Question 1

The short run aggregate supply (SRAS) curve shifts left when oil supply shocks occur because

Accepted Answer

A)  fewer goods are produced at any given price level due to higher oil prices. 
B)  oil-based production has increased at any given price level. 
C)  average total cost will fall at any given output level. 
D)  the price level will fall at any given output level. 
A)  fewer goods are produced at any given price level due to higher oil prices. 
B)  oil-based production has increased at any given price level. 
C)  average total cost will fall at any given output level. 
D)  the price level will fall at any given output level.

Question 2

The policy irrelevance proposition states that

Accepted Answer

A)  only relatively large expected changes in monetary policy impact the economy. 
B)  anticipated changes in monetary policy are ineffective in changing real GDP. 
C)  only statements from the White House have impact on the economy. 
D)  in the short run unanticipated changes in monetary policy are ineffective in changing real GDP. 
A)  only relatively large expected changes in monetary policy impact the economy. 
B)  anticipated changes in monetary policy are ineffective in changing real GDP. 
C)  only statements from the White House have impact on the economy. 
D)  in the short run unanticipated changes in monetary policy are ineffective in changing real GDP.

Question 3

Compare and contrast the arguments favoring active versus passive policy making.

Accepted Answer

The models that stress wage and price fl

Question 4

Which of the following scenarios can be classified as passive policy making?

Accepted Answer

A)  The Federal Reserve cuts the federal funds rate in order to increase economic activity. 
B)  The federal government increases spending in order to create jobs. 
C)  The Federal Reserve adjusts the money supply as appropriate to attain a target rate of inflation. 
D)  Congress increases expenditures in an effort to stimulate economic activity. 
A)  The Federal Reserve cuts the federal funds rate in order to increase economic activity. 
B)  The federal government increases spending in order to create jobs. 
C)  The Federal Reserve adjusts the money supply as appropriate to attain a target rate of inflation. 
D)  Congress increases expenditures in an effort to stimulate economic activity.

Question 5

-In the above figure, starting at   , if there is a supply shock that is temporary, the

Accepted Answer

A)  aggregate supply would shift to   and   would shift to   . 
B)  aggregate supply would shift to   and   would shift to   . 
C)  aggregate supply would shift to   and   would shift to   . 
D)  aggregate supply would shift to   and then return to   . 
A)  aggregate supply would shift to   and   would shift to   . 
B)  aggregate supply would shift to   and   would shift to   . 
C)  aggregate supply would shift to   and   would shift to   . 
D)  aggregate supply would shift to   and then return to   .

Question 6

Suppose that the economy is in long-run equilibrium and the government decided to engage in unexpected contractionary policy by decreasing the money supply. If we assume rational expectations, which of the following statements is correct about the effect of contractionary 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 7

New Keynesian theory implies that which of the following reduces firms' incentive to adjust their prices?

Accepted Answer

A)  a downward sloping aggregate demand curve 
B)  the required reserve ratio 
C)  menu costs 
D)  none of the above 
A)  a downward sloping aggregate demand curve 
B)  the required reserve ratio 
C)  menu costs 
D)  none of the above

Question 8

Which of the following is NOT an inference of the rational expectations hypothesis?

Accepted Answer

A)  Government policy actions have no real effects in the short run unless the actions are unanticipated. 
B)  Government policy actions have no real effects in the long run. 
C)  Government policy actions that are anticipated have no real effects in the short run. 
D)  Government policy actions that are unanticipated have no monetary effects in the short run. 
A)  Government policy actions have no real effects in the short run unless the actions are unanticipated. 
B)  Government policy actions have no real effects in the long run. 
C)  Government policy actions that are anticipated have no real effects in the short run. 
D)  Government policy actions that are unanticipated have no monetary effects in the short run.

Question 9

Cyclical unemployment is

Accepted Answer

A)  the difference between the unemployment rate when the economy is in a recession and the unemployment rate when the economy is at the peak of an expansion. 
B)  the difference between the actual unemployment rate and the natural rate of unemployment. 
C)  the unemployment due to union activities and government-imposed restrictions to entry into specific occupations. 
D)  the unemployment due to the unemployment benefits and welfare programs of the government. 
A)  the difference between the unemployment rate when the economy is in a recession and the unemployment rate when the economy is at the peak of an expansion. 
B)  the difference between the actual unemployment rate and the natural rate of unemployment. 
C)  the unemployment due to union activities and government-imposed restrictions to entry into specific occupations. 
D)  the unemployment due to the unemployment benefits and welfare programs of the government.

Question 10

-Refer to the above figure. The economy initially is at point A. The Fed unexpectedly increases the money supply. Which of the following statements are true?

Accepted Answer

A)  In the short run, the economy will move from point A to point C. In the long run, the economy will move to point B. 
B)  In the short run, the economy will move from point A to point C. In the long run, the economy will move back to point A. 
C)  In the short run, the economy will move from point A to point B. In the long run, the economy will stay at point B. 
D)  In the short run, the economy will move from point A to point B. In the long run, the economy will move back to point A. 
A)  In the short run, the economy will move from point A to point C. In the long run, the economy will move to point B. 
B)  In the short run, the economy will move from point A to point C. In the long run, the economy will move back to point A. 
C)  In the short run, the economy will move from point A to point B. In the long run, the economy will stay at point B. 
D)  In the short run, the economy will move from point A to point B. In the long run, the economy will move back to point A.

Question 11

When policy makers base their actions on a rule 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 12

Those who favor passive policy making do so because they conclude that

Accepted Answer

A)  price and wage flexibility is a common and speedy occurrence. 
B)  price and wage flexibility is an uncommon occurrence. 
C)  pure competition is not typical in most markets. 
D)  there is a stable trade-off between inflation and unemployment in the short run. 
A)  price and wage flexibility is a common and speedy occurrence. 
B)  price and wage flexibility is an uncommon occurrence. 
C)  pure competition is not typical in most markets. 
D)  there is a stable trade-off between inflation and unemployment in the short run.

Question 13

If a significant portion of firms in the economy does not adjust product prices, a predicted result according to new Keynesian theory is

Accepted Answer

A)  real business cycles. 
B)  real inflation cycles. 
C)  inflation dynamics. 
D)  output dynamics. 
A)  real business cycles. 
B)  real inflation cycles. 
C)  inflation dynamics. 
D)  output dynamics.

Question 14

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

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 short-lived reduction in real GDP. 
D)  none of the above 
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 short-lived reduction in real GDP. 
D)  none of the above

Question 15

One economic hypothesis states that people form expectations by combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes, and then react accordingly. This is known as the

Accepted Answer

A)  relevance hypothesis. 
B)  contrary opinion hypothesis. 
C)  rational expectations hypothesis. 
D)  structural hypothesis. 
A)  relevance hypothesis. 
B)  contrary opinion hypothesis. 
C)  rational expectations hypothesis. 
D)  structural hypothesis.

Question 16

The rational expectations hypothesis is based on all the following assumptions EXCEPT

Accepted Answer

A)  use of judgment about effects of future policy actions. 
B)  use of knowledge of effects of past policy actions. 
C)  understanding of how the economy operates. 
D)  understanding that prices are sticky. 
A)  use of judgment about effects of future policy actions. 
B)  use of knowledge of effects of past policy actions. 
C)  understanding of how the economy operates. 
D)  understanding that prices are sticky.

Question 17

Which type of unemployment is associated with the slump in aggregate demand that accompanies a recession?

Accepted Answer

A)  Expansionary unemployment 
B)  Cyclical unemployment 
C)  Frictional unemployment 
D)  Structural unemployment 
A)  Expansionary unemployment 
B)  Cyclical unemployment 
C)  Frictional unemployment 
D)  Structural unemployment

Question 18

Monetary and fiscal policy making that is carried out in response to a pre-set rule and does not respond to changes in economic activity is known as

Accepted Answer

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

Question 19

According to New Keynesians, which of the following is one of the two key factors that determines the inflation rate?

Accepted Answer

A)  anticipated future inflation 
B)  fiscal policy 
C)  oil prices 
D)  stock prices 
A)  anticipated future inflation 
B)  fiscal policy 
C)  oil prices 
D)  stock prices

Question 20

-In the above figure, starting at   , if there is an increase in technology that causes a temporary increase in production capabilities

Accepted Answer

A)  aggregate supply would shift to   and   would shift to   . 
B)  aggregate supply would shift to   and   would shift to   . 
C)  aggregate supply would shift to   and   would shift to   . 
D)  aggregate supply would shift to   and then return to   . 
A)  aggregate supply would shift to   and   would shift to   . 
B)  aggregate supply would shift to   and   would shift to   . 
C)  aggregate supply would shift to   and   would shift to   . 
D)  aggregate supply would shift to   and then return to   .

Exam 17: Stabilization in an Integrated World Economy

The short run aggregate supply (SRAS) curve shifts left when oil supply shocks occur because

The policy irrelevance proposition states that

Compare and contrast the arguments favoring active versus passive policy making.

Which of the following scenarios can be classified as passive policy making?

-In the above figure, starting at , if there is a supply shock that is temporary, the

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

New Keynesian theory implies that which of the following reduces firms' incentive to adjust their prices?

Which of the following is NOT an inference of the rational expectations hypothesis?

Cyclical unemployment is

-Refer to the above figure. The economy initially is at point A. The Fed unexpectedly increases the money supply. Which of the following statements are true?

When policy makers base their actions on a rule there is

Those who favor passive policy making do so because they conclude that

If a significant portion of firms in the economy does not adjust product prices, a predicted result according to new Keynesian theory is

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

One economic hypothesis states that people form expectations by combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes, and then react accordingly. This is known as the

The rational expectations hypothesis is based on all the following assumptions EXCEPT

Which type of unemployment is associated with the slump in aggregate demand that accompanies a recession?

Monetary and fiscal policy making that is carried out in response to a pre-set rule and does not respond to changes in economic activity is known as

According to New Keynesians, which of the following is one of the two key factors that determines the inflation rate?

-In the above figure, starting at , if there is an increase in technology that causes a temporary increase in production capabilities

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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