Question 1

Policy making that is carried out in response to a rule is

Accepted Answer

A)  active policy making. 
B)  passive policy making. 
C)  restrictive policy making. 
D)  determined policy making. 
A)  active policy making. 
B)  passive policy making. 
C)  restrictive policy making. 
D)  determined policy making.

Question 2

Which of the following statements concerning price rigidity is true?

Accepted Answer

A)  Since the economy experiences continued inflation prices are not rigid. 
B)  Prices will be rigid when there is unanticipated monetary policy but not when there is anticipated monetary policy. 
C)  Data has clearly demonstrated that the long run aggregate supply curve is horizontal. 
D)  When there are demand changes, firms will not change their price because of the costs associated with renegotiating contracts and informing customers of price changes. 
A)  Since the economy experiences continued inflation prices are not rigid. 
B)  Prices will be rigid when there is unanticipated monetary policy but not when there is anticipated monetary policy. 
C)  Data has clearly demonstrated that the long run aggregate supply curve is horizontal. 
D)  When there are demand changes, firms will not change their price because of the costs associated with renegotiating contracts and informing customers of price changes.

Question 3

The historical record suggests that

Accepted Answer

A)  the Phillips curve is horizontal. 
B)  once policy makers attempted to exploit a short-run Phillips curve trade-off, it disappeared. 
C)  shifts in long-run aggregate supply do not affect real output. 
D)  inflation rates are lowest when unemployment rates are also low. 
A)  the Phillips curve is horizontal. 
B)  once policy makers attempted to exploit a short-run Phillips curve trade-off, it disappeared. 
C)  shifts in long-run aggregate supply do not affect real output. 
D)  inflation rates are lowest when unemployment rates are also low.

Question 4

According to A.W. Phillips, an inverse relationship has existed between

Accepted Answer

A)  unemployment and interest rates. 
B)  the rate of growth of the money supply and the unemployment rate. 
C)  the inflation rate and unemployment rate. 
D)  the inflation rate and the money supply. 
A)  unemployment and interest rates. 
B)  the rate of growth of the money supply and the unemployment rate. 
C)  the inflation rate and unemployment rate. 
D)  the inflation rate and the money supply.

Question 5

In the short run, unanticipated inflation typically leads to

Accepted Answer

A)  higher rates of unemployment. 
B)  decreases in aggregate demand. 
C)  lower rates of unemployment. 
D)  workers' thinking the real wage has been reduced. 
A)  higher rates of unemployment. 
B)  decreases in aggregate demand. 
C)  lower rates of unemployment. 
D)  workers' thinking the real wage has been reduced.

Question 6

In the aggregate supply-aggregate demand model, if every person in the economy correctly anticipates the inflation rate, the unemployment rate will

Accepted Answer

A)  be less than the natural rate of unemployment. 
B)  be more than the natural rate of unemployment. 
C)  equal the natural rate of unemployment. 
D)  equal zero. 
A)  be less than the natural rate of unemployment. 
B)  be more than the natural rate of unemployment. 
C)  equal the natural rate of unemployment. 
D)  equal zero.

Question 7

An example of nondiscretionary policy making is

Accepted Answer

A)  a rule under which the Fed targets the inflation rate. 
B)  expansionary fiscal policy. 
C)  changes in the interest rate initiated by the Fed. 
D)  a Congressional tax-rate cut aimed at boosting real GDP. 
A)  a rule under which the Fed targets the inflation rate. 
B)  expansionary fiscal policy. 
C)  changes in the interest rate initiated by the Fed. 
D)  a Congressional tax-rate cut aimed at boosting real GDP.

Question 8

Suppose the natural rate of unemployment is 5 percent. If the actual unemployment rate is 7 percent, then the cyclical unemployment rate

Accepted Answer

A)  is 2 percent. 
B)  is -2 percent. 
C)  is 12 percent. 
D)  cannot be determined given the information. 
A)  is 2 percent. 
B)  is -2 percent. 
C)  is 12 percent. 
D)  cannot be determined given the information.

Question 9

The stickiness of wages and prices will cause

Accepted Answer

A)  changes in aggregate demand to have no short-run effects on real GDP. 
B)  changes in aggregate demand to have long-run effects on real GDP. 
C)  changes in aggregate demand to have both short-run and long-run effects on real GDP. 
D)  changes in aggregate demand to have short-run effects on real GDP. 
A)  changes in aggregate demand to have no short-run effects on real GDP. 
B)  changes in aggregate demand to have long-run effects on real GDP. 
C)  changes in aggregate demand to have both short-run and long-run effects on real GDP. 
D)  changes in aggregate demand to have short-run effects on real GDP.

Question 10

Which of the following statements is consistent with the rational expectations hypothesis?

Accepted Answer

A)  When it comes to making personal economic decisions, people rarely behave in a rational manner. 
B)  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. 
C)  When it comes to making personal economic decisions, people always behave in a rational manner. 
D)  Every person in the economy is always correct in her predictions about current and future policy changes. 
A)  When it comes to making personal economic decisions, people rarely behave in a rational manner. 
B)  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. 
C)  When it comes to making personal economic decisions, people always behave in a rational manner. 
D)  Every person in the economy is always correct in her predictions about current and future policy changes.

Question 11

The costs associated with changing prices are called

Accepted Answer

A)  price costs. 
B)  change costs. 
C)  menu costs. 
D)  inflation-dynamics costs. 
A)  price costs. 
B)  change costs. 
C)  menu costs. 
D)  inflation-dynamics costs.

Question 12

According to the policy irrelevance proposition, monetary policy can affect real variables

Accepted Answer

A)  in both the short run and the long run. 
B)  in the long run only. 
C)  in the short run only, and then only if the policy was unanticipated. 
D)  in the short run only, and then only if the policy was fully anticipated. 
A)  in both the short run and the long run. 
B)  in the long run only. 
C)  in the short run only, and then only if the policy was unanticipated. 
D)  in the short run only, and then only if the policy was fully anticipated.

Question 13

-Refer to the above figure. Unexpected expansionary monetary policy has caused the aggregate demand curve to shift to   . In the short 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   , and the price level will be above   . 
D)  real GDP will be between   and   , and the price level will be between   and   . 
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   , and the price level will be above   . 
D)  real GDP will be between   and   , and the price level will be between   and   .

Question 14

-Refer to the above figure. Suppose the economy is in long-run equilibrium at point A, and the government initiates an expansionary monetary policy to increase aggregate demand. Which of the following is a true statement concerning the differences between what happens when the governmental action is unanticipated and when it is anticipated?

Accepted Answer

A)  The new long-run equilibrium when the increase in aggregate demand is unanticipated is point B while the new long-run equilibrium when the increase in aggregate demand is anticipated is point C. 
B)  The new long-run equilibrium when the increase in aggregate demand is unanticipated is point B while the new long-run equilibrium when the increase in aggregate demand is anticipated is point A. 
C)  The new long-run equilibrium will be point C in either case. When the increase in aggregate demand is unanticipated, the economy moves to B in the short run, but when the increase in aggregate demand is anticipated, short-run aggregate supply shifts when the aggregate demand curve shifts, and the economy moves immediately to point C. 
D)  The new long-run equilibrium is point C in either case. When the increase in aggregate demand is unanticipated, the new short-run equilibrium is point B, but when the increase in aggregate demand is anticipated the new short-run equilibrium is point D. 
A)  The new long-run equilibrium when the increase in aggregate demand is unanticipated is point B while the new long-run equilibrium when the increase in aggregate demand is anticipated is point C. 
B)  The new long-run equilibrium when the increase in aggregate demand is unanticipated is point B while the new long-run equilibrium when the increase in aggregate demand is anticipated is point A. 
C)  The new long-run equilibrium will be point C in either case. When the increase in aggregate demand is unanticipated, the economy moves to B in the short run, but when the increase in aggregate demand is anticipated, short-run aggregate supply shifts when the aggregate demand curve shifts, and the economy moves immediately to point C. 
D)  The new long-run equilibrium is point C in either case. When the increase in aggregate demand is unanticipated, the new short-run equilibrium is point B, but when the increase in aggregate demand is anticipated the new short-run equilibrium is point D.

Question 15

The natural rate of unemployment is

Accepted Answer

A)  the unemployment rate when cyclical unemployment is the only type of unemployment. 
B)  the unemployment rate when there is no frictional unemployment. 
C)  the rate of unemployment associated with long-run equilibrium. 
D)  zero. 
A)  the unemployment rate when cyclical unemployment is the only type of unemployment. 
B)  the unemployment rate when there is no frictional unemployment. 
C)  the rate of unemployment associated with long-run equilibrium. 
D)  zero.

Question 16

Which of the following would NOT cause a real business cycle?

Accepted Answer

A)  a change in technology 
B)  a change in the composition of the labor force 
C)  a change in the money supply 
D)  a sustained change in the price of oil 
A)  a change in technology 
B)  a change in the composition of the labor force 
C)  a change in the money supply 
D)  a sustained change in the price of oil

Question 17

-Use the above figure. The long-run Phillips curve is best depicted by graph

Accepted Answer

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

Question 18

When the actual unemployment rate is greater than the NAIRU, the inflation rate

Accepted Answer

A)  tends to increase. 
B)  tends to decrease. 
C)  remains unchanged. 
D)  falls to zero. 
A)  tends to increase. 
B)  tends to decrease. 
C)  remains unchanged. 
D)  falls to zero.

Question 19

There is greater support for active policymaking when

Accepted Answer

A)  pure competition is widespread. 
B)  price flexibility is common. 
C)  wage flexibility is common. 
D)  none of the above 
A)  pure competition is widespread. 
B)  price flexibility is common. 
C)  wage flexibility is common. 
D)  none of the above

Question 20

Which one of the following is an example of passive policy making?

Accepted Answer

A)  introducing expansionary monetary policy to combat a recession 
B)  introducing expansionary monetary policy to combat inflation 
C)  introducing expansionary fiscal policy to combat a recession 
D)  following a predetermined monetary policy rule 
A)  introducing expansionary monetary policy to combat a recession 
B)  introducing expansionary monetary policy to combat inflation 
C)  introducing expansionary fiscal policy to combat a recession 
D)  following a predetermined monetary policy rule

Exam 17: Stabilization in an Integrated World Economy

Policy making that is carried out in response to a rule is

Which of the following statements concerning price rigidity is true?

The historical record suggests that

According to A.W. Phillips, an inverse relationship has existed between

In the short run, unanticipated inflation typically leads to

In the aggregate supply-aggregate demand model, if every person in the economy correctly anticipates the inflation rate, the unemployment rate will

An example of nondiscretionary policy making is

Suppose the natural rate of unemployment is 5 percent. If the actual unemployment rate is 7 percent, then the cyclical unemployment rate

The stickiness of wages and prices will cause

Which of the following statements is consistent with the rational expectations hypothesis?

The costs associated with changing prices are called

According to the policy irrelevance proposition, monetary policy can affect real variables

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

The natural rate of unemployment is

Which of the following would NOT cause a real business cycle?

-Use the above figure. The long-run Phillips curve is best depicted by graph

When the actual unemployment rate is greater than the NAIRU, the inflation rate

There is greater support for active policymaking when

Which one of the following is an example of passive policy making?

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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