Question 1

In the short run, unanticipated inflation typically leads to

Accepted Answer

A)  higher rates of unemployment. 
B)  decreases in aggregate demand. 
C)  lower rates of unemployment. 
D)  workers' thinking the real wage has been reduced. 
A)  higher rates of unemployment. 
B)  decreases in aggregate demand. 
C)  lower rates of unemployment. 
D)  workers' thinking the real wage has been reduced.

Question 2

The rational expectations hypothesis states that

Accepted Answer

A)  the government combines the effects of past policy changes on important economic variables with accepted views about the effects of current and future policy changes. 
B)  people combine the effect of past policy changes on important economic variables with unpredictable views on what policy makers will do to determine what the economy will do in the future. 
C)  people combine the effects of past policy changes on important economic variables with their own judgments about the future effects of current and future policy changes. 
D)  people understand how the economy operates and use their knowledge in making expectations about the future, but are uninformed about how fiscal and monetary policies are made and carried out. 
A)  the government combines the effects of past policy changes on important economic variables with accepted views about the effects of current and future policy changes. 
B)  people combine the effect of past policy changes on important economic variables with unpredictable views on what policy makers will do to determine what the economy will do in the future. 
C)  people combine the effects of past policy changes on important economic variables with their own judgments about the future effects of current and future policy changes. 
D)  people understand how the economy operates and use their knowledge in making expectations about the future, but are uninformed about how fiscal and monetary policies are made and carried out.

Question 3

Which of the following is NOT associated with the new Keynesian economics?

Accepted Answer

A)  inflation dynamics 
B)  small-menu cost theory 
C)  policy irrelevance proposition 
D)  sticky-price theories of real GDP determination 
A)  inflation dynamics 
B)  small-menu cost theory 
C)  policy irrelevance proposition 
D)  sticky-price theories of real GDP determination

Question 4

-In the above figure, what does the line U represent?

Accepted Answer

A)  the Phillips curve 
B)  the natural rate of unemployment 
C)  potential unemployment 
D)  full inflation rate of unemployment 
A)  the Phillips curve 
B)  the natural rate of unemployment 
C)  potential unemployment 
D)  full inflation rate of unemployment

Question 5

According to Friedman and Phelps, which of the following statements is a correct characterization of unemployment and inflation in the United States since the 1950s?

Accepted Answer

A)  A trade-off between inflation and unemployment as pictured in the Phillips curve existed over the entire time period. 
B)  A trade-off between inflation and unemployment as pictured in the Phillips curve existed in the 1970s and 1980s, but not over the entire period. 
C)  The relationship between inflation and unemployment is very different from the Phillips curve. A positive relationship is evident rather than an inverse relationship. 
D)  There is no clear relationship between unemployment and inflation. 
A)  A trade-off between inflation and unemployment as pictured in the Phillips curve existed over the entire time period. 
B)  A trade-off between inflation and unemployment as pictured in the Phillips curve existed in the 1970s and 1980s, but not over the entire period. 
C)  The relationship between inflation and unemployment is very different from the Phillips curve. A positive relationship is evident rather than an inverse relationship. 
D)  There is no clear relationship between unemployment and inflation.

Question 6

Which of the following can help explain why prices might be "sticky"?

Accepted Answer

A)  the rational expectations hypothesis 
B)  the policy irrelevance proposition 
C)  people are not rational 
D)  menu costs 
A)  the rational expectations hypothesis 
B)  the policy irrelevance proposition 
C)  people are not rational 
D)  menu costs

Question 7

What is the Phillips curve? What does the Phillips curve suggest about optimal policy?

Accepted Answer

The Phillips curve shows a trade-off bet

Question 8

Which of the following would NOT cause a real business cycle?

Accepted Answer

A)  a change in technology 
B)  a change in the composition of the labor force 
C)  a change in the money supply 
D)  a sustained change in the price of oil 
A)  a change in technology 
B)  a change in the composition of the labor force 
C)  a change in the money supply 
D)  a sustained change in the price of oil

Question 9

Explain the difference between active and passive policymaking.

Accepted Answer

Active policymaking, or discretionary po

Question 10

If a significant portion of firms in the economy does NOT immediately adjust product prices, then the short-run aggregate supply curve

Accepted Answer

A)  slopes upward. 
B)  slopes downward. 
C)  is horizontal. 
D)  is vertical. 
A)  slopes upward. 
B)  slopes downward. 
C)  is horizontal. 
D)  is vertical.

Question 11

Actions on the part of monetary and fiscal policymakers that are undertaken in response to some change in the overall economy are known as

Accepted Answer

A)  nondiscretionary policymaking. 
B)  passive policymaking. 
C)  creative policymaking. 
D)  active policymaking. 
A)  nondiscretionary policymaking. 
B)  passive policymaking. 
C)  creative policymaking. 
D)  active policymaking.

Question 12

-Refer to the above figure. The rational expectations hypothesis implies that an anticipated decrease in aggregate demand from AD2 to AD1 will

Accepted Answer

A)  move the economy from b to c. 
B)  move the economy from b to a. 
C)  move the economy from c to a. 
D)  shift the aggregate supply (AS) curve to the left. 
A)  move the economy from b to c. 
B)  move the economy from b to a. 
C)  move the economy from c to a. 
D)  shift the aggregate supply (AS) curve to the left.

Question 13

If a policy is carried out by a rule, then we have an example of

Accepted Answer

A)  active policymaking. 
B)  discretionary policymaking. 
C)  nondiscretionary policymaking. 
D)  natural policymaking. 
A)  active policymaking. 
B)  discretionary policymaking. 
C)  nondiscretionary policymaking. 
D)  natural policymaking.

Question 14

New Keynesian economists believe that

Accepted Answer

A)  there is an exploitable tradeoff between unemployment and inflation. 
B)  changes in aggregate demand will have relatively greater effects on real GDP when firms change prices less frequently. 
C)  activist policy can be used to reduce the fluctuations in real GDP. 
D)  all of the above 
A)  there is an exploitable tradeoff between unemployment and inflation. 
B)  changes in aggregate demand will have relatively greater effects on real GDP when firms change prices less frequently. 
C)  activist policy can be used to reduce the fluctuations in real GDP. 
D)  all of the above

Question 15

When the economy is in long-run equilibrium, there will be

Accepted Answer

A)  no unemployment. 
B)  frictional and structural unemployment. 
C)  cyclical unemployment only. 
D)  cyclical and seasonal unemployment. 
A)  no unemployment. 
B)  frictional and structural unemployment. 
C)  cyclical unemployment only. 
D)  cyclical and seasonal unemployment.

Question 16

Wage and price stickiness causes

Accepted Answer

A)  changes in aggregate demand to have no short-run effects on real GDP. 
B)  changes in aggregate demand to have long-run effects on real GDP. 
C)  changes in aggregate demand to have both short-run and long-run effects on real GDP. 
D)  changes in aggregate demand to have short-run effects on real GDP. 
A)  changes in aggregate demand to have no short-run effects on real GDP. 
B)  changes in aggregate demand to have long-run effects on real GDP. 
C)  changes in aggregate demand to have both short-run and long-run effects on real GDP. 
D)  changes in aggregate demand to have short-run effects on real GDP.

Question 17

Policymaking that is carried out in response to a rule is

Accepted Answer

A)  active policymaking. 
B)  passive policymaking. 
C)  restrictive policymaking. 
D)  determined policymaking. 
A)  active policymaking. 
B)  passive policymaking. 
C)  restrictive policymaking. 
D)  determined policymaking.

Question 18

Examination of data since 1953 indicates that during this period stretching more than half a century, the Phillips curve

Accepted Answer

A)  fails to exist. 
B)  is smoothly upward sloping. 
C)  is smoothly downward sloping. 
D)  slopes smoothly upward at first but then slopes smoothly downward. 
A)  fails to exist. 
B)  is smoothly upward sloping. 
C)  is smoothly downward sloping. 
D)  slopes smoothly upward at first but then slopes smoothly downward.

Question 19

Monetary and fiscal policymaking that is carried out in response to a pre-set rule and does NOT respond to changes in economic activity is known as

Accepted Answer

A)  active policymaking. 
B)  discretionary policymaking. 
C)  nondiscretionary policymaking. 
D)  Keynesian policymaking. 
A)  active policymaking. 
B)  discretionary policymaking. 
C)  nondiscretionary policymaking. 
D)  Keynesian policymaking.

Question 20

From 1950 until the late 1980s, the natural rate of unemployment in the United States

Accepted Answer

A)  fell sharply as government retraining programs helped put the unemployed back to work. 
B)  cycled up and down in tandem with the actual rate of unemployment. 
C)  rose sharply, always exceeding the actual rate of unemployment. 
D)  trended upward. 
A)  fell sharply as government retraining programs helped put the unemployed back to work. 
B)  cycled up and down in tandem with the actual rate of unemployment. 
C)  rose sharply, always exceeding the actual rate of unemployment. 
D)  trended upward.

Exam 17: Stabilization in an Integrated World Economy

In the short run, unanticipated inflation typically leads to

The rational expectations hypothesis states that

Which of the following is NOT associated with the new Keynesian economics?

-In the above figure, what does the line U represent?

According to Friedman and Phelps, which of the following statements is a correct characterization of unemployment and inflation in the United States since the 1950s?

Which of the following can help explain why prices might be "sticky"?

What is the Phillips curve? What does the Phillips curve suggest about optimal policy?

Which of the following would NOT cause a real business cycle?

Explain the difference between active and passive policymaking.

If a significant portion of firms in the economy does NOT immediately adjust product prices, then the short-run aggregate supply curve

Actions on the part of monetary and fiscal policymakers that are undertaken in response to some change in the overall economy are known as

-Refer to the above figure. The rational expectations hypothesis implies that an anticipated decrease in aggregate demand from AD2 to AD1 will

If a policy is carried out by a rule, then we have an example of

New Keynesian economists believe that

When the economy is in long-run equilibrium, there will be

Wage and price stickiness causes

Policymaking that is carried out in response to a rule is

Examination of data since 1953 indicates that during this period stretching more than half a century, the Phillips curve

Monetary and fiscal policymaking that is carried out in response to a pre-set rule and does NOT respond to changes in economic activity is known as

From 1950 until the late 1980s, the natural rate of unemployment in the United States

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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