Question 1

We observe the duration of unemployment rising and wage rates falling. It is likely that

Accepted Answer

A)  the government has initiated expansionary fiscal policy but the policies haven't taken effect yet. 
B)  summer has arrived. 
C)  aggregate demand has decreased. 
D)  aggregate supply has increased. 
A)  the government has initiated expansionary fiscal policy but the policies haven't taken effect yet. 
B)  summer has arrived. 
C)  aggregate demand has decreased. 
D)  aggregate supply has increased.

Question 2

-Refer to the above figure. Unexpected expansionary 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 Y1, and the price level will be above P2. 
D)  real GDP will be between Y1 and Y2, and the price level will be between P1 and 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 Y1, and the price level will be above P2. 
D)  real GDP will be between Y1 and Y2, and the price level will be between P1 and P2.

Question 3

According to the hypothesis of New Keynesian inflation dynamics, an increase in aggregate demand brings about

Accepted Answer

A)  initial sluggish adjustment of the price level followed by higher inflation later on. 
B)  initial rapid adjustment of the price level followed by lower inflation later on. 
C)  initial sluggish adjustment of real GDP followed by more rapid real GDP growth later on. 
D)  sluggish growth in real GDP both initially and later on. 
A)  initial sluggish adjustment of the price level followed by higher inflation later on. 
B)  initial rapid adjustment of the price level followed by lower inflation later on. 
C)  initial sluggish adjustment of real GDP followed by more rapid real GDP growth later on. 
D)  sluggish growth in real GDP both initially and later on.

Question 4

The U.S. economic data for the last 50 years indicates that

Accepted Answer

A)  there is an inverse relationship between unemployment rate and inflation rate. 
B)  there is a direct relationship between unemployment rate and inflation rate. 
C)  during recessions the unemployment rate was always twice as high as the inflation rate. 
D)  there has been no long-run relationship between unemployment and inflation rates. 
A)  there is an inverse relationship between unemployment rate and inflation rate. 
B)  there is a direct relationship between unemployment rate and inflation rate. 
C)  during recessions the unemployment rate was always twice as high as the inflation rate. 
D)  there has been no long-run relationship between unemployment and inflation rates.

Question 5

The costs associated with changing prices are called

Accepted Answer

A)  price costs. 
B)  implicit costs. 
C)  menu costs. 
D)  market-clearing costs. 
A)  price costs. 
B)  implicit costs. 
C)  menu costs. 
D)  market-clearing costs.

Question 6

A plot of points representing the rate of inflation and the unemployment for the United States since 1953 reveals that

Accepted Answer

A)  there is an inverse relationship between the two variables. 
B)  there does not appear to be any trade-off between the two variables. 
C)  there is a positive relationship between the two variables. 
D)  none of the above. 
A)  there is an inverse relationship between the two variables. 
B)  there does not appear to be any trade-off between the two variables. 
C)  there is a positive relationship between the two variables. 
D)  none of the above.

Question 7

The policy irrelevance proposition states that

Accepted Answer

A)  only relatively large expected changes in monetary policy impact the economy. 
B)  anticipated changes in monetary policy are ineffective in changing real GDP. 
C)  only statements from the White House have impact on the economy. 
D)  in the short run unanticipated changes in monetary policy are ineffective in changing real GDP. 
A)  only relatively large expected changes in monetary policy impact the economy. 
B)  anticipated changes in monetary policy are ineffective in changing real GDP. 
C)  only statements from the White House have impact on the economy. 
D)  in the short run unanticipated changes in monetary policy are ineffective in changing real GDP.

Question 8

Those who favor passive policymaking do so because they conclude that

Accepted Answer

A)  price and wage flexibility is a common and speedy occurrence. 
B)  price and wage flexibility is an uncommon occurrence. 
C)  pure competition is not typical in most markets. 
D)  there is a stable trade-off between inflation and unemployment in the short run. 
A)  price and wage flexibility is a common and speedy occurrence. 
B)  price and wage flexibility is an uncommon occurrence. 
C)  pure competition is not typical in most markets. 
D)  there is a stable trade-off between inflation and unemployment in the short run.

Question 9

-In the above figure, if initial equilibrium is at point A and if there is an unanticipated increase in aggregate demand from AD1 to AD2, then

Accepted Answer

A)  in the short run real output will remain at Y1. 
B)  in the short run real output will increase above Y1, but in the long run it will return to Y1. 
C)  in the long run real output will increase above Y1. 
D)  real output will increase above Y1 in both the short run and in the long run. 
A)  in the short run real output will remain at Y1. 
B)  in the short run real output will increase above Y1, but in the long run it will return to Y1. 
C)  in the long run real output will increase above Y1. 
D)  real output will increase above Y1 in both the short run and in the long run.

Question 10

A key implication of the policy irrelevance proposition is that

Accepted Answer

A)  only fully anticipated policy actions can influence real Gross Domestic Product (GDP). 
B)  only unanticipated policy actions can influence real Gross Domestic Product (GDP). 
C)  the rational expectations hypothesis is incorrect. 
D)  none of the above. 
A)  only fully anticipated policy actions can influence real Gross Domestic Product (GDP). 
B)  only unanticipated policy actions can influence real Gross Domestic Product (GDP). 
C)  the rational expectations hypothesis is incorrect. 
D)  none of the above.

Question 11

Menu costs are

Accepted Answer

A)  the constantly changing resource prices that make planning for firms difficult. 
B)  the advertised prices for final products that firms guarantee for a certain period of time. 
C)  the cost of compliance with government regulations. 
D)  the costs that deter firms from changing prices in reaction to demand changes. 
A)  the constantly changing resource prices that make planning for firms difficult. 
B)  the advertised prices for final products that firms guarantee for a certain period of time. 
C)  the cost of compliance with government regulations. 
D)  the costs that deter firms from changing prices in reaction to demand changes.

Question 12

One key implication of rational expectations is that

Accepted Answer

A)  anticipated monetary policy has no effect on the price level. 
B)  anticipated monetary policy cannot affect the level of real GDP. 
C)  unanticipated monetary policy has no effect on the economy but anticipated monetary policy does have an effect on the economy. 
D)  both unanticipated monetary policy and anticipated monetary policy have an effect on the economy. 
A)  anticipated monetary policy has no effect on the price level. 
B)  anticipated monetary policy cannot affect the level of real GDP. 
C)  unanticipated monetary policy has no effect on the economy but anticipated monetary policy does have an effect on the economy. 
D)  both unanticipated monetary policy and anticipated monetary policy have an effect on the economy.

Question 13

Suppose the natural rate of unemployment is 6 percent. If the actual unemployment rate is 5 percent, then the cyclical unemployment rate is

Accepted Answer

A)  9 percent. 
B)  1 percent. 
C)  -1 percent. 
D)  0 percent as cyclical unemployment cannot be less than zero. 
A)  9 percent. 
B)  1 percent. 
C)  -1 percent. 
D)  0 percent as cyclical unemployment cannot be less than zero.

Question 14

According to the rational-inattention theory, people

Accepted Answer

A)  are sometimes rational and sometimes irrational in forming inflation expectations. 
B)  will never change their inflation expectations. 
C)  do not always have all the knowledge about the economy to form inflation expectations. 
D)  are always irrational in forming inflation expectations. 
A)  are sometimes rational and sometimes irrational in forming inflation expectations. 
B)  will never change their inflation expectations. 
C)  do not always have all the knowledge about the economy to form inflation expectations. 
D)  are always irrational in forming inflation expectations.

Question 15

One economic hypothesis states that people form expectations by combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes, and then react accordingly. This is known as the

Accepted Answer

A)  relevance hypothesis. 
B)  contrary opinion hypothesis. 
C)  rational expectations hypothesis. 
D)  structural hypothesis. 
A)  relevance hypothesis. 
B)  contrary opinion hypothesis. 
C)  rational expectations hypothesis. 
D)  structural hypothesis.

Question 16

During the 1970s, the shocks to the United States' economy resulted in

Accepted Answer

A)  an increase in the unemployment rate, but a decrease in the inflation rate. 
B)  a decrease in the unemployment rate, but an increase in the inflation rate. 
C)  an increase in both the unemployment rate and the inflation rate. 
D)  a decrease in both the unemployment rate and the inflation rate. 
A)  an increase in the unemployment rate, but a decrease in the inflation rate. 
B)  a decrease in the unemployment rate, but an increase in the inflation rate. 
C)  an increase in both the unemployment rate and the inflation rate. 
D)  a decrease in both the unemployment rate and the inflation rate.

Question 17

If you accept the rational expectations hypothesis as accurate, what would you tell monetary policy makers who ask you how to more effectively manage the economy?

Accepted Answer

A)  Consumers do not understand the workings of monetary policy, so discretionary and nondiscretionary policies are equally effective. 
B)  Individuals do understand how monetary policy works, so consistency and predictability are the keys to effective policy making. 
C)  Individuals base their economic expectations solely on current information, so repeating policy decisions that have worked in the past is the most effective path to take. 
D)  Only unanticipated policies will be effective once individuals understand how monetary policy works. 
A)  Consumers do not understand the workings of monetary policy, so discretionary and nondiscretionary policies are equally effective. 
B)  Individuals do understand how monetary policy works, so consistency and predictability are the keys to effective policy making. 
C)  Individuals base their economic expectations solely on current information, so repeating policy decisions that have worked in the past is the most effective path to take. 
D)  Only unanticipated policies will be effective once individuals understand how monetary policy works.

Question 18

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

Accepted Answer

A)  the unemployment rate will be the same rate as before the expansionary monetary policy. 
B)  the unemployment rate will be larger than the rate before the expansionary monetary policy. 
C)  the unemployment rate will be smaller than the rate before the expansionary monetary policy. 
D)  the unemployment rate can increase or decrease depending upon how much the LRAS will shift. 
A)  the unemployment rate will be the same rate as before the expansionary monetary policy. 
B)  the unemployment rate will be larger than the rate before the expansionary monetary policy. 
C)  the unemployment rate will be smaller than the rate before the expansionary monetary policy. 
D)  the unemployment rate can increase or decrease depending upon how much the LRAS will shift.

Question 19

Suppose the Fed permanently increases the money supply by a given amount. Which of the following is most likely to occur in the long run as a result of this monetary policy action?

Accepted Answer

A)  an increase in employment 
B)  a reduction in the real interest rate 
C)  a decrease in unemployment 
D)  none of the above 
A)  an increase in employment 
B)  a reduction in the real interest rate 
C)  a decrease in unemployment 
D)  none of the above

Question 20

An important source of structural unemployment is

Accepted Answer

A)  seasonal variations in aggregate demand. 
B)  unemployment insurance benefits. 
C)  people looking for the right job decide to change jobs. 
D)  recessions. 
A)  seasonal variations in aggregate demand. 
B)  unemployment insurance benefits. 
C)  people looking for the right job decide to change jobs. 
D)  recessions.

Exam 17: Stabilization in an Integrated World Economy

We observe the duration of unemployment rising and wage rates falling. It is likely that

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

According to the hypothesis of New Keynesian inflation dynamics, an increase in aggregate demand brings about

The U.S. economic data for the last 50 years indicates that

The costs associated with changing prices are called

A plot of points representing the rate of inflation and the unemployment for the United States since 1953 reveals that

The policy irrelevance proposition states that

Those who favor passive policymaking do so because they conclude that

-In the above figure, if initial equilibrium is at point A and if there is an unanticipated increase in aggregate demand from AD1 to AD2, then

A key implication of the policy irrelevance proposition is that

Menu costs are

One key implication of rational expectations is that

Suppose the natural rate of unemployment is 6 percent. If the actual unemployment rate is 5 percent, then the cyclical unemployment rate is

According to the rational-inattention theory, people

One economic hypothesis states that people form expectations by combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes, and then react accordingly. This is known as the

During the 1970s, the shocks to the United States' economy resulted in

If you accept the rational expectations hypothesis as accurate, what would you tell monetary policy makers who ask you how to more effectively manage the economy?

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

Suppose the Fed permanently increases the money supply by a given amount. Which of the following is most likely to occur in the long run as a result of this monetary policy action?

An important source of structural unemployment is

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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