Question 1

The Phillips Curve will shift when

Accepted Answer

A)  the expected inflation rate changes. 
B)  the price level falls. 
C)  the overall employment rate remains unchanged. 
D)  none of the above. 
A)  the expected inflation rate changes. 
B)  the price level falls. 
C)  the overall employment rate remains unchanged. 
D)  none of the above.

Question 2

-Refer to the above figure. Suppose the economy is at point B and the central bank adopts contractionary monetary policy. In the short run, this will result in

Accepted Answer

A)  the economy moving towards point A. 
B)  the economy staying at point B. 
C)  the economy moving towards point C. 
D)  an outcome that cannot be predicted, because not enough information is given. 
A)  the economy moving towards point A. 
B)  the economy staying at point B. 
C)  the economy moving towards point C. 
D)  an outcome that cannot be predicted, because not enough information is given.

Question 3

Expansionary fiscal policy can be used to reduce unemployment by

Accepted Answer

A)  increasing long-run aggregate supply so as to raise real GDP. 
B)  increasing aggregate demand so as to raise real GDP. 
C)  reducing nominal wages so as to encourage firms to hire more workers. 
D)  eliminating inefficiencies from labor markets. 
A)  increasing long-run aggregate supply so as to raise real GDP. 
B)  increasing aggregate demand so as to raise real GDP. 
C)  reducing nominal wages so as to encourage firms to hire more workers. 
D)  eliminating inefficiencies from labor markets.

Question 4

An increase in unemployment insurance and other transfer payments may

Accepted Answer

A)  increase the natural rate of unemployment. 
B)  increase the number of discouraged workers. 
C)  reduce the rate of inflation at every level of unemployment. 
D)  lead to less unanticipated inflation. 
A)  increase the natural rate of unemployment. 
B)  increase the number of discouraged workers. 
C)  reduce the rate of inflation at every level of unemployment. 
D)  lead to less unanticipated inflation.

Question 5

-Refer to the above figure. The rational expectations hypothesis implies that an anticipated increase in aggregate demand from   to   will

Accepted Answer

A)  move the economy from c to b. 
B)  move the economy from a to b. 
C)  move the economy from a to c. 
D)  will shift the aggregate supply (AS) curve to the right. 
A)  move the economy from c to b. 
B)  move the economy from a to b. 
C)  move the economy from a to c. 
D)  will shift the aggregate supply (AS) curve to the right.

Question 6

A key implication of the policy irrelevance proposition is that

Accepted Answer

A)  only fully anticipated policy actions can influence real Gross Domestic Product (GDP). 
B)  only unanticipated policy actions can influence real Gross Domestic Product (GDP). 
C)  the rational expectations hypothesis is incorrect. 
D)  none of the above. 
A)  only fully anticipated policy actions can influence real Gross Domestic Product (GDP). 
B)  only unanticipated policy actions can influence real Gross Domestic Product (GDP). 
C)  the rational expectations hypothesis is incorrect. 
D)  none of the above.

Question 7

The term for a pattern of initially sluggish adjustment of the equilibrium price level to a change in aggregate demand followed by a greater adjustment in the future is

Accepted Answer

A)  real-business-cycle inflation dynamics. 
B)  New Keynesian inflation dynamics. 
C)  passive price dynamics. 
D)  active price dynamics. 
A)  real-business-cycle inflation dynamics. 
B)  New Keynesian inflation dynamics. 
C)  passive price dynamics. 
D)  active price dynamics.

Question 8

If the rate of growth in the money supply is predetermined on the basis of a monetary rule, 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 9

-In the above figure, suppose the economy is in equilibrium at point A. The Fed engages in an expansionary monetary policy that is fully anticipated by the public. Other things being equal, what point represents the new equilibrium according to the rational expectations theory?

Accepted Answer

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

Question 10

The real business cycle theory

Accepted Answer

A)  is an extension of the Keynesian view of business cycles. 
B)  is an extension of the adaptive expectations theory of business cycles. 
C)  suggests that instability is caused by shifts in the long-run aggregate supply curve. 
D)  suggests that instability is caused by shifts in the aggregate demand curve caused by changing consumer confidence in the economy. 
A)  is an extension of the Keynesian view of business cycles. 
B)  is an extension of the adaptive expectations theory of business cycles. 
C)  suggests that instability is caused by shifts in the long-run aggregate supply curve. 
D)  suggests that instability is caused by shifts in the aggregate demand curve caused by changing consumer confidence in the economy.

Question 11

-In the above figure, starting at   , if there is an increase in technology that causes a permanent 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   .

Question 12

Explain the rational expectations hypothesis.

Accepted Answer

The rational expectations hypothesis ass

Question 13

The policy irrelevance proposition implies that

Accepted Answer

A)  unanticipated monetary policy actions are equally effective in stimulating both aggregate demand and aggregate supply. 
B)  anticipated monetary policy actions are effective in stimulating aggregate supply, but they are not effective in stimulating aggregate demand. 
C)  anticipated monetary policy actions are effective in increasing real GDP, but they do not reduce unemployment. 
D)  anticipated monetary policy actions are ineffective in generating changes in real GDP. 
A)  unanticipated monetary policy actions are equally effective in stimulating both aggregate demand and aggregate supply. 
B)  anticipated monetary policy actions are effective in stimulating aggregate supply, but they are not effective in stimulating aggregate demand. 
C)  anticipated monetary policy actions are effective in increasing real GDP, but they do not reduce unemployment. 
D)  anticipated monetary policy actions are ineffective in generating changes in real GDP.

Question 14

The shorter is the interval between firms' price adjustments,

Accepted Answer

A)  the greater is the scope for activist policies to stabilize the economy. 
B)  the smaller is the scope for activist policies to stabilize the economy. 
C)  a given unexpected increase in aggregate demand will cause a larger increase in output. 
D)  a given unexpected increase in aggregate demand will cause a smaller increase in the price level in the short run. 
A)  the greater is the scope for activist policies to stabilize the economy. 
B)  the smaller is the scope for activist policies to stabilize the economy. 
C)  a given unexpected increase in aggregate demand will cause a larger increase in output. 
D)  a given unexpected increase in aggregate demand will cause a smaller increase in the price level in the short run.

Question 15

-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)  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 16

The rational expectations hypothesis states that

Accepted Answer

A)  individuals always behave rationally. 
B)  prices do not adjust in a downward direction. 
C)  past and present economic information is incorporated into decision making. 
D)  consumers do not understand the effects of monetary and fiscal policy. 
A)  individuals always behave rationally. 
B)  prices do not adjust in a downward direction. 
C)  past and present economic information is incorporated into decision making. 
D)  consumers do not understand the effects of monetary and fiscal policy.

Question 17

What kinds of unemployment are associated with the natural rate of unemployment?

Accepted Answer

The natural rate of unemployment is asso

Question 18

Policymakers' attempts to use the Phillips curve to reduce the unemployment rate below the natural rate

Accepted Answer

A)  will be successful since the Phillips curve shows the relationship between the inflation rate and the unemployment rate. 
B)  will be successful if monetary policy is used. 
C)  will be unsuccessful if monetary policy is used since monetary policy leads to higher prices. 
D)  will be unsuccessful since workers' expectations adjust to attempts to reduce unemployment below the natural rate. 
A)  will be successful since the Phillips curve shows the relationship between the inflation rate and the unemployment rate. 
B)  will be successful if monetary policy is used. 
C)  will be unsuccessful if monetary policy is used since monetary policy leads to higher prices. 
D)  will be unsuccessful since workers' expectations adjust to attempts to reduce unemployment below the natural rate.

Question 19

Under the rational expectations hypothesis, if wages adjust rapidly to new information about intended policy actions, the only time that changes in government policies have real effects is when

Accepted Answer

A)  the changes are unanticipated. 
B)  the changes involve fiscal policy. 
C)  the changes involve monetary policy. 
D)  the changes affect aggregate demand. 
A)  the changes are unanticipated. 
B)  the changes involve fiscal policy. 
C)  the changes involve monetary policy. 
D)  the changes affect aggregate demand.

Question 20

New Keynesians conclude that

Accepted Answer

A)  appropriate activist policies can dampen cyclical fluctuations. 
B)  appropriate activist policies will increase the length of cyclical fluctuations. 
C)  appropriate activist policies will have an known effect on the length of cyclical fluctuations. 
D)  none of the above. 
A)  appropriate activist policies can dampen cyclical fluctuations. 
B)  appropriate activist policies will increase the length of cyclical fluctuations. 
C)  appropriate activist policies will have an known effect on the length of cyclical fluctuations. 
D)  none of the above.

Exam 17: Stabilization in an Integrated World Economy

The Phillips Curve will shift when

-Refer to the above figure. Suppose the economy is at point B and the central bank adopts contractionary monetary policy. In the short run, this will result in

Expansionary fiscal policy can be used to reduce unemployment by

An increase in unemployment insurance and other transfer payments may

-Refer to the above figure. The rational expectations hypothesis implies that an anticipated increase in aggregate demand from to will

A key implication of the policy irrelevance proposition is that

The term for a pattern of initially sluggish adjustment of the equilibrium price level to a change in aggregate demand followed by a greater adjustment in the future is

If the rate of growth in the money supply is predetermined on the basis of a monetary rule, this is known as

-In the above figure, suppose the economy is in equilibrium at point A. The Fed engages in an expansionary monetary policy that is fully anticipated by the public. Other things being equal, what point represents the new equilibrium according to the rational expectations theory?

The real business cycle theory

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

Explain the rational expectations hypothesis.

The policy irrelevance proposition implies that

The shorter is the interval between firms' price adjustments,

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

The rational expectations hypothesis states that

What kinds of unemployment are associated with the natural rate of unemployment?

Policymakers' attempts to use the Phillips curve to reduce the unemployment rate below the natural rate

Under the rational expectations hypothesis, if wages adjust rapidly to new information about intended policy actions, the only time that changes in government policies have real effects is when

New Keynesians conclude 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