Question 1

Describe and explain the real business cycle theory.

Accepted Answer

The real business cycle theory is a modi

Question 2

If people do not always make the same mistakes when forecasting the future, then

Accepted Answer

A)  rational expectations are irrational. 
B)  the Fed can control monetary policy and determine real variables such as real GDP. 
C)  the policy irrelevance theorem holds. 
D)  fiscal policy is more effective than monetary policy at fine-tuning the economy. 
A)  rational expectations are irrational. 
B)  the Fed can control monetary policy and determine real variables such as real GDP. 
C)  the policy irrelevance theorem holds. 
D)  fiscal policy is more effective than monetary policy at fine-tuning the economy.

Question 3

An unexpected increase in aggregate demand typically causes

Accepted Answer

A)  frictional unemployment to increase but structural unemployment to decrease. 
B)  the price level to increase but has no effect on the unemployment rate. 
C)  the price level to increase and the unemployment rate to fall. 
D)  the price level to increase and the unemployment rate to increase. 
A)  frictional unemployment to increase but structural unemployment to decrease. 
B)  the price level to increase but has no effect on the unemployment rate. 
C)  the price level to increase and the unemployment rate to fall. 
D)  the price level to increase and the unemployment rate to increase.

Question 4

The natural rate of unemployment consists of

Accepted Answer

A)  no workers looking for employment. 
B)  only seasonal unemployment. 
C)  only structural unemployment. 
D)  structural and frictional unemployment. 
A)  no workers looking for employment. 
B)  only seasonal unemployment. 
C)  only structural unemployment. 
D)  structural and frictional unemployment.

Question 5

According to New Keynesians, a reduction in which of the following will tend to cause the inflation rate to decrease?

Accepted Answer

A)  anticipated future inflation 
B)  firms' average inflation adjusted per-unit costs of production 
C)  an unexpected reduction in aggregate demand 
D)  all of the above 
A)  anticipated future inflation 
B)  firms' average inflation adjusted per-unit costs of production 
C)  an unexpected reduction in aggregate demand 
D)  all of the above

Question 6

What happens to the Phillips curve when the expected rate of inflation rises?

Accepted Answer

A)  The curve shifts to the right 
B)  The curve shifts to the left 
C)  The curve becomes horizontal 
D)  The Phillips curve is unaffected 
A)  The curve shifts to the right 
B)  The curve shifts to the left 
C)  The curve becomes horizontal 
D)  The Phillips curve is unaffected

Question 7

Under the assumption of rational expectations, real GDP is determined by

Accepted Answer

A)  the economy's aggregate demand curve. 
B)  the Fed. 
C)  a combination of monetary and fiscal policy. 
D)  the nation's long-run aggregate supply curve. 
A)  the economy's aggregate demand curve. 
B)  the Fed. 
C)  a combination of monetary and fiscal policy. 
D)  the nation's long-run aggregate supply curve.

Question 8

The natural rate of unemployment includes

Accepted Answer

A)  frictional and cyclical unemployment. 
B)  only cyclical unemployment. 
C)  only unemployment due to layoffs and corporate downsizing. 
D)  frictional unemployment and structural unemployment. 
A)  frictional and cyclical unemployment. 
B)  only cyclical unemployment. 
C)  only unemployment due to layoffs and corporate downsizing. 
D)  frictional unemployment and structural unemployment.

Question 9

The menu cost theory states that

Accepted Answer

A)  prices are not fully flexible because it is costly for firms to change prices every time there is a demand change. 
B)  economic agents quickly learn the likely responses of the Fed to changes in unemployment. 
C)  wages depend on the productivity of workers. 
D)  the economy is characterized by perfect competition. 
A)  prices are not fully flexible because it is costly for firms to change prices every time there is a demand change. 
B)  economic agents quickly learn the likely responses of the Fed to changes in unemployment. 
C)  wages depend on the productivity of workers. 
D)  the economy is characterized by perfect competition.

Question 10

According to the policy irrelevance proposition, the impact of an anticipated expansionary monetary policy will be to

Accepted Answer

A)  increase the price level in the long run. 
B)  increase the real Gross Domestic Product (GDP) in the long run. 
C)  decrease the natural rate of unemployment. 
D)  decrease the price level and the unemployment rate. 
A)  increase the price level in the long run. 
B)  increase the real Gross Domestic Product (GDP) in the long run. 
C)  decrease the natural rate of unemployment. 
D)  decrease the price level and the unemployment rate.

Question 11

Proponents of the policy irrelevance proposition believe that, under the assumption of rational expectations, the unemployment rate will

Accepted Answer

A)  go up whenever the Fed announces an anticipated monetary policy change. 
B)  go down whenever the Fed announces an anticipated fiscal policy change. 
C)  equal the natural rate of unemployment in the long run, regardless of any monetary policy actions. 
D)  always be higher in the long run than the natural rate of employment. 
A)  go up whenever the Fed announces an anticipated monetary policy change. 
B)  go down whenever the Fed announces an anticipated fiscal policy change. 
C)  equal the natural rate of unemployment in the long run, regardless of any monetary policy actions. 
D)  always be higher in the long run than the natural rate of employment.

Question 12

According to Friedman and Phelps, which of the following statements is a correct characterization of unemployment and inflation in the United States since the 1950s?

Accepted Answer

A)  A trade-off between inflation and unemployment as pictured in the Phillips curve existed over the entire time period. 
B)  A trade-off between inflation and unemployment as pictured in the Phillips curve existed in the 1970s and 1980s, but not over the entire period. 
C)  The relationship between inflation and unemployment is very different from the Phillips curve. A positive relationship is evident rather than an inverse relationship. 
D)  There is no clear relationship between unemployment and inflation. 
A)  A trade-off between inflation and unemployment as pictured in the Phillips curve existed over the entire time period. 
B)  A trade-off between inflation and unemployment as pictured in the Phillips curve existed in the 1970s and 1980s, but not over the entire period. 
C)  The relationship between inflation and unemployment is very different from the Phillips curve. A positive relationship is evident rather than an inverse relationship. 
D)  There is no clear relationship between unemployment and inflation.

Question 13

A trade-off between unemployment and inflation is reflected in the

Accepted Answer

A)  natural rate of unemployment. 
B)  Phillips Curve. 
C)  economic stability. 
D)  nonaccelerating inflation rate of unemployment (NAIRU). 
A)  natural rate of unemployment. 
B)  Phillips Curve. 
C)  economic stability. 
D)  nonaccelerating inflation rate of unemployment (NAIRU).

Question 14

Structural unemployment may result from all of the following factors EXCEPT

Accepted Answer

A)  union wage contracts. 
B)  government-imposed licensing arrangements that restrict entry into certain professions. 
C)  improved elementary and secondary education. 
D)  welfare and unemployment benefits. 
A)  union wage contracts. 
B)  government-imposed licensing arrangements that restrict entry into certain professions. 
C)  improved elementary and secondary education. 
D)  welfare and unemployment benefits.

Question 15

-Refer to the above figure. Line ABCD is a(n)

Accepted Answer

A)  aggregate demand curve. 
B)  Phillips curve. 
C)  discretionary-policy curve. 
D)  natural rate of unemployment curve. 
A)  aggregate demand curve. 
B)  Phillips curve. 
C)  discretionary-policy curve. 
D)  natural rate of unemployment curve.

Question 16

New Keynesians hypothesize that

Accepted Answer

A)  the relationship between inflation and unemployment is exploitable in the long run. 
B)  the relationship between inflation and unemployment is exploitable in the short run. 
C)  there is no relationship between inflation and unemployment. 
D)  fluctuations in output are largely caused by supply shocks. 
A)  the relationship between inflation and unemployment is exploitable in the long run. 
B)  the relationship between inflation and unemployment is exploitable in the short run. 
C)  there is no relationship between inflation and unemployment. 
D)  fluctuations in output are largely caused by supply shocks.

Question 17

-Use the above figure. Graph ________ correctly depicts the short-run Phillips Curve.

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 18

The Phillips curve shows

Accepted Answer

A)  a positive relationship in the long run between the rate of inflation and the rate of unemployment. 
B)  a negative relationship between the inflation rate and the unemployment rate, at least in the short run. 
C)  a positive relationship between contractionary monetary policy and higher price levels. 
D)  a positive relationship between price stability and constant, small-increment changes in the fiscal policy on the part of the Fed. 
A)  a positive relationship in the long run between the rate of inflation and the rate of unemployment. 
B)  a negative relationship between the inflation rate and the unemployment rate, at least in the short run. 
C)  a positive relationship between contractionary monetary policy and higher price levels. 
D)  a positive relationship between price stability and constant, small-increment changes in the fiscal policy on the part of the Fed.

Question 19

Frictional and structural unemployment both exist when

Accepted Answer

A)  the economy is in an expansionary phase. 
B)  the economy is in long-run equilibrium. 
C)  the economy is at the peak of the business cycle. 
D)  the economy is in short-run equilibrium. 
A)  the economy is in an expansionary phase. 
B)  the economy is in long-run equilibrium. 
C)  the economy is at the peak of the business cycle. 
D)  the economy is in short-run equilibrium.

Question 20

Small menu costs are a common reason offered for the existence of

Accepted Answer

A)  sticky wages. 
B)  sticky resource prices. 
C)  sticky prices. 
D)  sticky product adjustments. 
A)  sticky wages. 
B)  sticky resource prices. 
C)  sticky prices. 
D)  sticky product adjustments.

Exam 17: Stabilization in an Integrated World Economy

Describe and explain the real business cycle theory.

If people do not always make the same mistakes when forecasting the future, then

An unexpected increase in aggregate demand typically causes

The natural rate of unemployment consists of

According to New Keynesians, a reduction in which of the following will tend to cause the inflation rate to decrease?

What happens to the Phillips curve when the expected rate of inflation rises?

Under the assumption of rational expectations, real GDP is determined by

The natural rate of unemployment includes

The menu cost theory states that

According to the policy irrelevance proposition, the impact of an anticipated expansionary monetary policy will be to

Proponents of the policy irrelevance proposition believe that, under the assumption of rational expectations, the unemployment rate will

According to Friedman and Phelps, which of the following statements is a correct characterization of unemployment and inflation in the United States since the 1950s?

A trade-off between unemployment and inflation is reflected in the

Structural unemployment may result from all of the following factors EXCEPT

-Refer to the above figure. Line ABCD is a(n)

New Keynesians hypothesize that

-Use the above figure. Graph ________ correctly depicts the short-run Phillips Curve.

The Phillips curve shows

Frictional and structural unemployment both exist when

Small menu costs are a common reason offered for the existence of

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

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