Question 1

Which one of the following would likely reduce the level of structural unemployment?

Accepted Answer

A)  increasing the minimum wage to encourage more people to work 
B)  increasing the level of union bargaining power 
C)  limiting unemployment insurance benefits 
D)  strengthening restrictions on who can be licensed to enter certain professions 
A)  increasing the minimum wage to encourage more people to work 
B)  increasing the level of union bargaining power 
C)  limiting unemployment insurance benefits 
D)  strengthening restrictions on who can be licensed to enter certain professions

Question 2

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to   . In the long run,

Accepted Answer

A)  real GDP will be   , and the price level will be   . 
B)  real GDP will be   , and the price level will be   . 
C)  real GDP will be between   and   , and the price level will be above   . 
D)  real GDP will be between   , and the price level will be below   . 
A)  real GDP will be   , and the price level will be   . 
B)  real GDP will be   , and the price level will be   . 
C)  real GDP will be between   and   , and the price level will be above   . 
D)  real GDP will be between   , and the price level will be below   .

Question 3

Suppose a constitutional amendment is passed that mandates a balanced federal budget every year and the President and Congress consistently carry this mandate out. This would be an example of

Accepted Answer

A)  active policy making. 
B)  decisive policy making. 
C)  nondiscretionary policy making. 
D)  cooperative policy making. 
A)  active policy making. 
B)  decisive policy making. 
C)  nondiscretionary policy making. 
D)  cooperative policy making.

Question 4

The real business cycle theory is based on all of the assumptions below EXCEPT

Accepted Answer

A)  small menu costs. 
B)  flexible wages. 
C)  pure competition. 
D)  flexible prices. 
A)  small menu costs. 
B)  flexible wages. 
C)  pure competition. 
D)  flexible prices.

Question 5

An unexpected increase in aggregate demand causes

Accepted Answer

A)  the unemployment rate to fall, with no change in the price level. 
B)  the price level to rise, but the duration of unemployment will remain constant, so the unemployment rate remains constant. 
C)  simultaneously the price level to rise and the unemployment rate to fall. 
D)  simultaneously the price level to fall and the unemployment rate to fall. 
A)  the unemployment rate to fall, with no change in the price level. 
B)  the price level to rise, but the duration of unemployment will remain constant, so the unemployment rate remains constant. 
C)  simultaneously the price level to rise and the unemployment rate to fall. 
D)  simultaneously the price level to fall and the unemployment rate to fall.

Question 6

If all the assumptions underpinning the policy irrelevance proposition are in place, fully anticipated monetary policy will

Accepted Answer

A)  affect the unemployment rate but have no impact on the level of real Gross Domestic Product (GDP). 
B)  have an impact on real Gross Domestic Product (GDP) but cannot alter the level of unemployment. 
C)  effectively alter both the rate of unemployment and the level of real Gross Domestic Product (GDP). 
D)  not change either the level of real Gross Domestic Product (GDP) or the unemployment rate. 
A)  affect the unemployment rate but have no impact on the level of real Gross Domestic Product (GDP). 
B)  have an impact on real Gross Domestic Product (GDP) but cannot alter the level of unemployment. 
C)  effectively alter both the rate of unemployment and the level of real Gross Domestic Product (GDP). 
D)  not change either the level of real Gross Domestic Product (GDP) or the unemployment rate.

Question 7

If the average interval between firms' price adjustments is relatively short,

Accepted Answer

A)  an increase in aggregate demand will cause a relatively short-lived increase in real GDP. 
B)  an increase in aggregate demand will cause a relatively long-lived increase in real GDP. 
C)  a reduction in aggregate demand will cause a relatively long-lived reduction in real GDP. 
D)  both B and C 
A)  an increase in aggregate demand will cause a relatively short-lived increase in real GDP. 
B)  an increase in aggregate demand will cause a relatively long-lived increase in real GDP. 
C)  a reduction in aggregate demand will cause a relatively long-lived reduction in real GDP. 
D)  both B and C

Question 8

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

Accepted Answer

A)  in the short run real output will remain at Y1. 
B)  in the short run real output will increase above Y1, but in the long run it will return to Y1. 
C)  in the long run real output will increase above Y1. 
D)  real output will increase above Y1 in both the short run and in the long run. 
A)  in the short run real output will remain at Y1. 
B)  in the short run real output will increase above Y1, but in the long run it will return to Y1. 
C)  in the long run real output will increase above Y1. 
D)  real output will increase above Y1 in both the short run and in the long run.

Question 9

Suppose that the inflation rate has been 3 percent per year for several years, and the unemployment rate has been stable at 5 percent. Unanticipated changes in government policy cause the inflation rate to increase to 6 percent. In the short run, we would expect the unemployment rate to

Accepted Answer

A)  remain constant. 
B)  increase to 10 percent. 
C)  increase, but the exact amount cannot be known for sure. 
D)  decrease. 
A)  remain constant. 
B)  increase to 10 percent. 
C)  increase, but the exact amount cannot be known for sure. 
D)  decrease.

Question 10

More recent studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States are

Accepted Answer

A)  are one year or less. 
B)  two years or less. 
C)  four years or less. 
D)  more than four years. 
A)  are one year or less. 
B)  two years or less. 
C)  four years or less. 
D)  more than four years.

Question 11

Which of the following would be an example of passive policy making?

Accepted Answer

A)  Establishing a system of automatic tax stabilizers 
B)  Marginal rate tax cuts intended to increase real Gross Domestic Product (GDP) 
C)  Government spending decreases intended to decrease real Gross Domestic Product (GDP) 
D)  None of the above 
A)  Establishing a system of automatic tax stabilizers 
B)  Marginal rate tax cuts intended to increase real Gross Domestic Product (GDP) 
C)  Government spending decreases intended to decrease real Gross Domestic Product (GDP) 
D)  None of the above

Question 12

Empirical evidence suggests that, when unemployment benefits run out, the probability that an unemployed person will find a job

Accepted Answer

A)  remains constant. 
B)  goes down by 20 percent. 
C)  about doubles. 
D)  about triples. 
A)  remains constant. 
B)  goes down by 20 percent. 
C)  about doubles. 
D)  about triples.

Question 13

-Refer to the above figure. Suppose the economy is at C. If the government tried to reduce the unemployment rate to 3 percent, the new long-run outcome will be at point

Accepted Answer

A)  A. 
B)  C. 
C)  D. 
D)  H. 
A)  A. 
B)  C. 
C)  D. 
D)  H.

Question 14

An unexpected increase in aggregate demand

Accepted Answer

A)  causes the price level to fall and the unemployment rate to rise. 
B)  causes the price level to fall and the unemployment rate to fall. 
C)  causes the price level to rise and the unemployment rate to rise. 
D)  causes the price level to rise and the unemployment rate to fall. 
A)  causes the price level to fall and the unemployment rate to rise. 
B)  causes the price level to fall and the unemployment rate to fall. 
C)  causes the price level to rise and the unemployment rate to rise. 
D)  causes the price level to rise and the unemployment rate to fall.

Question 15

In the short run, an unanticipated cut in the rate of inflation would

Accepted Answer

A)  increase the unemployment rate. 
B)  decrease the unemployment rate. 
C)  unambiguously improve the misery index. 
D)  lower the natural rate of unemployment. 
A)  increase the unemployment rate. 
B)  decrease the unemployment rate. 
C)  unambiguously improve the misery index. 
D)  lower the natural rate of unemployment.

Question 16

The Phillips curve shows

Accepted Answer

A)  the relationship between the rate of interest and planned investment. 
B)  the relationship between the money supply and the price level. 
C)  that an increase in government spending will decrease real national income. 
D)  that an increase in inflation may be associated with a decrease in the rate of unemployment. 
A)  the relationship between the rate of interest and planned investment. 
B)  the relationship between the money supply and the price level. 
C)  that an increase in government spending will decrease real national income. 
D)  that an increase in inflation may be associated with a decrease in the rate of unemployment.

Question 17

The hypothesis that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes is the basis of the

Accepted Answer

A)  adaptive hypothesis. 
B)  short-run Phillips curve hypothesis. 
C)  rational expectations hypothesis. 
D)  demand-pull inflation hypothesis. 
A)  adaptive hypothesis. 
B)  short-run Phillips curve hypothesis. 
C)  rational expectations hypothesis. 
D)  demand-pull inflation hypothesis.

Question 18

The hypothesis stating that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of future and current policy changes is known as

Accepted Answer

A)  policy irrelevance hypothesis. 
B)  rational expectations hypothesis. 
C)  life cycle hypothesis. 
D)  real business cycle hypothesis. 
A)  policy irrelevance hypothesis. 
B)  rational expectations hypothesis. 
C)  life cycle hypothesis. 
D)  real business cycle hypothesis.

Question 19

Which statement is true when rational expectations exist and there is a change in monetary policy which is unexpected?

Accepted Answer

A)  The change in monetary policy leads to a change in aggregate demand that leads to a temporary short-run equilibrium that is different from the long-run equilibrium. 
B)  The change in monetary policy leads to a simultaneous shift of the short-run aggregate supply curve. 
C)  The change in monetary policy lead to a simultaneous shift in the long-run aggregate supply curve. 
D)  The change in monetary policy does not change equilibrium in either the short-run or long-run. 
A)  The change in monetary policy leads to a change in aggregate demand that leads to a temporary short-run equilibrium that is different from the long-run equilibrium. 
B)  The change in monetary policy leads to a simultaneous shift of the short-run aggregate supply curve. 
C)  The change in monetary policy lead to a simultaneous shift in the long-run aggregate supply curve. 
D)  The change in monetary policy does not change equilibrium in either the short-run or long-run.

Question 20

When it comes to active policy making most economists agree that

Accepted Answer

A)  active policy making should be used over passive policy making. 
B)  it is unlikely that active policy making will have any long term effects on the economy. 
C)  it is likely that active policy making will have long term effects on the economy. 
D)  it will lead to long term shocks in the system. 
A)  active policy making should be used over passive policy making. 
B)  it is unlikely that active policy making will have any long term effects on the economy. 
C)  it is likely that active policy making will have long term effects on the economy. 
D)  it will lead to long term shocks in the system.

Exam 17: Stabilization in an Integrated World Economy

Which one of the following would likely reduce the level of structural unemployment?

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to . In the long run,

Suppose a constitutional amendment is passed that mandates a balanced federal budget every year and the President and Congress consistently carry this mandate out. This would be an example of

The real business cycle theory is based on all of the assumptions below EXCEPT

An unexpected increase in aggregate demand causes

If all the assumptions underpinning the policy irrelevance proposition are in place, fully anticipated monetary policy will

If the average interval between firms' price adjustments is relatively short,

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

Suppose that the inflation rate has been 3 percent per year for several years, and the unemployment rate has been stable at 5 percent. Unanticipated changes in government policy cause the inflation rate to increase to 6 percent. In the short run, we would expect the unemployment rate to

More recent studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States are

Which of the following would be an example of passive policy making?

Empirical evidence suggests that, when unemployment benefits run out, the probability that an unemployed person will find a job

-Refer to the above figure. Suppose the economy is at C. If the government tried to reduce the unemployment rate to 3 percent, the new long-run outcome will be at point

An unexpected increase in aggregate demand

In the short run, an unanticipated cut in the rate of inflation would

The Phillips curve shows

The hypothesis that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes is the basis of the

The hypothesis stating that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of future and current policy changes is known as

Which statement is true when rational expectations exist and there is a change in monetary policy which is unexpected?

When it comes to active policy making most economists agree that

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

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