Question 1

According to the new Keynesian theory, the widespread importance of small menu costs results in variations in aggregate demand causing both

Accepted Answer

A)  greater short-run adjustments in real GDP and delayed adjustment in the price level. 
B)  greater short-run adjustments in the real GDP and immediate adjustment in the price level. 
C)  smaller short-run adjustments in real GDP and delayed adjustment in the price level. 
D)  smaller short-run adjustments in real GDP and immediate adjustment in the price level. 
A)  greater short-run adjustments in real GDP and delayed adjustment in the price level. 
B)  greater short-run adjustments in the real GDP and immediate adjustment in the price level. 
C)  smaller short-run adjustments in real GDP and delayed adjustment in the price level. 
D)  smaller short-run adjustments in real GDP and immediate adjustment in the price level.

Question 2

Suppose the natural rate of unemployment is 6 percent. If the actual unemployment rate is 6 percent, then the cyclical unemployment rate

Accepted Answer

A)  is 0 percent. 
B)  is 6 percent. 
C)  is 11 percent. 
D)  cannot be determined given the information. 
A)  is 0 percent. 
B)  is 6 percent. 
C)  is 11 percent. 
D)  cannot be determined given the information.

Question 3

The natural rate of unemployment consists of

Accepted Answer

A)  unemployment associated with high inflation. 
B)  only seasonal unemployment. 
C)  only structural unemployment. 
D)  structural and frictional unemployment. 
A)  unemployment associated with high inflation. 
B)  only seasonal unemployment. 
C)  only structural unemployment. 
D)  structural and frictional unemployment.

Question 4

If cyclical unemployment is negative, then

Accepted Answer

A)  the actual unemployment rate is below the natural rate of unemployment. 
B)  the natural rate of unemployment is getting smaller. 
C)  there have been some errors in classifying the type of unemployment experienced by some people. 
D)  structural unemployment must be increasing. 
A)  the actual unemployment rate is below the natural rate of unemployment. 
B)  the natural rate of unemployment is getting smaller. 
C)  there have been some errors in classifying the type of unemployment experienced by some people. 
D)  structural unemployment must be increasing.

Question 5

-Refer to the above figure. Suppose the economy is in equilibrium at point A. If rational expectations exist, an increase in aggregate demand caused by an anticipated increase in the money supply will cause the economy to

Accepted Answer

A)  stay at point A. 
B)  move to point B. 
C)  move to point C. 
D)  move to point D. 
A)  stay at point A. 
B)  move to point B. 
C)  move to point C. 
D)  move to point D.

Question 6

Active policymaking refers to

Accepted Answer

A)  actions taken by policy makers in response to a change in the overall economy. 
B)  policy making that is carried out in response to a rule. 
C)  relying on policies that act as automatic stabilizers. 
D)  nondiscretionary policymaking. 
A)  actions taken by policy makers in response to a change in the overall economy. 
B)  policy making that is carried out in response to a rule. 
C)  relying on policies that act as automatic stabilizers. 
D)  nondiscretionary policymaking.

Question 7

All of the following would increase the natural rate of unemployment EXCEPT

Accepted Answer

A)  union activity restricts the mobility of labor. 
B)  government licensing of teachers restricts employment. 
C)  a mismatch of skills and jobs. 
D)  an economic recession. 
A)  union activity restricts the mobility of labor. 
B)  government licensing of teachers restricts employment. 
C)  a mismatch of skills and jobs. 
D)  an economic recession.

Question 8

Menu costs are a possible reason for

Accepted Answer

A)  aggregate supply shocks. 
B)  low levels of consumer confidence in response to aggregate supply shocks. 
C)  sticky product prices. 
D)  swings in the labor force participation rate. 
A)  aggregate supply shocks. 
B)  low levels of consumer confidence in response to aggregate supply shocks. 
C)  sticky product prices. 
D)  swings in the labor force participation rate.

Question 9

-In the above figure, if we start at AD1 and SRAS1, and the money supply increases unexpectedly, what would be the short-run equilibrium even with rational expectations?

Accepted Answer

A)  E1 
B)  E2 
C)  E3 
D)  P1 
A)  E1 
B)  E2 
C)  E3 
D)  P1

Question 10

As a result of habit formation, people spend more today if

Accepted Answer

A)  they spent less in the past. 
B)  they spent more in the past. 
C)  they have no loan or debt in the past. 
D)  they never had any income in the past. 
A)  they spent less in the past. 
B)  they spent more in the past. 
C)  they have no loan or debt in the past. 
D)  they never had any income in the past.

Question 11

When policymakers base their actions on a rule there is

Accepted Answer

A)  active policymaking. 
B)  passive policymaking. 
C)  rationalization policymaking. 
D)  rational expectations policymaking. 
A)  active policymaking. 
B)  passive policymaking. 
C)  rationalization policymaking. 
D)  rational expectations policymaking.

Question 12

The natural rate of unemployment includes

Accepted Answer

A)  frictional and cyclical unemployment. 
B)  only cyclical unemployment. 
C)  workers who are underemployed. 
D)  frictional unemployment and structural unemployment. 
A)  frictional and cyclical unemployment. 
B)  only cyclical unemployment. 
C)  workers who are underemployed. 
D)  frictional unemployment and structural unemployment.

Question 13

The short-run Phillips curve suggests what policy making implications?

Accepted Answer

A)  Active policy making does not yield any predictable results. 
B)  Passive policy making is more effective than active policy making. 
C)  Using discretionary policies, it may be possible to achieve just the right unemployment and inflation mix. 
D)  Maintaining both the inflation and unemployment rates at low levels is possible if policy makers will rely solely on nondiscretionary policy making. 
A)  Active policy making does not yield any predictable results. 
B)  Passive policy making is more effective than active policy making. 
C)  Using discretionary policies, it may be possible to achieve just the right unemployment and inflation mix. 
D)  Maintaining both the inflation and unemployment rates at low levels is possible if policy makers will rely solely on nondiscretionary policy making.

Question 14

Active policymaking would include all of the following EXCEPT

Accepted Answer

A)  interest rate changes by the Fed. 
B)  tax increases. 
C)  unemployment insurance benefits. 
D)  increased government spending by the Congress. 
A)  interest rate changes by the Fed. 
B)  tax increases. 
C)  unemployment insurance benefits. 
D)  increased government spending by the Congress.

Question 15

Assume that the government decides to use fiscal or monetary policy to stimulate the economy and that this action comes as a surprise to most individuals and businesses. In the short run, the result will be

Accepted Answer

A)  a decrease in the average duration of unemployment and a decrease in the unemployment rate. 
B)  an increase in the average duration of unemployment and an increase in the unemployment rate. 
C)  a decrease in aggregated demand and a rise in the price level. 
D)  an increase in aggregate demand and a fall in the price level. 
A)  a decrease in the average duration of unemployment and a decrease in the unemployment rate. 
B)  an increase in the average duration of unemployment and an increase in the unemployment rate. 
C)  a decrease in aggregated demand and a rise in the price level. 
D)  an increase in aggregate demand and a fall in the price level.

Question 16

According to the real business cycle theory, which of the following is a TRUE statement about the effects of an oil shock in the 1970s?

Accepted Answer

A)  The shock affected real variables only and did not affect nominal variables. 
B)  The shock shifted the short-run aggregate supply curve but not the long-run aggregate supply curve. 
C)  The natural rate of unemployment remained unchanged, but employment levels did decline. 
D)  Relative prices changed but there was no impact on the price level in general. 
A)  The shock affected real variables only and did not affect nominal variables. 
B)  The shock shifted the short-run aggregate supply curve but not the long-run aggregate supply curve. 
C)  The natural rate of unemployment remained unchanged, but employment levels did decline. 
D)  Relative prices changed but there was no impact on the price level in general.

Question 17

The trade-off between unemployment and inflation is known as

Accepted Answer

A)  the Keynesian mechanism. 
B)  the Phillips curve. 
C)  an expansionary gap. 
D)  passive policy making. 
A)  the Keynesian mechanism. 
B)  the Phillips curve. 
C)  an expansionary gap. 
D)  passive policy making.

Question 18

The rational expectations hypothesis states that

Accepted Answer

A)  individuals always behave irrationally. 
B)  prices do not adjust in a downward direction. 
C)  people incorporate past and present economic information into decision making. 
D)  consumers do not understand the effects of monetary and fiscal policy. 
A)  individuals always behave irrationally. 
B)  prices do not adjust in a downward direction. 
C)  people incorporate past and present economic information into decision making. 
D)  consumers do not understand the effects of monetary and fiscal policy.

Question 19

According to New Keynesians, an increase in which of the following will tend to cause the inflation rate to increase?

Accepted Answer

A)  anticipated future inflation 
B)  firms' average inflation adjusted per-unit costs of production 
C)  an unexpected increase in aggregate demand 
D)  all of the above 
A)  anticipated future inflation 
B)  firms' average inflation adjusted per-unit costs of production 
C)  an unexpected increase in aggregate demand 
D)  all of the above

Question 20

New Keynesian inflation dynamics can account for sluggish responses of

Accepted Answer

A)  real GDP to changes in aggregate supply. 
B)  real GDP to changes in aggregate demand. 
C)  inflation to changes in aggregate supply. 
D)  inflation to changes in aggregate demand. 
A)  real GDP to changes in aggregate supply. 
B)  real GDP to changes in aggregate demand. 
C)  inflation to changes in aggregate supply. 
D)  inflation to changes in aggregate demand.

Exam 17: Stabilization in an Integrated World Economy

According to the new Keynesian theory, the widespread importance of small menu costs results in variations in aggregate demand causing both

Suppose the natural rate of unemployment is 6 percent. If the actual unemployment rate is 6 percent, then the cyclical unemployment rate

The natural rate of unemployment consists of

If cyclical unemployment is negative, then

-Refer to the above figure. Suppose the economy is in equilibrium at point A. If rational expectations exist, an increase in aggregate demand caused by an anticipated increase in the money supply will cause the economy to

Active policymaking refers to

All of the following would increase the natural rate of unemployment EXCEPT

Menu costs are a possible reason for

-In the above figure, if we start at AD1 and SRAS1, and the money supply increases unexpectedly, what would be the short-run equilibrium even with rational expectations?

As a result of habit formation, people spend more today if

When policymakers base their actions on a rule there is

The natural rate of unemployment includes

The short-run Phillips curve suggests what policy making implications?

Active policymaking would include all of the following EXCEPT

Assume that the government decides to use fiscal or monetary policy to stimulate the economy and that this action comes as a surprise to most individuals and businesses. In the short run, the result will be

According to the real business cycle theory, which of the following is a TRUE statement about the effects of an oil shock in the 1970s?

The trade-off between unemployment and inflation is known as

The rational expectations hypothesis states that

According to New Keynesians, an increase in which of the following will tend to cause the inflation rate to increase?

New Keynesian inflation dynamics can account for sluggish responses of

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

Filters