Question 1

Explain the view called real business cycle theory.

Accepted Answer

Real business cycle theory seeks to expl

Question 2

A "shock" is something that creates a shift in:

Accepted Answer

A) The demand curve only 
B) The supply curve only 
C) Either the demand curve or the supply curve 
D) Both the demand curve and the supply curve at the same time 
A) The demand curve only 
B) The supply curve only 
C) Either the demand curve or the supply curve 
D) Both the demand curve and the supply curve at the same time

Question 3

To set the target interest rate, central banks need to know the size of the output gap.This requires measuring:

Accepted Answer

A) Only the level of current gross domestic product 
B) Only the levels of current gross domestic product and potential gross domestic product 
C) Not only the levels of current gross domestic product and potential gross domestic product but also their growth rates 
D) Only the growth rates of current gross domestic product and potential gross domestic product 
A) Only the level of current gross domestic product 
B) Only the levels of current gross domestic product and potential gross domestic product 
C) Not only the levels of current gross domestic product and potential gross domestic product but also their growth rates 
D) Only the growth rates of current gross domestic product and potential gross domestic product

Question 4

Tax cuts would have the same affect on the dynamic aggregate demand curve as:

Accepted Answer

A) Decreases in government purchases 
B) The Federal Reserve selling U.S.treasury securities 
C) The Federal Reserve buying U.S.treasury securities 
D) Temporary tax increases 
A) Decreases in government purchases 
B) The Federal Reserve selling U.S.treasury securities 
C) The Federal Reserve buying U.S.treasury securities 
D) Temporary tax increases

Question 5

Which of the following is not correct with regard to the definition of a recession as used by the NBER?

Accepted Answer

A) A recession occurs when there is a dip in the growth rate 
B) The exact length of time needed for a downturn to be declared a recession is not specified 
C) Many key economic indicators are used, some of which may move in opposite directions 
D) A recession is characterized by lower levels of economic activity 
A) A recession occurs when there is a dip in the growth rate 
B) The exact length of time needed for a downturn to be declared a recession is not specified 
C) Many key economic indicators are used, some of which may move in opposite directions 
D) A recession is characterized by lower levels of economic activity

Question 6

Describe the immediate short-run effect to the economy from an increase in government purchases, as well as the self-correcting mechanism that will restore long-run equilibrium.

Accepted Answer

The increase in government purchases wil

Question 7

Which of the following would shift the short-run aggregate supply curve to the right?

Accepted Answer

A) An increase in oil prices 
B) A reduction in the minimum wage 
C) A change in the law requiring overtime pay for anyone working more than 30 hours a week 
D) An increase in payroll taxes 
A) An increase in oil prices 
B) A reduction in the minimum wage 
C) A change in the law requiring overtime pay for anyone working more than 30 hours a week 
D) An increase in payroll taxes

Question 8

Stagflation occurs when:

Accepted Answer

A) The inflation rate decreases and current output decreases 
B) The inflation rate increases and current output decreases 
C) The inflation rate decreases and current output increases 
D) The inflation rate increases and current output increases 
A) The inflation rate decreases and current output decreases 
B) The inflation rate increases and current output decreases 
C) The inflation rate decreases and current output increases 
D) The inflation rate increases and current output increases

Question 9

Why do increases in potential output allow monetary policymakers to think "opportunistically" about disinflation?

Accepted Answer

Increases in potential output

Question 10

Discuss the short- and long-run output responses resulting from an increase in money growth when the economy is producing a current level of output that equals potential output, all other factors constant.

Accepted Answer

In the short run, an increase in money g

Question 11

Higher potential output levels:

Accepted Answer

A) Put upward pressure on real interest rates 
B) Put downward pressure on real interest rates and upward pressure on inflation rates 
C) Put upward pressure on real interest rates and downward pressure on inflation rates 
D) None of the answers given is correct 
A) Put upward pressure on real interest rates 
B) Put downward pressure on real interest rates and upward pressure on inflation rates 
C) Put upward pressure on real interest rates and downward pressure on inflation rates 
D) None of the answers given is correct

Question 12

If monetary policymakers do not want an increase in government purchases, which increases aggregate demand, to cause an increase in inflation, they would:

Accepted Answer

A) Shift the monetary policy reaction curve to the right, raising inflation at every real interest rate 
B) Do nothing and let the economy's self-correcting mechanism work 
C) Shift the monetary policy reaction function left, increasing the real interest rate at every rate of inflation 
D) Increase the growth rate of money 
A) Shift the monetary policy reaction curve to the right, raising inflation at every real interest rate 
B) Do nothing and let the economy's self-correcting mechanism work 
C) Shift the monetary policy reaction function left, increasing the real interest rate at every rate of inflation 
D) Increase the growth rate of money

Question 13

An inflation shock that shifts the short-run aggregate supply curve upward means the economy's potential level of output will:

Accepted Answer

A) Increase 
B) Not change 
C) Decrease 
D) Decrease only if monetary policymakers do not respond 
A) Increase 
B) Not change 
C) Decrease 
D) Decrease only if monetary policymakers do not respond

Question 14

Stagflation is a term that usually describes an economy experiencing:

Accepted Answer

A) Low inflation. 
B) Low inflation coupled with low growth. 
C) High inflation with a recessionary gap. 
D) Low unemployment rates and low inflation rates. 
A) Low inflation. 
B) Low inflation coupled with low growth. 
C) High inflation with a recessionary gap. 
D) Low unemployment rates and low inflation rates.

Question 15

The 2008 and 2009 tax cuts and the increase in government spending that occurred at the same time did not have the same inflationary impact as the similar policy in the 1960s because:

Accepted Answer

A) The fiscal stimulus came at a time when the economy was weakening due to other factors 
B) Monetary policy makers, having perceived the inflation risk, responded appropriately 
C) The timing was fortuitous 
D) All of the answers provided are correct 
A) The fiscal stimulus came at a time when the economy was weakening due to other factors 
B) Monetary policy makers, having perceived the inflation risk, responded appropriately 
C) The timing was fortuitous 
D) All of the answers provided are correct

Question 16

If prices were to adjust quickly:

Accepted Answer

A) Output gaps would be persistent 
B) Output gaps would disappear quickly 
C) Inflation would adjust slowly 
D) The short-run aggregate supply curve would not shift 
A) Output gaps would be persistent 
B) Output gaps would disappear quickly 
C) Inflation would adjust slowly 
D) The short-run aggregate supply curve would not shift

Question 17

Explain how globalization impacts inflation in both the short run and the long run.

Accepted Answer

Globalization can be seen as a source of

Question 18

Neutralizing demand shocks is easier in theory than in practice.Why?

Accepted Answer

To neutralize demand shocks, monetary po

Question 19

Which of the following statements is most correct?

Accepted Answer

A) A recession is officially defined as two consecutive quarters where the real growth rate is negative 
B) A recession officially begins when unemployment exceeds 5.0 percent 
C) There is no hard and fast definition of a recession 
D) The official date of a recession is determined by the Federal Reserve Board, but usually with at least a three-month delay 
A) A recession is officially defined as two consecutive quarters where the real growth rate is negative 
B) A recession officially begins when unemployment exceeds 5.0 percent 
C) There is no hard and fast definition of a recession 
D) The official date of a recession is determined by the Federal Reserve Board, but usually with at least a three-month delay

Question 20

An increase in the price of oil should:

Accepted Answer

A) Shift the dynamic aggregate demand curve to the right 
B) Reduce the level of potential output 
C) Shift the short-run aggregate supply curve upward 
D) Create a temporary expansionary gap 
A) Shift the dynamic aggregate demand curve to the right 
B) Reduce the level of potential output 
C) Shift the short-run aggregate supply curve upward 
D) Create a temporary expansionary gap

Exam 22: Understanding Business Cycle Fluctuations

Explain the view called real business cycle theory.

A "shock" is something that creates a shift in:

To set the target interest rate, central banks need to know the size of the output gap.This requires measuring:

Tax cuts would have the same affect on the dynamic aggregate demand curve as:

Which of the following is not correct with regard to the definition of a recession as used by the NBER?

Describe the immediate short-run effect to the economy from an increase in government purchases, as well as the self-correcting mechanism that will restore long-run equilibrium.

Which of the following would shift the short-run aggregate supply curve to the right?

Stagflation occurs when:

Why do increases in potential output allow monetary policymakers to think "opportunistically" about disinflation?

Discuss the short- and long-run output responses resulting from an increase in money growth when the economy is producing a current level of output that equals potential output, all other factors constant.

Higher potential output levels:

If monetary policymakers do not want an increase in government purchases, which increases aggregate demand, to cause an increase in inflation, they would:

An inflation shock that shifts the short-run aggregate supply curve upward means the economy's potential level of output will:

Stagflation is a term that usually describes an economy experiencing:

The 2008 and 2009 tax cuts and the increase in government spending that occurred at the same time did not have the same inflationary impact as the similar policy in the 1960s because:

If prices were to adjust quickly:

Explain how globalization impacts inflation in both the short run and the long run.

Neutralizing demand shocks is easier in theory than in practice.Why?

Which of the following statements is most correct?

An increase in the price of oil should:

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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