of unemployment?

An unanticipated shift to a more expansionary monetary policy that permanently increases the rate of inflation from 2 to 6 percent will

An individual who had rational expectations would be most likely to

The time period between when economic conditions change and when policy makers are aware of the change is called the

Compared with the recovery from the recession of 1981-82,the recovery from the recession of 2008-09 was characterized by

Compared to the severe recession of 1981-1982,the growth of real GDP during the first two years of recovery from the 2008-2009 recession was

According to the adaptive expectations hypothesis,

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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