Question 1

Explain why real business cycle theory renders the short-run aggregate supply curve irrelevant.

Accepted Answer

Real business cycle theory seeks to expl

Question 2

Business cycles vary in:

Accepted Answer

A) The length of recessions only 
B) The time between recessions only 
C) Both the length of recessions and the time between recessions 
D) None of the answers given is correct; business cycles are by definition recurring waves that rise and fall in a periodic pattern 
A) The length of recessions only 
B) The time between recessions only 
C) Both the length of recessions and the time between recessions 
D) None of the answers given is correct; business cycles are by definition recurring waves that rise and fall in a periodic pattern

Question 3

In the article from the New York Times in Chapter 22, the Fed is described as having a dilemma.What was the dilemma, and what would be the consequences if the Fed chose the wrong course of action?

Accepted Answer

The Fed's dilemma resulted from a combin

Question 4

The longest recession since the 1940's began in:

Accepted Answer

A) 1952 
B) 1973 
C) 1981 
D) 2007 
A) 1952 
B) 1973 
C) 1981 
D) 2007

Question 5

An increase in the rate of inflation:

Accepted Answer

A) Can only result from increases in aggregate demand 
B) Can only result from upward shifts in the short-run aggregate supply curve 
C) Will result only if the long-run aggregate supply curve is vertical 
D) Can result from shifts in either the dynamic aggregate demand curve or the short-run aggregate supply curve 
A) Can only result from increases in aggregate demand 
B) Can only result from upward shifts in the short-run aggregate supply curve 
C) Will result only if the long-run aggregate supply curve is vertical 
D) Can result from shifts in either the dynamic aggregate demand curve or the short-run aggregate supply curve

Question 6

Unemployment insurance and the proportional nature of the tax system are examples of:

Accepted Answer

A) Discretionary fiscal policy 
B) Automatic fiscal policy 
C) Both discretionary and automatic fiscal policy 
D) Expansionary fiscal policy 
A) Discretionary fiscal policy 
B) Automatic fiscal policy 
C) Both discretionary and automatic fiscal policy 
D) Expansionary fiscal policy

Question 7

If a positive inflation shock occurs and monetary policymakers do not change the inflation target:

Accepted Answer

A) Output will return to potential output and inflation will equal the inflation target 
B) Output will rise above potential output while inflation will equal the inflation target 
C) Output will fall below potential output while inflation will equal the inflation target 
D) Output will return to potential output and but inflation will exceed the inflation target 
A) Output will return to potential output and inflation will equal the inflation target 
B) Output will rise above potential output while inflation will equal the inflation target 
C) Output will fall below potential output while inflation will equal the inflation target 
D) Output will return to potential output and but inflation will exceed the inflation target

Question 8

In which situation will inflation fall the fastest?

Accepted Answer

A) A negative supply shock occurs, the dynamic aggregate demand curve is steep and so is the monetary policy reaction curve 
B) A negative supply shock occurs, the dynamic aggregate demand curve is flat and so is the monetary policy reaction curve 
C) A negative supply shock occurs, the dynamic aggregate demand curve is flat, and the monetary policy reaction curve is steep 
D) A positive supply shock occurs, the dynamic aggregate demand curve is flat, and the monetary policy reaction curve is steep 
A) A negative supply shock occurs, the dynamic aggregate demand curve is steep and so is the monetary policy reaction curve 
B) A negative supply shock occurs, the dynamic aggregate demand curve is flat and so is the monetary policy reaction curve 
C) A negative supply shock occurs, the dynamic aggregate demand curve is flat, and the monetary policy reaction curve is steep 
D) A positive supply shock occurs, the dynamic aggregate demand curve is flat, and the monetary policy reaction curve is steep

Question 9

The dynamic aggregate demand curve shifts as a result of:

Accepted Answer

A) Discretionary fiscal policy 
B) Automatic fiscal policy 
C) Either discretionary or automatic fiscal policy 
D) Fiscal policy but only when it's used in conjunction with monetary policy 
A) Discretionary fiscal policy 
B) Automatic fiscal policy 
C) Either discretionary or automatic fiscal policy 
D) Fiscal policy but only when it's used in conjunction with monetary policy

Question 10

An increase in the price of oil should cause the short-run aggregate supply curve to:

Accepted Answer

A) Shift to the right 
B) Become vertical 
C) Become horizontal 
D) Shift to the left 
A) Shift to the right 
B) Become vertical 
C) Become horizontal 
D) Shift to the left

Question 11

Why could it be effectively argued that the temporary increase in inflation from the spending for the Vietnam War was made permanent by the Fed?

Accepted Answer

The increase in aggregate demand that re

Question 12

What tool is available to monetary policymakers to shift the short-run aggregate supply curve to the left following a positive inflation shock?

Accepted Answer

A) A rightward shift of the monetary policy reaction curve 
B) A leftward shift of the monetary policy reaction curve 
C) Open market purchases of government securities 
D) None of the answers given are correct; the actions of monetary policymakers affect the dynamic aggregate demand curve 
A) A rightward shift of the monetary policy reaction curve 
B) A leftward shift of the monetary policy reaction curve 
C) Open market purchases of government securities 
D) None of the answers given are correct; the actions of monetary policymakers affect the dynamic aggregate demand curve

Question 13

What is opportunistic disinflation and what provides the opportunity? Explain how the process works.

Accepted Answer

Opportunistic disinflation means that ce

Question 14

Why can monetary policymakers neutralize demand shocks but not supply shocks?

Accepted Answer

Monetary policy is enacted through shift

Question 15

Real business cycle theory explains fluctuations in output through:

Accepted Answer

A) Changes in aggregate demand 
B) Changes in productivity 
C) Shifts of the short-run aggregate supply curve 
D) Changes in monetary policy 
A) Changes in aggregate demand 
B) Changes in productivity 
C) Shifts of the short-run aggregate supply curve 
D) Changes in monetary policy

Question 16

Monetary policymakers face a tradeoff between:

Accepted Answer

A) The level of output and the rate of inflation 
B) The volatility in output and the volatility in inflation 
C) Low unemployment and high inflation 
D) High unemployment and low inflation 
A) The level of output and the rate of inflation 
B) The volatility in output and the volatility in inflation 
C) Low unemployment and high inflation 
D) High unemployment and low inflation

Question 17

An increase in aggregate demand will have the following effect on potential output:

Accepted Answer

A) Potential output will increase 
B) Potential output will decrease 
C) Potential output will increase at first and then decrease 
D) There won't be a change in potential output from an increase in aggregate demand 
A) Potential output will increase 
B) Potential output will decrease 
C) Potential output will increase at first and then decrease 
D) There won't be a change in potential output from an increase in aggregate demand

Question 18

If monetary policymakers are more concerned about output fluctuations than inflation fluctuations:

Accepted Answer

A) They will choose a relatively steep monetary policy reaction curve in which movements in the real interest rates are small 
B) They will choose a relatively flat monetary policy reaction curve in which movements in the real interest rates are small 
C) They will choose a relatively steep monetary policy reaction curve in which movements in the real interest rates are large 
D) They will choose a relatively flat monetary policy reaction curve in which movements in the real interest rates are large 
A) They will choose a relatively steep monetary policy reaction curve in which movements in the real interest rates are small 
B) They will choose a relatively flat monetary policy reaction curve in which movements in the real interest rates are small 
C) They will choose a relatively steep monetary policy reaction curve in which movements in the real interest rates are large 
D) They will choose a relatively flat monetary policy reaction curve in which movements in the real interest rates are large

Question 19

More than once in our history government officials tried to slow rapidly rising inflation by instituting wage and price controls, in essence, making it illegal to raise prices.In terms of the model, which includes aggregate demand, short-run aggregate supply and long-run aggregate supply, describe what the intended result of the officials would be and what the likely result may be.

Accepted Answer

The inflation the economy was experienci

Question 20

When faced with negative supply shocks, policymakers:

Accepted Answer

A) Will stabilize both inflation and output 
B) Will always focus on stabilizing output 
C) Cannot stabilize output so they tend to focus on inflation 
D) Face a trade-off because they cannot simultaneously stabilize both output and inflation 
A) Will stabilize both inflation and output 
B) Will always focus on stabilizing output 
C) Cannot stabilize output so they tend to focus on inflation 
D) Face a trade-off because they cannot simultaneously stabilize both output and inflation

Exam 22: Understanding Business Cycle Fluctuations

Explain why real business cycle theory renders the short-run aggregate supply curve irrelevant.

Business cycles vary in:

In the article from the New York Times in Chapter 22, the Fed is described as having a dilemma.What was the dilemma, and what would be the consequences if the Fed chose the wrong course of action?

The longest recession since the 1940's began in:

An increase in the rate of inflation:

Unemployment insurance and the proportional nature of the tax system are examples of:

If a positive inflation shock occurs and monetary policymakers do not change the inflation target:

In which situation will inflation fall the fastest?

The dynamic aggregate demand curve shifts as a result of:

An increase in the price of oil should cause the short-run aggregate supply curve to:

Why could it be effectively argued that the temporary increase in inflation from the spending for the Vietnam War was made permanent by the Fed?

What tool is available to monetary policymakers to shift the short-run aggregate supply curve to the left following a positive inflation shock?

What is opportunistic disinflation and what provides the opportunity? Explain how the process works.

Why can monetary policymakers neutralize demand shocks but not supply shocks?

Real business cycle theory explains fluctuations in output through:

Monetary policymakers face a tradeoff between:

An increase in aggregate demand will have the following effect on potential output:

If monetary policymakers are more concerned about output fluctuations than inflation fluctuations:

When faced with negative supply shocks, policymakers:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: the Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Modern Monetary Policy and the Challenges Facing Central Bankers

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