Question 1

A larger crowding-out effect:

Accepted Answer

A) increases the magnitude of a given fiscal policy's effect on interest rates and increases the magnitude of its effects on net exports. 
B) increases the magnitude of a given fiscal policy's effect on interest rates and decreases the magnitude of its effects on net exports. 
C) decreases the magnitude of a given fiscal policy's effect on interest rates and increases the magnitude of its effects on net exports. 
D) decreases the magnitude of a given fiscal policy's effect on interest rates and decreases the magnitude of its effects on net exports. 
A) increases the magnitude of a given fiscal policy's effect on interest rates and increases the magnitude of its effects on net exports. 
B) increases the magnitude of a given fiscal policy's effect on interest rates and decreases the magnitude of its effects on net exports. 
C) decreases the magnitude of a given fiscal policy's effect on interest rates and increases the magnitude of its effects on net exports. 
D) decreases the magnitude of a given fiscal policy's effect on interest rates and decreases the magnitude of its effects on net exports.

Question 2

A smaller crowding-out effect:

Accepted Answer

A) increases the magnitude of a given fiscal policy's effect on real output in the short run and increases the magnitude of its effects on investment. 
B) increases the magnitude of a given fiscal policy's effect on real output in the short run and decreases the magnitude of its effects on investment. 
C) decreases the magnitude of a given fiscal policy's effect on real output in the short run and increases the magnitude of its effects on investment. 
D) decreases the magnitude of a given fiscal policy's effect on real output in the short run and decreases the magnitude of its effects on investment. 
A) increases the magnitude of a given fiscal policy's effect on real output in the short run and increases the magnitude of its effects on investment. 
B) increases the magnitude of a given fiscal policy's effect on real output in the short run and decreases the magnitude of its effects on investment. 
C) decreases the magnitude of a given fiscal policy's effect on real output in the short run and increases the magnitude of its effects on investment. 
D) decreases the magnitude of a given fiscal policy's effect on real output in the short run and decreases the magnitude of its effects on investment.

Question 3

Expansionary fiscal policy can lead to a decline in net exports because:

Accepted Answer

A) it increases interest rates, increasing the exchange value of the dollar and decreasing net exports. 
B) it increases interest rates, decreasing the exchange value of the dollar and decreasing net exports. 
C) it decreases interest rates, increasing the exchange value of the dollar and decreasing net exports. 
D) it decreases interest rates, decreasing the exchange value of the dollar and decreasing net exports. 
A) it increases interest rates, increasing the exchange value of the dollar and decreasing net exports. 
B) it increases interest rates, decreasing the exchange value of the dollar and decreasing net exports. 
C) it decreases interest rates, increasing the exchange value of the dollar and decreasing net exports. 
D) it decreases interest rates, decreasing the exchange value of the dollar and decreasing net exports.

Question 4

According to real business cycle theory:

Accepted Answer

A) a short-term trade-off exists between unemployment and inflation but not a permanent trade-off. 
B) economic fluctuations are the result of external negative and positive productivity shocks to the economy. 
C) workers and consumers incorporate the likely consequences of government policy changes into their expectations by quickly adjusting wages and prices. 
D) the economy will self-correct to the natural rate of unemployment. 
A) a short-term trade-off exists between unemployment and inflation but not a permanent trade-off. 
B) economic fluctuations are the result of external negative and positive productivity shocks to the economy. 
C) workers and consumers incorporate the likely consequences of government policy changes into their expectations by quickly adjusting wages and prices. 
D) the economy will self-correct to the natural rate of unemployment.

Question 5

Figure 17-A  
-Why is the time lag for fiscal policy changes longer than for monetary policy changes?

Accepted Answer

Both monetary and fiscal policies face f

Question 6

An increase in government purchases or a decrease in taxes, other things being equal, will tend to:

Accepted Answer

A) increase interest rates and decrease investment. 
B) increase interest rates and increase investment. 
C) decrease interest rates and decrease investment. 
D) decrease interest rates and increase investment. 
A) increase interest rates and decrease investment. 
B) increase interest rates and increase investment. 
C) decrease interest rates and decrease investment. 
D) decrease interest rates and increase investment.

Question 7

What is the real business cycle theory?

Accepted Answer

According to the real business cycle the

Question 8

If the rational expectation theory is accurate, equilibrium real GDP will change in the short run:

Accepted Answer

A) whenever the aggregate demand curve shifts. 
B) only if discretionary fiscal policy is used. 
C) only if there is a shift in aggregate demand that could not have been predicted from the information available to the public. 
D) only if discretionary monetary policy is used. 
A) whenever the aggregate demand curve shifts. 
B) only if discretionary fiscal policy is used. 
C) only if there is a shift in aggregate demand that could not have been predicted from the information available to the public. 
D) only if discretionary monetary policy is used.

Question 9

A larger crowding-out effect:

Accepted Answer

A) increases the magnitude of a given fiscal policy's effect on interest rates and increases the magnitude of its effects on investment. 
B) increases the magnitude of a given fiscal policy's effect on interest rates and decreases the magnitude of its effects on investment. 
C) decreases the magnitude of a given fiscal policy's effect on interest rates and increases the magnitude of its effects on investment. 
D) decreases the magnitude of a given fiscal policy's effect on interest rates and decreases the magnitude of its effects on investment. 
A) increases the magnitude of a given fiscal policy's effect on interest rates and increases the magnitude of its effects on investment. 
B) increases the magnitude of a given fiscal policy's effect on interest rates and decreases the magnitude of its effects on investment. 
C) decreases the magnitude of a given fiscal policy's effect on interest rates and increases the magnitude of its effects on investment. 
D) decreases the magnitude of a given fiscal policy's effect on interest rates and decreases the magnitude of its effects on investment.

Question 10

Using Taylor rule, the federal funds rate is increased or decreased according to what is happening to both real GDP and inflation.

Accepted Answer

A) True 
 B)False

Question 11

In the real business cycle theory, it is the potential output that fluctuates; not the output deviating from potential output.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following observations is not aligned closely with the real business cycle theory?

Accepted Answer

A) Technological changes lead to changes in the growth of productivity. 
B) Positive and negative productivity shocks are the cause of the business cycle. 
C) Wages and prices are completely flexible. 
D) Unexpected changes in the money supply causes fluctuations in real GDP. 
A) Technological changes lead to changes in the growth of productivity. 
B) Positive and negative productivity shocks are the cause of the business cycle. 
C) Wages and prices are completely flexible. 
D) Unexpected changes in the money supply causes fluctuations in real GDP.

Question 13

Which of the following is false?

Accepted Answer

A) If people can anticipate the plans of policy makers and alter their behavior quickly, their behavior could neutralize the intended impact of government action on real GDP. 
B) The theory of rational expectations leads to optimistic conclusions regarding macroeconomic policy's ability to achieve its intended economic goals. 
C) Rational expectation economists believe that wages and prices are flexible, and that workers and consumers incorporate the likely consequences of government policy changes quickly into their expectations. 
D) Catching consumers and businessmen off-guard with macroeconomic policy changes gets harder the more you try to do it. 
E) None of the above are false; all are true. 
A) If people can anticipate the plans of policy makers and alter their behavior quickly, their behavior could neutralize the intended impact of government action on real GDP. 
B) The theory of rational expectations leads to optimistic conclusions regarding macroeconomic policy's ability to achieve its intended economic goals. 
C) Rational expectation economists believe that wages and prices are flexible, and that workers and consumers incorporate the likely consequences of government policy changes quickly into their expectations. 
D) Catching consumers and businessmen off-guard with macroeconomic policy changes gets harder the more you try to do it. 
E) None of the above are false; all are true.

Question 14

Empirical evidence shows a weak correlation between declining productivity and the business cycle.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements was probably made by an adherent of rational expectations?

Accepted Answer

A) It is rational to pursue any full employment policy because more employment is better than less. 
B) Unemployment is clearly a case of market failure. 
C) Programs designed to stimulate employment will only stimulate the price level with no employment gain. 
D) It is inhumane to have a single person unemployed whatever the inflation cost. 
A) It is rational to pursue any full employment policy because more employment is better than less. 
B) Unemployment is clearly a case of market failure. 
C) Programs designed to stimulate employment will only stimulate the price level with no employment gain. 
D) It is inhumane to have a single person unemployed whatever the inflation cost.

Question 16

If the fixed rule is followed and the growth rate is 4 percent per year and the monetary growth rate is 4 percent per year, the average rate of inflation is:

Accepted Answer

A) 8 percent. 
B) 4 percent. 
C) zero. 
D) 1-2 percent. 
A) 8 percent. 
B) 4 percent. 
C) zero. 
D) 1-2 percent.

Question 17

A decrease in government purchases or an increase in taxes, other things being equal, will tend to:

Accepted Answer

A) increase interest rates and increase net exports as a result. 
B) increase interest rates and decrease net exports as a result. 
C) decrease interest rates and increase net exports as a result. 
D) decrease interest rates and decrease net exports as a result. 
A) increase interest rates and increase net exports as a result. 
B) increase interest rates and decrease net exports as a result. 
C) decrease interest rates and increase net exports as a result. 
D) decrease interest rates and decrease net exports as a result.

Question 18

Most economists believe that the financial crisis of 2008 began because of problems in the ____ industry.

Accepted Answer

A) computer 
B) automotive 
C) housing 
D) banking 
A) computer 
B) automotive 
C) housing 
D) banking

Question 19

Indexing involves the use of payment contracts that automatically adjust for changes in inflation.

Accepted Answer

A) True 
 B)False

Question 20

A smaller crowding-out effect:

Accepted Answer

A) increases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effects on net exports. 
B) increases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effects on net exports. 
C) decreases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effects on net exports. 
D) decreases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effects on net exports. 
A) increases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effects on net exports. 
B) increases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effects on net exports. 
C) decreases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effects on net exports. 
D) decreases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effects on net exports.

A larger crowding-out effect:

A smaller crowding-out effect:

Expansionary fiscal policy can lead to a decline in net exports because:

According to real business cycle theory:

Figure 17-A -Why is the time lag for fiscal policy changes longer than for monetary policy changes?

An increase in government purchases or a decrease in taxes, other things being equal, will tend to:

What is the real business cycle theory?

If the rational expectation theory is accurate, equilibrium real GDP will change in the short run:

A larger crowding-out effect:

Using Taylor rule, the federal funds rate is increased or decreased according to what is happening to both real GDP and inflation.

In the real business cycle theory, it is the potential output that fluctuates; not the output deviating from potential output.

Which of the following observations is not aligned closely with the real business cycle theory?

Which of the following is false?

Empirical evidence shows a weak correlation between declining productivity and the business cycle.

Which of the following statements was probably made by an adherent of rational expectations?

If the fixed rule is followed and the growth rate is 4 percent per year and the monetary growth rate is 4 percent per year, the average rate of inflation is:

A decrease in government purchases or an increase in taxes, other things being equal, will tend to:

Most economists believe that the financial crisis of 2008 began because of problems in the ____ industry.

Indexing involves the use of payment contracts that automatically adjust for changes in inflation.

A smaller crowding-out effect:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

Monetary Institutions

The Federal Reserve System and Monetary Policy

International Economics

Filters

Exam 17: Issues in Macroeconomic Theory and Policy

A larger crowding-out effect:

A smaller crowding-out effect:

Expansionary fiscal policy can lead to a decline in net exports because:

According to real business cycle theory:

Figure 17-A -Why is the time lag for fiscal policy changes longer than for monetary policy changes?

An increase in government purchases or a decrease in taxes, other things being equal, will tend to:

What is the real business cycle theory?

If the rational expectation theory is accurate, equilibrium real GDP will change in the short run:

A larger crowding-out effect:

Using Taylor rule, the federal funds rate is increased or decreased according to what is happening to both real GDP and inflation.

In the real business cycle theory, it is the potential output that fluctuates; not the output deviating from potential output.

Which of the following observations is not aligned closely with the real business cycle theory?

Which of the following is false?

Empirical evidence shows a weak correlation between declining productivity and the business cycle.

Which of the following statements was probably made by an adherent of rational expectations?

If the fixed rule is followed and the growth rate is 4 percent per year and the monetary growth rate is 4 percent per year, the average rate of inflation is:

A decrease in government purchases or an increase in taxes, other things being equal, will tend to:

Most economists believe that the financial crisis of 2008 began because of problems in the ____ industry.

Indexing involves the use of payment contracts that automatically adjust for changes in inflation.

A smaller crowding-out effect:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

Monetary Institutions

The Federal Reserve System and Monetary Policy

International Economics

Filters