Question 1

The conclusion that the economy has price flexibility, wage flexibility, and perfectly competitive markets justifies

Accepted Answer

A)  active policy making. 
B)  rational policy making. 
C)  passive policy making. 
D)  none of the above. 
A)  active policy making. 
B)  rational policy making. 
C)  passive policy making. 
D)  none of the above.

Question 2

New Keynesian inflation dynamics predicts that an increase in aggregate demand will generate, in chronological order,

Accepted Answer

A)  a leftward movement along a horizontal short-run aggregate supply curve, a short-run decline in real GDP, a downward shift in the short-run aggregate supply curve, and a decrease in the price level. 
B)  a rightward movement along a horizontal short-run aggregate supply curve, a short-run increase in real GDP, an upward shift in the short-run aggregate supply curve, and an increase in the price level. 
C)  an leftward shift in a vertical short-run aggregate supply curve, a short-run decline in real GDP, an upward movement along the short-run aggregate supply curve, and an increase in the price level. 
D)  a rightward shift in a vertical short-run aggregate supply curve, a short-run increase in real GDP, an upward movement along the short-run aggregate supply curve, and an increase in the price level. 
A)  a leftward movement along a horizontal short-run aggregate supply curve, a short-run decline in real GDP, a downward shift in the short-run aggregate supply curve, and a decrease in the price level. 
B)  a rightward movement along a horizontal short-run aggregate supply curve, a short-run increase in real GDP, an upward shift in the short-run aggregate supply curve, and an increase in the price level. 
C)  an leftward shift in a vertical short-run aggregate supply curve, a short-run decline in real GDP, an upward movement along the short-run aggregate supply curve, and an increase in the price level. 
D)  a rightward shift in a vertical short-run aggregate supply curve, a short-run increase in real GDP, an upward movement along the short-run aggregate supply curve, and an increase in the price level.

Question 3

According to New Keynesian economists,

Accepted Answer

A)  activist policy has little effect on real GDP. 
B)  activist policy can be used to minimize variations in real GDP. 
C)  fluctuations in output are primarily caused by supply shocks. 
D)  the amount of time it takes firms to adjust prices is less than six months. 
A)  activist policy has little effect on real GDP. 
B)  activist policy can be used to minimize variations in real GDP. 
C)  fluctuations in output are primarily caused by supply shocks. 
D)  the amount of time it takes firms to adjust prices is less than six months.

Question 4

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 5

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

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 6

-In the above figure, if initial equilibrium is at point A and there is a fully anticipated increase in aggregate demand from AD1 to AD2 due to an anticipated increase in the money supply, then

Accepted Answer

A)  the economy will move directly from point A to point C without passing through point B. 
B)  the economy will move directly from point A to point B, and will remain at point B in the long run. 
C)  the price level will shift to P2 in the short run. 
D)  the price level will shift to P2 in the long run. 
A)  the economy will move directly from point A to point C without passing through point B. 
B)  the economy will move directly from point A to point B, and will remain at point B in the long run. 
C)  the price level will shift to P2 in the short run. 
D)  the price level will shift to P2 in the long run.

Question 7

Those who favor active policy making argue that all of the following exist EXCEPT

Accepted Answer

A)  perfectly flexible wages and prices. 
B)  inflation and unemployment are stable in the short run and predictable in the long run. 
C)  pure competition is not typical. 
D)  aggregate demand shocks can influence real GDP and unemployment. 
A)  perfectly flexible wages and prices. 
B)  inflation and unemployment are stable in the short run and predictable in the long run. 
C)  pure competition is not typical. 
D)  aggregate demand shocks can influence real GDP and unemployment.

Question 8

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

Accepted Answer

A)  the unemployment rate will be the same rate as before the expansionary monetary policy. 
B)  the unemployment rate will be larger than the rate before the expansionary monetary policy. 
C)  the unemployment rate will be smaller than the rate before the expansionary monetary policy. 
D)  the unemployment rate can increase or decrease depending upon how much the LRAS will shift. 
A)  the unemployment rate will be the same rate as before the expansionary monetary policy. 
B)  the unemployment rate will be larger than the rate before the expansionary monetary policy. 
C)  the unemployment rate will be smaller than the rate before the expansionary monetary policy. 
D)  the unemployment rate can increase or decrease depending upon how much the LRAS will shift.

Question 9

If a significant portion of firms in the economy does not immediately adjust product prices, then the short-run aggregate supply curve

Accepted Answer

A)  slopes upward. 
B)  slopes downward. 
C)  is horizontal. 
D)  is vertical. 
A)  slopes upward. 
B)  slopes downward. 
C)  is horizontal. 
D)  is vertical.

Question 10

A reduction in world oil supplies is likely to cause

Accepted Answer

A)  an increase in aggregate demand and a decrease in the equilibrium price level. 
B)  a decrease in equilibrium price level and an increase in real Gross Domestic Product (GDP). 
C)  an increase in equilibrium price level and an increase in real Gross Domestic Product (GDP). 
D)  a reduction in aggregate supply, a rise in the equilibrium price level, and a fall in real Gross Domestic Product (GDP). 
A)  an increase in aggregate demand and a decrease in the equilibrium price level. 
B)  a decrease in equilibrium price level and an increase in real Gross Domestic Product (GDP). 
C)  an increase in equilibrium price level and an increase in real Gross Domestic Product (GDP). 
D)  a reduction in aggregate supply, a rise in the equilibrium price level, and a fall in real Gross Domestic Product (GDP).

Question 11

Suppose there was an unexpected increase in aggregate demand. We would expect to observe

Accepted Answer

A)  frictional unemployment to increase. 
B)  the duration of unemployment and the amount of unemployment to decrease. 
C)  higher wages, with the duration of unemployment and the amount of unemployment unchanged. 
D)  a decrease in aggregate demand. 
A)  frictional unemployment to increase. 
B)  the duration of unemployment and the amount of unemployment to decrease. 
C)  higher wages, with the duration of unemployment and the amount of unemployment unchanged. 
D)  a decrease in aggregate demand.

Question 12

Adding the assumption of pure competition and complete flexibility of all prices and wages to the rational expectations hypothesis yields a theory that provides support for

Accepted Answer

A)  passive policy making. 
B)  active policy making. 
C)  discretionary policy making. 
D)  unemployment reducing policy making. 
A)  passive policy making. 
B)  active policy making. 
C)  discretionary policy making. 
D)  unemployment reducing policy making.

Question 13

A theory suggesting that price stickiness leads to sluggish short-run adjustment of the price level to variations in aggregate demand is known as

Accepted Answer

A)  new Keynesian flexible-price business cycles. 
B)  new Keynesian inflation dynamics. 
C)  real-business-cycle fixed-price business cycles. 
D)  real-business-cycle inflation dynamics. 
A)  new Keynesian flexible-price business cycles. 
B)  new Keynesian inflation dynamics. 
C)  real-business-cycle fixed-price business cycles. 
D)  real-business-cycle inflation dynamics.

Question 14

If the Fed engages in open market sales in direct response to an increase in the rate of inflation, this is known as

Accepted Answer

A)  direct policy making. 
B)  active policy making. 
C)  passive policy making. 
D)  fiscal policy making. 
A)  direct policy making. 
B)  active policy making. 
C)  passive policy making. 
D)  fiscal policy making.

Question 15

According to the text, the probability of an unemployed person finding a job doubles when

Accepted Answer

A)  his unemployment benefits expire. 
B)  his unemployment benefits are extended. 
C)  the economy enters a recessionary phase. 
D)  he is threatened with arrest. 
A)  his unemployment benefits expire. 
B)  his unemployment benefits are extended. 
C)  the economy enters a recessionary phase. 
D)  he is threatened with arrest.

Question 16

Deviations of the actual unemployment rate from the natural rate of unemployment are called

Accepted Answer

A)  frictional unemployment. 
B)  cyclical unemployment. 
C)  seasonal unemployment. 
D)  underemployment. 
A)  frictional unemployment. 
B)  cyclical unemployment. 
C)  seasonal unemployment. 
D)  underemployment.

Question 17

From the late 1980s to 2000, the natural rate of unemployment

Accepted Answer

A)  climbed sharply. 
B)  held constant. 
C)  fluctuated up and down, following the path of the actual rate of unemployment. 
D)  gradually declined. 
A)  climbed sharply. 
B)  held constant. 
C)  fluctuated up and down, following the path of the actual rate of unemployment. 
D)  gradually declined.

Question 18

People 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 is consistent with

Accepted Answer

A)  frictional unemployment. 
B)  the rational expectations hypothesis. 
C)  active policy making. 
D)  passive policy making. 
A)  frictional unemployment. 
B)  the rational expectations hypothesis. 
C)  active policy making. 
D)  passive 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)  fiscal policy 
B)  firms' average inflation adjusted per-unit costs of production 
C)  oil prices 
D)  stock prices 
A)  fiscal policy 
B)  firms' average inflation adjusted per-unit costs of production 
C)  oil prices 
D)  stock prices

Question 20

There is greater support for passive policymaking when

Accepted Answer

A)  pure competition is widespread. 
B)  price flexibility is common. 
C)  wage flexibility is common. 
D)  all of the above 
A)  pure competition is widespread. 
B)  price flexibility is common. 
C)  wage flexibility is common. 
D)  all of the above

Exam 17: Stabilization in an Integrated World Economy

The conclusion that the economy has price flexibility, wage flexibility, and perfectly competitive markets justifies

New Keynesian inflation dynamics predicts that an increase in aggregate demand will generate, in chronological order,

According to New Keynesian economists,

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?

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

-In the above figure, if initial equilibrium is at point A and there is a fully anticipated increase in aggregate demand from AD1 to AD2 due to an anticipated increase in the money supply, then

Those who favor active policy making argue that all of the following exist EXCEPT

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

If a significant portion of firms in the economy does not immediately adjust product prices, then the short-run aggregate supply curve

A reduction in world oil supplies is likely to cause

Suppose there was an unexpected increase in aggregate demand. We would expect to observe

Adding the assumption of pure competition and complete flexibility of all prices and wages to the rational expectations hypothesis yields a theory that provides support for

A theory suggesting that price stickiness leads to sluggish short-run adjustment of the price level to variations in aggregate demand is known as

If the Fed engages in open market sales in direct response to an increase in the rate of inflation, this is known as

According to the text, the probability of an unemployed person finding a job doubles when

Deviations of the actual unemployment rate from the natural rate of unemployment are called

From the late 1980s to 2000, the natural rate of unemployment

People 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 is consistent with

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

There is greater support for passive policymaking when

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 there is a fully anticipated increase in aggregate demand from AD₁ to AD₂ due to an anticipated increase in the money supply, then