Question 1

Suppose there was an unexpected increase in aggregate demand. We would expect to observe

Accepted Answer

A)  frictional unemployment to increase. 
B)  the duration of unemployment and the amount of unemployment to decrease. 
C)  higher wages, with the duration of unemployment and the amount of unemployment unchanged. 
D)  a decrease in aggregate demand. 
A)  frictional unemployment to increase. 
B)  the duration of unemployment and the amount of unemployment to decrease. 
C)  higher wages, with the duration of unemployment and the amount of unemployment unchanged. 
D)  a decrease in aggregate demand.

Question 2

Which of the following holds that economic decision making on all levels is unbiased and is based on all available information?

Accepted Answer

A)  Keynesian cycle theory 
B)  rational expectations based theory 
C)  adaptive expectations based theory 
D)  bounded rationality theory 
A)  Keynesian cycle theory 
B)  rational expectations based theory 
C)  adaptive expectations based theory 
D)  bounded rationality theory

Question 3

During a recession, the overall unemployment rate

Accepted Answer

A)  falls rapidly. 
B)  exceeds the natural rate of unemployment. 
C)  falls below the natural rate of unemployment. 
D)  equals the inflation rate. 
A)  falls rapidly. 
B)  exceeds the natural rate of unemployment. 
C)  falls below the natural rate of unemployment. 
D)  equals the inflation rate.

Question 4

If the average interval between firms' price adjustments is relatively short

Accepted Answer

A)  an increase in aggregate demand will cause a relatively short-lived increase in real GDP. 
B)  an increase in aggregate demand will cause a relatively long-lived increase in real GDP. 
C)  a reduction in aggregate demand will cause a relatively long-lived reduction in real GDP. 
D)  both B and C 
A)  an increase in aggregate demand will cause a relatively short-lived increase in real GDP. 
B)  an increase in aggregate demand will cause a relatively long-lived increase in real GDP. 
C)  a reduction in aggregate demand will cause a relatively long-lived reduction in real GDP. 
D)  both B and C

Question 5

Proponents of the policy irrelevance proposition believe that, under the assumption of rational expectations, the unemployment rate will

Accepted Answer

A)  go up whenever the Fed announces an anticipated monetary policy change. 
B)  go down whenever the Fed announces an anticipated fiscal policy change. 
C)  equal the natural rate of unemployment in the long run, regardless of any monetary policy actions. 
D)  always be higher in the long run than the natural rate of employment. 
A)  go up whenever the Fed announces an anticipated monetary policy change. 
B)  go down whenever the Fed announces an anticipated fiscal policy change. 
C)  equal the natural rate of unemployment in the long run, regardless of any monetary policy actions. 
D)  always be higher in the long run than the natural rate of employment.

Question 6

The inflation rate has been constant for several years at 4 percent, and the unemployment rate has been stable at 6 percent over the same time period. Changes in government policy that cause the inflation rate to rise to 6 percent will

Accepted Answer

A)  have no effect on the unemployment rate. 
B)  cause the unemployment rate to fall in the short run. 
C)  cause the unemployment rate to rise to 9 percent in the short run. 
D)  cause the unemployment rate to rise in the short run, but we cannot tell by how much. 
A)  have no effect on the unemployment rate. 
B)  cause the unemployment rate to fall in the short run. 
C)  cause the unemployment rate to rise to 9 percent in the short run. 
D)  cause the unemployment rate to rise in the short run, but we cannot tell by how much.

Question 7

The hypothesis suggesting that people combine the effects of past policy changes on economic variables with their own judgment about the future effects of current and future economic policy is referred to as the

Accepted Answer

A)  active expectations hypothesis. 
B)  passive expectations hypothesis. 
C)  rational expectations hypothesis. 
D)  adaptive expectations hypothesis. 
A)  active expectations hypothesis. 
B)  passive expectations hypothesis. 
C)  rational expectations hypothesis. 
D)  adaptive expectations hypothesis.

Question 8

The short-run Phillips curve relationship implies that the inflation rate

Accepted Answer

A)  is higher when the actual unemployment rate is also higher. 
B)  is higher when the actual unemployment rate is lower. 
C)  is higher when the natural unemployment rate is also higher. 
D)  is constant regardless of the actual unemployment rate. 
A)  is higher when the actual unemployment rate is also higher. 
B)  is higher when the actual unemployment rate is lower. 
C)  is higher when the natural unemployment rate is also higher. 
D)  is constant regardless of the actual unemployment rate.

Question 9

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to AD2. In the long run

Accepted Answer

A)  real GDP will be Y1, and the price level will be P1. 
B)  real GDP will be Y2, and the price level will be P2. 
C)  real GDP will be between Y1 and Y2, and the price level will be above P1. 
D)  real GDP will be between Y1 and Y2, and the price level will be below P2. 
A)  real GDP will be Y1, and the price level will be P1. 
B)  real GDP will be Y2, and the price level will be P2. 
C)  real GDP will be between Y1 and Y2, and the price level will be above P1. 
D)  real GDP will be between Y1 and Y2, and the price level will be below P2.

Question 10

Real business cycle theory explains variations in prices, employment, and real Gross Domestic Product (GDP) by focusing on

Accepted Answer

A)  changes in real variables such as supply shocks, technological changes, and shifts in the composition of the labor force. 
B)  anticipated monetary policies enacted by the Fed. 
C)  the effects of the Phillips curve. 
D)  anticipated changes in fiscal policy enacted by the government. 
A)  changes in real variables such as supply shocks, technological changes, and shifts in the composition of the labor force. 
B)  anticipated monetary policies enacted by the Fed. 
C)  the effects of the Phillips curve. 
D)  anticipated changes in fiscal policy enacted by the government.

Question 11

What is the modern view of the Phillips curve?

Accepted Answer

The modern view is that there is no trad

Question 12

In new Keynesian theory, the pattern of inflation exhibited by an economy with growing aggregate demand known as inflation dynamics is

Accepted Answer

A)  initially sluggish upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future. 
B)  initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future. 
C)  initially sluggish downward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future. 
D)  initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future. 
A)  initially sluggish upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future. 
B)  initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future. 
C)  initially sluggish downward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future. 
D)  initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future.

Question 13

Initial studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States was as long as

Accepted Answer

A)  6 months. 
B)  12 months. 
C)  2 years. 
D)  4 years. 
A)  6 months. 
B)  12 months. 
C)  2 years. 
D)  4 years.

Question 14

Real business cycle theory emphasizes the effect of ________ on real GDP.

Accepted Answer

A)  government spending 
B)  the money supply 
C)  aggregate supply shocks 
D)  aggregate demand shocks 
A)  government spending 
B)  the money supply 
C)  aggregate supply shocks 
D)  aggregate demand shocks

Question 15

On average, the greater the unexpected decline in aggregate demand

Accepted Answer

A)  the weaker is the resulting deflation. 
B)  the greater is the resulting deflation. 
C)  the greater is the resulting inflation. 
D)  the greater is the rise in the price level. 
A)  the weaker is the resulting deflation. 
B)  the greater is the resulting deflation. 
C)  the greater is the resulting inflation. 
D)  the greater is the rise in the price level.

Question 16

Rational expectations theory suggests that short-run stabilization policy

Accepted Answer

A)  is best achieved with monetary policy. 
B)  is best achieved with fiscal policy. 
C)  is equally easy to achieve with monetary or fiscal policy. 
D)  is not effective in stabilizing the economy. 
A)  is best achieved with monetary policy. 
B)  is best achieved with fiscal policy. 
C)  is equally easy to achieve with monetary or fiscal policy. 
D)  is not effective in stabilizing the economy.

Question 17

Describe and explain the policy irrelevance proposition.

Accepted Answer

The policy irrelevance proposition is th

Question 18

New Keynesians hypothesize that

Accepted Answer

A)  the relationship between inflation and unemployment is exploitable in the long run. 
B)  the relationship between inflation and unemployment is exploitable in the short run. 
C)  there is no relationship between inflation and unemployment. 
D)  fluctuations in output are largely caused by supply shocks. 
A)  the relationship between inflation and unemployment is exploitable in the long run. 
B)  the relationship between inflation and unemployment is exploitable in the short run. 
C)  there is no relationship between inflation and unemployment. 
D)  fluctuations in output are largely caused by supply shocks.

Question 19

What best defines active policymaking?

Accepted Answer

A)  taking action to offset a change in economic performance 
B)  taking action to increase long-term economic growth 
C)  taking action to make markets more competitive so as to improve efficiency 
D)  taking action to make markets less competitive so as to improve equity 
A)  taking action to offset a change in economic performance 
B)  taking action to increase long-term economic growth 
C)  taking action to make markets more competitive so as to improve efficiency 
D)  taking action to make markets less competitive so as to improve equity

Question 20

Suppose that the economy is in long-run equilibrium and the government decided to engage in expected expansionary policy by increasing the money supply. If we assume rational expectations, which of the following statements is correct about the effect of expansionary policy in the long run?

Accepted Answer

A)  The unemployment rate will increase, real GDP will increase and the price level will increase. 
B)  The unemployment rate will decrease, real GDP will decrease and the price level will decrease. 
C)  The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will increase. 
D)  The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will decrease. 
A)  The unemployment rate will increase, real GDP will increase and the price level will increase. 
B)  The unemployment rate will decrease, real GDP will decrease and the price level will decrease. 
C)  The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will increase. 
D)  The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will decrease.

Exam 17: Stabilization in an Integrated World Economy

Suppose there was an unexpected increase in aggregate demand. We would expect to observe

Which of the following holds that economic decision making on all levels is unbiased and is based on all available information?

During a recession, the overall unemployment rate

If the average interval between firms' price adjustments is relatively short

Proponents of the policy irrelevance proposition believe that, under the assumption of rational expectations, the unemployment rate will

The inflation rate has been constant for several years at 4 percent, and the unemployment rate has been stable at 6 percent over the same time period. Changes in government policy that cause the inflation rate to rise to 6 percent will

The hypothesis suggesting that people combine the effects of past policy changes on economic variables with their own judgment about the future effects of current and future economic policy is referred to as the

The short-run Phillips curve relationship implies that the inflation rate

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to AD2. In the long run

Real business cycle theory explains variations in prices, employment, and real Gross Domestic Product (GDP) by focusing on

What is the modern view of the Phillips curve?

In new Keynesian theory, the pattern of inflation exhibited by an economy with growing aggregate demand known as inflation dynamics is

Initial studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States was as long as

Real business cycle theory emphasizes the effect of ________ on real GDP.

On average, the greater the unexpected decline in aggregate demand

Rational expectations theory suggests that short-run stabilization policy

Describe and explain the policy irrelevance proposition.

New Keynesians hypothesize that

What best defines active policymaking?

Suppose that the economy is in long-run equilibrium and the government decided to engage in expected expansionary policy by increasing the money supply. If we assume rational expectations, which of the following statements is correct about the effect of expansionary policy in the long run?

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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