Question 1

Most economists agree that

Accepted Answer

A)  active policymaking is likely to exert sizable long-run effects on real GDP. 
B)  active policymaking is unlikely to exert sizable long-run effects on real GDP. 
C)  passive policymaking is likely to exert sizable long-run effects on real GDP. 
D)  none of the above 
A)  active policymaking is likely to exert sizable long-run effects on real GDP. 
B)  active policymaking is unlikely to exert sizable long-run effects on real GDP. 
C)  passive policymaking is likely to exert sizable long-run effects on real GDP. 
D)  none of the above

Question 2

Suppose there is an oil supply shock to the U.S. economy due to an embargo by major oil producing nations. According to the real business cycle theory, the supply shock will, other things being equal

Accepted Answer

A)  push real Gross Domestic Product (GDP) upward in the short run but downward in the long run. 
B)  push the economy into an expansionary phase of the business cycle. 
C)  cause real Gross Domestic Product (GDP) to decline both in the short run and in the long run. 
D)  cause economy-wide deflation. 
A)  push real Gross Domestic Product (GDP) upward in the short run but downward in the long run. 
B)  push the economy into an expansionary phase of the business cycle. 
C)  cause real Gross Domestic Product (GDP) to decline both in the short run and in the long run. 
D)  cause economy-wide deflation.

Question 3

The natural rate of unemployment

Accepted Answer

A)  prevails in long-run macroeconomic equilibrium, when all workers and employers have fully adjusted to any changes in the economy. 
B)  prevails in the short-run macroeconomic equilibrium, before workers and employers have had a chance to adjust to an economic shock. 
C)  exists due to welfare and unemployment benefits that reduce potential workers' incentives to find work. 
D)  exists only during periods of recession or depression in the economy. 
A)  prevails in long-run macroeconomic equilibrium, when all workers and employers have fully adjusted to any changes in the economy. 
B)  prevails in the short-run macroeconomic equilibrium, before workers and employers have had a chance to adjust to an economic shock. 
C)  exists due to welfare and unemployment benefits that reduce potential workers' incentives to find work. 
D)  exists only during periods of recession or depression in the economy.

Question 4

When "stagflation" occurs

Accepted Answer

A)  the economy experiences higher inflation rates and lower unemployment rates at the same time. 
B)  the economy experiences lower inflation rates and higher unemployment rates at the same time. 
C)  the economy experiences lower inflation rates and lower unemployment rates at the same time. 
D)  the economy experiences higher inflation rates and higher unemployment rates at the same time. 
A)  the economy experiences higher inflation rates and lower unemployment rates at the same time. 
B)  the economy experiences lower inflation rates and higher unemployment rates at the same time. 
C)  the economy experiences lower inflation rates and lower unemployment rates at the same time. 
D)  the economy experiences higher inflation rates and higher unemployment rates at the same time.

Question 5

New Keynesians argue that

Accepted Answer

A)  appropriate activist policies can reduce 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 reduce 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.

Question 6

The downward slope of the Phillips curve suggests that

Accepted Answer

A)  an increase in the price level will depress nominal wages. 
B)  an increase in the price level will increase the money supply. 
C)  a decrease in the money supply will stimulate aggregate demand. 
D)  policy makers face a trade-off between inflation and unemployment. 
A)  an increase in the price level will depress nominal wages. 
B)  an increase in the price level will increase the money supply. 
C)  a decrease in the money supply will stimulate aggregate demand. 
D)  policy makers face a trade-off between inflation and unemployment.

Question 7

When people face bounded rationality, they are likely to

Accepted Answer

A)  consider every conceivable choice available to them when making decisions. 
B)  behave irrationally. 
C)  rely on simple rules of thumb. 
D)  do nothing. 
A)  consider every conceivable choice available to them when making decisions. 
B)  behave irrationally. 
C)  rely on simple rules of thumb. 
D)  do nothing.

Question 8

Suppose the natural rate of unemployment is 4 percent. If the actual unemployment is 5 percent, then the cyclical unemployment rate is

Accepted Answer

A)  -9 percent. 
B)  -1 percent. 
C)  1 percent. 
D)  9 percent. 
A)  -9 percent. 
B)  -1 percent. 
C)  1 percent. 
D)  9 percent.

Question 9

A central feature of behavioral economics is

Accepted Answer

A)  perfect expectations. 
B)  bounded rationality. 
C)  irrational expectations. 
D)  people face no constraints in forming expectations. 
A)  perfect expectations. 
B)  bounded rationality. 
C)  irrational expectations. 
D)  people face no constraints in forming expectations.

Question 10

Which of the following is NOT a possible cause of structural unemployment?

Accepted Answer

A)  individuals take the time to search for the best job opportunities 
B)  a mismatch of worker training and skills with requirements of employers 
C)  government-imposed minimum wage laws 
D)  union activity that sets wages above the equilibrium level 
A)  individuals take the time to search for the best job opportunities 
B)  a mismatch of worker training and skills with requirements of employers 
C)  government-imposed minimum wage laws 
D)  union activity that sets wages above the equilibrium level

Question 11

Which statement is TRUE when rational expectations exist and there is a change in monetary policy which is unexpected?

Accepted Answer

A)  The change in monetary policy leads to a change in aggregate demand that leads to a temporary short-run equilibrium that is different from the long-run equilibrium. 
B)  The change in monetary policy leads to a simultaneous shift of the short-run aggregate supply curve. 
C)  The change in monetary policy lead to a simultaneous shift in the long-run aggregate supply curve. 
D)  The change in monetary policy does not change equilibrium in either the short-run or long-run. 
A)  The change in monetary policy leads to a change in aggregate demand that leads to a temporary short-run equilibrium that is different from the long-run equilibrium. 
B)  The change in monetary policy leads to a simultaneous shift of the short-run aggregate supply curve. 
C)  The change in monetary policy lead to a simultaneous shift in the long-run aggregate supply curve. 
D)  The change in monetary policy does not change equilibrium in either the short-run or long-run.

Question 12

The Phillips curve shows

Accepted Answer

A)  the relationship between the rate of interest and planned investment. 
B)  the relationship between the money supply and the price level. 
C)  that an increase in government spending will decrease real national income. 
D)  that when inflation is higher, the unemployment rate reduces. 
A)  the relationship between the rate of interest and planned investment. 
B)  the relationship between the money supply and the price level. 
C)  that an increase in government spending will decrease real national income. 
D)  that when inflation is higher, the unemployment rate reduces.

Question 13

Cyclical unemployment is negative when

Accepted Answer

A)  the inflation rate is positive. 
B)  the economy is at the peak of a business expansion. 
C)  the inflation rate is negative. 
D)  the actual unemployment rate exceeds the natural rate. 
A)  the inflation rate is positive. 
B)  the economy is at the peak of a business expansion. 
C)  the inflation rate is negative. 
D)  the actual unemployment rate exceeds the natural rate.

Question 14

The menu cost theory suggests that

Accepted Answer

A)  there will be no unemployment. 
B)  wages and prices move freely and quickly. 
C)  frequent price changes are costly for firms. 
D)  perfect competition does not exist. 
A)  there will be no unemployment. 
B)  wages and prices move freely and quickly. 
C)  frequent price changes are costly for firms. 
D)  perfect competition does not exist.

Question 15

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 16

One key assumption behind the policy irrelevance proposition is that

Accepted Answer

A)  wages are "sticky" downward. 
B)  prices are "sticky" upward. 
C)  the rational expectations hypothesis holds. 
D)  markets are not purely competitive. 
A)  wages are "sticky" downward. 
B)  prices are "sticky" upward. 
C)  the rational expectations hypothesis holds. 
D)  markets are not purely competitive.

Question 17

Real business cycles are mostly a result of

Accepted Answer

A)  discretionary fiscal policy. 
B)  abrupt changes in monetary policy. 
C)  increases in the budget deficit and national debt. 
D)  shocks to the aggregate supply side of the economy. 
A)  discretionary fiscal policy. 
B)  abrupt changes in monetary policy. 
C)  increases in the budget deficit and national debt. 
D)  shocks to the aggregate supply side of the economy.

Question 18

With discretionary policy making, fiscal and monetary policies are usually

Accepted Answer

A)  undertaken in response to or anticipation of some change in the overall economy. 
B)  set according to pre-established standards that do not take into account any changes in the economy. 
C)  immune to any political overtones. 
D)  immune to any lag times that might counter their effectiveness. 
A)  undertaken in response to or anticipation of some change in the overall economy. 
B)  set according to pre-established standards that do not take into account any changes in the economy. 
C)  immune to any political overtones. 
D)  immune to any lag times that might counter their effectiveness.

Question 19

Historical evidence suggests that

Accepted Answer

A)  the Phillips curve is horizontal. 
B)  once policy makers attempted to exploit a short-run Phillips curve trade-off, it disappeared. 
C)  shifts in long-run aggregate supply do not affect real output. 
D)  inflation rates are lowest when unemployment rates are also low. 
A)  the Phillips curve is horizontal. 
B)  once policy makers attempted to exploit a short-run Phillips curve trade-off, it disappeared. 
C)  shifts in long-run aggregate supply do not affect real output. 
D)  inflation rates are lowest when unemployment rates are also low.

Question 20

An unexpected increase in aggregate demand

Accepted Answer

A)  will reduce the price level. 
B)  will increase the average duration of unemployment. 
C)  will reduce the unemployment rate. 
D)  will increase real GDP, but will not affect the rate and duration of unemployment. 
A)  will reduce the price level. 
B)  will increase the average duration of unemployment. 
C)  will reduce the unemployment rate. 
D)  will increase real GDP, but will not affect the rate and duration of unemployment.

Exam 17: Stabilization in an Integrated World Economy

Most economists agree that

Suppose there is an oil supply shock to the U.S. economy due to an embargo by major oil producing nations. According to the real business cycle theory, the supply shock will, other things being equal

The natural rate of unemployment

When "stagflation" occurs

New Keynesians argue that

The downward slope of the Phillips curve suggests that

When people face bounded rationality, they are likely to

Suppose the natural rate of unemployment is 4 percent. If the actual unemployment is 5 percent, then the cyclical unemployment rate is

A central feature of behavioral economics is

Which of the following is NOT a possible cause of structural unemployment?

Which statement is TRUE when rational expectations exist and there is a change in monetary policy which is unexpected?

The Phillips curve shows

Cyclical unemployment is negative when

The menu cost theory suggests 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

One key assumption behind the policy irrelevance proposition is that

Real business cycles are mostly a result of

With discretionary policy making, fiscal and monetary policies are usually

Historical evidence suggests that

An unexpected increase in aggregate demand

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

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