Question 1

The Samuelson-Solow version of the Phillips curve showed the relationship between unemployment rates and

Accepted Answer

A)  Real GDP growth rates. 
B)  price inflation rates. 
C)  wage inflation rates. 
D)  imports. 
A)  Real GDP growth rates. 
B)  price inflation rates. 
C)  wage inflation rates. 
D)  imports.

Question 2

According to rational expectations theory,

Accepted Answer

A)  every day is a new day and yesterday's occurrences have no bearing on today's decisions. 
B)  when making decisions a person will consider only information based on past experience. 
C)  even though a person considers information related to future events as potentially important for decision making,he realizes that such information is unreliable and worthless. 
D)  past experience is a good guide for decision making,but so is information related to possible future outcomes. 
A)  every day is a new day and yesterday's occurrences have no bearing on today's decisions. 
B)  when making decisions a person will consider only information based on past experience. 
C)  even though a person considers information related to future events as potentially important for decision making,he realizes that such information is unreliable and worthless. 
D)  past experience is a good guide for decision making,but so is information related to possible future outcomes.

Question 3

-Refer to Exhibit 16-11.Assume that the starting point is point 1.Suppose that there is a supply-side change capable of reducing the capacity of the economy to produce.Which of the following best goes with the diagram shown?

Accepted Answer

A)  New classical theory with policy incorrectly anticipated,bias downward 
B)  New classical theory with policy incorrectly anticipated,bias upward 
C)  Real business cycle theory 
D)  New classical theory with policy unanticipated 
E)  Policy ineffectiveness proposition (PIP) 
A)  New classical theory with policy incorrectly anticipated,bias downward 
B)  New classical theory with policy incorrectly anticipated,bias upward 
C)  Real business cycle theory 
D)  New classical theory with policy unanticipated 
E)  Policy ineffectiveness proposition (PIP)

Question 4

-Refer to Exhibit 16-2.Suppose the economy starts out at point A.Next,the public anticipates that the Fed will use expansionary monetary policy to shift the AD curve from AD1 to AD2.What happens,instead,is that the Fed does not raise aggregate demand as much as the public expects (bias upward).Instead the Fed pushes the AD curve from AD1 to AD3.As a result,according to new classical theory in the short run the economy moves to point

Accepted Answer

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

Question 5

Stagflation is the simultaneous occurrence of

Accepted Answer

A)  low inflation and high unemployment. 
B)  high inflation and low unemployment. 
C)  low inflation and low unemployment. 
D)  high inflation and high unemployment. 
A)  low inflation and high unemployment. 
B)  high inflation and low unemployment. 
C)  low inflation and low unemployment. 
D)  high inflation and high unemployment.

Question 6

The short-run Phillips curve holds that

Accepted Answer

A)  high inflation and high unemployment can occur together. 
B)  low inflation and low unemployment can occur together. 
C)  high inflation and low unemployment can occur together. 
D)  b and c 
A)  high inflation and high unemployment can occur together. 
B)  low inflation and low unemployment can occur together. 
C)  high inflation and low unemployment can occur together. 
D)  b and c

Question 7

Two key assumptions of new Keynesian theory include:

Accepted Answer

A)  (1)people hold rational expectations,and (2)wages and prices are not completely flexible in the short run. 
B)  (1)people hold adaptive expectations,and (2)wages and prices are inflexible. 
C)  (1)people hold rational expectations,and (2)wages and prices are flexible. 
D)  (1)people hold neither adaptive nor rational expectations and (2)prices are inflexible. 
E)  none of the above 
A)  (1)people hold rational expectations,and (2)wages and prices are not completely flexible in the short run. 
B)  (1)people hold adaptive expectations,and (2)wages and prices are inflexible. 
C)  (1)people hold rational expectations,and (2)wages and prices are flexible. 
D)  (1)people hold neither adaptive nor rational expectations and (2)prices are inflexible. 
E)  none of the above

Question 8

Suppose that the government implements expansionary fiscal policy that raises aggregate demand,but individuals incorrectly anticipate the policy measure (bias upward).According to new classical theory,in the short run the price level would ____________ and Real GDP would ______________.In the long run,new classical theory would predict that the price level would ______________ compared to its original long-run equilibrium level and that Real GDP would _____________.

Accepted Answer

A)  rise; decline; rise; remain unchanged 
B)  fall; rise; rise; remain unchanged 
C)  rise; decline; remain unchanged; rise 
D)  fall; rise; remain unchanged; rise 
A)  rise; decline; rise; remain unchanged 
B)  fall; rise; rise; remain unchanged 
C)  rise; decline; remain unchanged; rise 
D)  fall; rise; remain unchanged; rise

Question 9

If the public has rational expectations,

Accepted Answer

A)  the only effective policy would be one that is implemented by surprise. 
B)  if the public incorrectly anticipates a given policy,there could be adverse results. 
C)  if policymakers do not do what they say they are going to do,then there could be adverse results. 
D)  a,b,and c 
E)  none of the above 
A)  the only effective policy would be one that is implemented by surprise. 
B)  if the public incorrectly anticipates a given policy,there could be adverse results. 
C)  if policymakers do not do what they say they are going to do,then there could be adverse results. 
D)  a,b,and c 
E)  none of the above

Question 10

Milton Friedman argued that there

Accepted Answer

A)  are two Phillips curves,a short-run one and a long-run one. 
B)  are three Phillips curves,a short-run one,a long-run one,and one in stagflation. 
C)  is one Phillips curve,and it is vertical. 
D)  is one Phillips curve,and it is nearly flat or horizontal. 
A)  are two Phillips curves,a short-run one and a long-run one. 
B)  are three Phillips curves,a short-run one,a long-run one,and one in stagflation. 
C)  is one Phillips curve,and it is vertical. 
D)  is one Phillips curve,and it is nearly flat or horizontal.

Question 11

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand.In new Keynesian theory,the price level will rise __________ in the short run than it is predicted to rise in new classical theory.

Accepted Answer

A)  by more 
B)  by less 
C)  by the same amount 
D)  faster 
E)  slower 
A)  by more 
B)  by less 
C)  by the same amount 
D)  faster 
E)  slower

Question 12

According to new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

Accepted Answer

A)  the short run or the long run. 
B)  neither the short run nor the long run. 
C)  the short run,but not in the long run. 
D)  the long run,but not in the short run. 
A)  the short run or the long run. 
B)  neither the short run nor the long run. 
C)  the short run,but not in the long run. 
D)  the long run,but not in the short run.

Question 13

-Refer to Exhibit 16-2.The Policy Ineffectiveness Proposition could be illustrated by a movement between points A and

Accepted Answer

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

Question 14

The Phillips curve that Samuelson and Solow fitted to their data was

Accepted Answer

A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal. 
A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal.

Question 15

According to real business cycle theorists,changes in Real GDP are the result of initial changes in

Accepted Answer

A)  aggregate demand. 
B)  the money supply. 
C)  the expected inflation rate. 
D)  prices. 
E)  none of the above 
A)  aggregate demand. 
B)  the money supply. 
C)  the expected inflation rate. 
D)  prices. 
E)  none of the above

Question 16

According to Milton Friedman,there are two Phillips curves,a short-run one and a long-run one.

Accepted Answer

A) True 
 B)False

Question 17

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand.According to new classical theory,the price level will __________ and Real GDP will __________.

Accepted Answer

A)  fall; rise 
B)  rise; fall 
C)  fall; remain unchanged 
D)  rise; remain unchanged 
E)  remain unchanged; remain unchanged 
A)  fall; rise 
B)  rise; fall 
C)  fall; remain unchanged 
D)  rise; remain unchanged 
E)  remain unchanged; remain unchanged

Question 18

-Refer to Exhibit 16-5.If the economy continually moves between points 1,2,and 3,it follows that

Accepted Answer

A)  this economy has not experienced stagflation. 
B)  a tradeoff exists between inflation and unemployment. 
C)  when inflation is higher,unemployment is lower. 
D)  a and b 
E)  a,b,and c 
A)  this economy has not experienced stagflation. 
B)  a tradeoff exists between inflation and unemployment. 
C)  when inflation is higher,unemployment is lower. 
D)  a and b 
E)  a,b,and c

Question 19

Which of the following assumptions is held by both the classical view and the new classical view?

Accepted Answer

A)  rational expectations 
B)  flexible wages and prices 
C)  flexible wages and sticky prices 
D)  adaptive expectations 
E)  a and b 
A)  rational expectations 
B)  flexible wages and prices 
C)  flexible wages and sticky prices 
D)  adaptive expectations 
E)  a and b

Question 20

For the period 1961 to 1969,the Phillips curve for the United States displayed the same shape that A.W.Phillips found for the United Kingdom for the period 1861 to 1913---it was

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  downward sloping. 
D)  upward sloping. 
A)  horizontal. 
B)  vertical. 
C)  downward sloping. 
D)  upward sloping.

Exam 16: Interest,rent,and Profit

The Samuelson-Solow version of the Phillips curve showed the relationship between unemployment rates and

According to rational expectations theory,

-Refer to Exhibit 16-11.Assume that the starting point is point 1.Suppose that there is a supply-side change capable of reducing the capacity of the economy to produce.Which of the following best goes with the diagram shown?

Stagflation is the simultaneous occurrence of

The short-run Phillips curve holds that

Two key assumptions of new Keynesian theory include:

If the public has rational expectations,

Milton Friedman argued that there

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand.In new Keynesian theory,the price level will rise __________ in the short run than it is predicted to rise in new classical theory.

According to new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

-Refer to Exhibit 16-2.The Policy Ineffectiveness Proposition could be illustrated by a movement between points A and

The Phillips curve that Samuelson and Solow fitted to their data was

According to real business cycle theorists,changes in Real GDP are the result of initial changes in

According to Milton Friedman,there are two Phillips curves,a short-run one and a long-run one.

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand.According to new classical theory,the price level will __________ and Real GDP will __________.

-Refer to Exhibit 16-5.If the economy continually moves between points 1,2,and 3,it follows that

Which of the following assumptions is held by both the classical view and the new classical view?

For the period 1961 to 1969,the Phillips curve for the United States displayed the same shape that A.W.Phillips found for the United Kingdom for the period 1861 to 1913---it was

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The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand.According to new classical theory,the price level will and Real GDP will .