Question 1

Costs of renewing contracts or printing new price lists are known as

Accepted Answer

A)  small business costs. 
B)  small menu costs. 
C)  small operating costs. 
D)  small production costs. 
A)  small business costs. 
B)  small menu costs. 
C)  small operating costs. 
D)  small production costs. B

Question 2

If a policy is carried out by a rule, then we have an example of

Accepted Answer

A)  active policy making. 
B)  discretionary policy making. 
C)  nondiscretionary policy making. 
D)  natural policy making. 
A)  active policy making. 
B)  discretionary policy making. 
C)  nondiscretionary policy making. 
D)  natural policy making. C

Question 3

Real business cycle theory explains changes in employment and output by focusing on

Accepted Answer

A)  real supply-side factors. 
B)  changes in monetary policy. 
C)  changes in fiscal policy. 
D)  the interaction of fiscal and monetary policies. 
A)  real supply-side factors. 
B)  changes in monetary policy. 
C)  changes in fiscal policy. 
D)  the interaction of fiscal and monetary policies. A

Question 4

The Phillips curve is thought to reflect the relationship between

Accepted Answer

A)  unemployment and real GDP. 
B)  unemployment and inflation. 
C)  inflation and real GDP. 
D)  the price level and inflation. 
A)  unemployment and real GDP. 
B)  unemployment and inflation. 
C)  inflation and real GDP. 
D)  the price level and inflation.

Question 5

According to the policy irrelevance proposition,

Accepted Answer

A)  monetary policy can effectively reduce the rate of unemployment in the short run. 
B)  workers are not rational in the long run. 
C)  the Phillips curve slopes upward, not downward as traditionally assumed. 
D)  expansionary monetary policy will only lead to a higher rate of inflation in the long run. 
A)  monetary policy can effectively reduce the rate of unemployment in the short run. 
B)  workers are not rational in the long run. 
C)  the Phillips curve slopes upward, not downward as traditionally assumed. 
D)  expansionary monetary policy will only lead to a higher rate of inflation in the long run.

Question 6

The rational expectations hypothesis suggests that

Accepted Answer

A)  unanticipated fiscal policy actions are more powerful than monetary policy actions. 
B)  anticipated monetary policy actions are more powerful than fiscal policy actions. 
C)  fiscal policy actions only work when accompanied by changes in the money supply. 
D)  anticipated fiscal and monetary policy actions are not likely to achieve their stated aims. 
A)  unanticipated fiscal policy actions are more powerful than monetary policy actions. 
B)  anticipated monetary policy actions are more powerful than fiscal policy actions. 
C)  fiscal policy actions only work when accompanied by changes in the money supply. 
D)  anticipated fiscal and monetary policy actions are not likely to achieve their stated aims.

Question 7

The natural rate of unemployment is defined as the rate of unemployment that

Accepted Answer

A)  prevails in long-run macroeconomic equilibrium, when all workers and employers have fully adjusted to any changes in the economy. 
B)  prevails in the short-run macroeconomic equilibrium, before workers and employers have had a chance to adjust to an economic shock. 
C)  exists due to welfare and unemployment benefits that reduce potential workers' incentives to find work. 
D)  exists only during periods of recession or depression in the economy. 
A)  prevails in long-run macroeconomic equilibrium, when all workers and employers have fully adjusted to any changes in the economy. 
B)  prevails in the short-run macroeconomic equilibrium, before workers and employers have had a chance to adjust to an economic shock. 
C)  exists due to welfare and unemployment benefits that reduce potential workers' incentives to find work. 
D)  exists only during periods of recession or depression in the economy.

Question 8

Which of the following unemployment rates can be negative?

Accepted Answer

A)  the cyclical unemployment rate 
B)  the natural unemployment rate 
C)  the seasonal unemployment rate 
D)  the official unemployment rate reported by the Bureau of Labor Statistics 
A)  the cyclical unemployment rate 
B)  the natural unemployment rate 
C)  the seasonal unemployment rate 
D)  the official unemployment rate reported by the Bureau of Labor Statistics

Question 9

According to the new Keynesian sticky-price theory, a rise in aggregate demand results in ________ price level in the near term and in ________ price level in the longer term.

Accepted Answer

A)  a higher; an unchanged 
B)  an unchanged; a higher 
C)  a lower; an unchanged 
D)  a lower; a higher 
A)  a higher; an unchanged 
B)  an unchanged; a higher 
C)  a lower; an unchanged 
D)  a lower; a higher

Question 10

Suppose that the economy is in long-run equilibrium and the government decided to engage in expected expansionary policy by increasing the money supply. If we assume rational expectations, which of the following statements is correct about the effect of expansionary policy in the long run?

Accepted Answer

A)  The unemployment rate will increase, real GDP will increase and the price level will increase. 
B)  The unemployment rate will decrease, real GDP will decrease and the price level will decrease. 
C)  The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will increase. 
D)  The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will decrease. 
A)  The unemployment rate will increase, real GDP will increase and the price level will increase. 
B)  The unemployment rate will decrease, real GDP will decrease and the price level will decrease. 
C)  The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will increase. 
D)  The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will decrease.

Question 11

The longer is the interval between firms' price adjustments,

Accepted Answer

A)  the longer the interval that the horizontal new Keynesian aggregate supply curve will remain in position. 
B)  the shorter the interval the horizontal new Keynesian aggregate supply curve will remain in position. 
C)  the new Keynesian aggregate supply curve will become steeper. 
D)  the smaller the output effect of a given change in the money supply. 
A)  the longer the interval that the horizontal new Keynesian aggregate supply curve will remain in position. 
B)  the shorter the interval the horizontal new Keynesian aggregate supply curve will remain in position. 
C)  the new Keynesian aggregate supply curve will become steeper. 
D)  the smaller the output effect of a given change in the money supply.

Question 12

-Refer to the above figure. Suppose the economy is in equilibrium at point A. If the Fed tries to stimulate the economy by undertaking an expansionary monetary policy action and this is not expected by the people in the economy, we would expect to see

Accepted Answer

A)  aggregate demand increases, real GDP increases, and the price level increases. In the long run, aggregate supply would increase and the new long-run equilibrium would be point B. 
B)  aggregate demand increases, real GDP increases, and the price level increases in the short run. In the long run, people realize the real situation, causing the short-run aggregate supply curve to shift up. Real GDP returns to $14 trillion, and the price level increases to 150. 
C)  aggregate demand increases but people would anticipate this, causing the short-run aggregate supply curve to shift up at the same time, with the new equilibrium of $14 trillion of real GDP and a price level of 100. 
D)  aggregate supply shifts up as people anticipate the effects of the expansionary monetary system. In the short run, real GDP falls to $13 trillion and the price level rises to 120. In the long run, real GDP returns to $14 trillion, and the price level increases further, to 150. 
A)  aggregate demand increases, real GDP increases, and the price level increases. In the long run, aggregate supply would increase and the new long-run equilibrium would be point B. 
B)  aggregate demand increases, real GDP increases, and the price level increases in the short run. In the long run, people realize the real situation, causing the short-run aggregate supply curve to shift up. Real GDP returns to $14 trillion, and the price level increases to 150. 
C)  aggregate demand increases but people would anticipate this, causing the short-run aggregate supply curve to shift up at the same time, with the new equilibrium of $14 trillion of real GDP and a price level of 100. 
D)  aggregate supply shifts up as people anticipate the effects of the expansionary monetary system. In the short run, real GDP falls to $13 trillion and the price level rises to 120. In the long run, real GDP returns to $14 trillion, and the price level increases further, to 150.

Question 13

-In the above figure, if A is the initial equilibrium point and there is an unanticipated rise in aggregate demand from AD1 to AD2, then

Accepted Answer

A)  the new short-run equilibrium will be at point B. 
B)  the new long-run equilibrium will be at point B. 
C)  the new short-run equilibrium will be at point D. 
D)  real Gross Domestic Product (GDP) per year will fall below Y1. 
A)  the new short-run equilibrium will be at point B. 
B)  the new long-run equilibrium will be at point B. 
C)  the new short-run equilibrium will be at point D. 
D)  real Gross Domestic Product (GDP) per year will fall below Y1.

Question 14

Which of the following holds that economic decision making on all levels is unbiased and is based on all available information?

Accepted Answer

A)  Keynesian cycle theory 
B)  rational expectations based theory 
C)  adaptive expectations based theory 
D)  none of the above 
A)  Keynesian cycle theory 
B)  rational expectations based theory 
C)  adaptive expectations based theory 
D)  none of the above

Question 15

Based on the work of economist A.W. Phillips, economists concluded that

Accepted Answer

A)  there is no trade-off between inflation and unemployment. 
B)  high inflation rates are associated with low unemployment rates. 
C)  unemployment can be effectively combated by raising wages. 
D)  higher rates of inflation are associated with higher rates of unemployment. 
A)  there is no trade-off between inflation and unemployment. 
B)  high inflation rates are associated with low unemployment rates. 
C)  unemployment can be effectively combated by raising wages. 
D)  higher rates of inflation are associated with higher rates of unemployment.

Question 16

Cyclical unemployment is positive when

Accepted Answer

A)  the inflation rate is positive. 
B)  the economy is at the peak of a business expansion. 
C)  the natural rate of unemployment exceeds the actual rate. 
D)  the actual unemployment rate exceeds the natural rate. 
A)  the inflation rate is positive. 
B)  the economy is at the peak of a business expansion. 
C)  the natural rate of unemployment exceeds the actual rate. 
D)  the actual unemployment rate exceeds the natural rate.

Question 17

Rational expectations theory suggests that short-run stabilization policy

Accepted Answer

A)  is best achieved with monetary policy. 
B)  is best achieved with fiscal policy. 
C)  is equally easy to achieve with monetary or fiscal policy. 
D)  should not be attempted. 
A)  is best achieved with monetary policy. 
B)  is best achieved with fiscal policy. 
C)  is equally easy to achieve with monetary or fiscal policy. 
D)  should not be attempted.

Question 18

Initial studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States was as long as

Accepted Answer

A)  6 months. 
B)  12 months. 
C)  2 years. 
D)  4 years. 
A)  6 months. 
B)  12 months. 
C)  2 years. 
D)  4 years.

Question 19

When policy makers take actions in response to or in anticipation of some change in the overall economy, there is

Accepted Answer

A)  active policy making. 
B)  passive policy making. 
C)  rationalization policy making. 
D)  rational expectations policy making. 
A)  active policy making. 
B)  passive policy making. 
C)  rationalization policy making. 
D)  rational expectations policy making.

Question 20

How do rational expectations models differ from traditional classical economics? How does the new Keynesian model differ from the traditional Keynesian view?

Accepted Answer

A rational expectations model sees no re

Exam 17: Stabilization in an Integrated World Economy

Costs of renewing contracts or printing new price lists are known as

If a policy is carried out by a rule, then we have an example of

Real business cycle theory explains changes in employment and output by focusing on

The Phillips curve is thought to reflect the relationship between

According to the policy irrelevance proposition,

The rational expectations hypothesis suggests that

The natural rate of unemployment is defined as the rate of unemployment that

Which of the following unemployment rates can be negative?

According to the new Keynesian sticky-price theory, a rise in aggregate demand results in ________ price level in the near term and in ________ price level in the longer term.

Suppose that the economy is in long-run equilibrium and the government decided to engage in expected expansionary policy by increasing the money supply. If we assume rational expectations, which of the following statements is correct about the effect of expansionary policy in the long run?

The longer is the interval between firms' price adjustments,

-Refer to the above figure. Suppose the economy is in equilibrium at point A. If the Fed tries to stimulate the economy by undertaking an expansionary monetary policy action and this is not expected by the people in the economy, we would expect to see

-In the above figure, if A is the initial equilibrium point and there is an unanticipated rise in aggregate demand from AD1 to AD2, then

Which of the following holds that economic decision making on all levels is unbiased and is based on all available information?

Based on the work of economist A.W. Phillips, economists concluded that

Cyclical unemployment is positive when

Rational expectations theory suggests that short-run stabilization policy

Initial studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States was as long as

When policy makers take actions in response to or in anticipation of some change in the overall economy, there is

How do rational expectations models differ from traditional classical economics? How does the new Keynesian model differ from the traditional Keynesian view?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

According to the new Keynesian sticky-price theory, a rise in aggregate demand results in price level in the near term and in price level in the longer term.

-In the above figure, if A is the initial equilibrium point and there is an unanticipated rise in aggregate demand from AD₁ to AD₂, then