Question 1

If people do NOT always make the same mistakes when forecasting the future, then

Accepted Answer

A)  rational expectations are irrational. 
B)  the Fed can control monetary policy and determine real variables such as real GDP. 
C)  the policy irrelevance theorem holds. 
D)  fiscal policy is more effective than monetary policy at fine-tuning the economy. 
A)  rational expectations are irrational. 
B)  the Fed can control monetary policy and determine real variables such as real GDP. 
C)  the policy irrelevance theorem holds. 
D)  fiscal policy is more effective than monetary policy at fine-tuning the economy.

Question 2

-Refer to the above figure. Line ABCD is a(n)

Accepted Answer

A)  aggregate demand curve. 
B)  Phillips curve. 
C)  discretionary-policy curve. 
D)  natural rate of unemployment curve. 
A)  aggregate demand curve. 
B)  Phillips curve. 
C)  discretionary-policy curve. 
D)  natural rate of unemployment curve.

Question 3

Deviations of the actual unemployment rate from the natural rate of unemployment are called

Accepted Answer

A)  frictional unemployment. 
B)  cyclical unemployment. 
C)  seasonal unemployment. 
D)  underemployment. 
A)  frictional unemployment. 
B)  cyclical unemployment. 
C)  seasonal unemployment. 
D)  underemployment.

Question 4

When it comes to active policymaking most economists agree that

Accepted Answer

A)  active policy making should be used over passive policymaking. 
B)  it is unlikely that active policymaking will have any long term effects on the economy. 
C)  it is likely that active policymaking will have long term effects on the economy. 
D)  it will lead to long term shocks in the system. 
A)  active policy making should be used over passive policymaking. 
B)  it is unlikely that active policymaking will have any long term effects on the economy. 
C)  it is likely that active policymaking will have long term effects on the economy. 
D)  it will lead to long term shocks in the system.

Question 5

The Phillips curve shows the relationship between

Accepted Answer

A)  the price level and real Gross Domestic Product (GDP). 
B)  the real Gross Domestic Production (GDP) and the unemployment rate. 
C)  the unemployment rate and inflation rate. 
D)  the interest rate and exchange rate. 
A)  the price level and real Gross Domestic Product (GDP). 
B)  the real Gross Domestic Production (GDP) and the unemployment rate. 
C)  the unemployment rate and inflation rate. 
D)  the interest rate and exchange rate.

Question 6

An increase in unemployment insurance and other transfer payments may

Accepted Answer

A)  increase the natural rate of unemployment. 
B)  increase the number of discouraged workers. 
C)  reduce the rate of inflation at every level of unemployment. 
D)  lead to less unanticipated inflation. 
A)  increase the natural rate of unemployment. 
B)  increase the number of discouraged workers. 
C)  reduce the rate of inflation at every level of unemployment. 
D)  lead to less unanticipated inflation.

Question 7

Which type of unemployment is associated with the slump in aggregate demand that accompanies a recession?

Accepted Answer

A)  expansionary unemployment 
B)  cyclical unemployment 
C)  frictional unemployment 
D)  structural unemployment 
A)  expansionary unemployment 
B)  cyclical unemployment 
C)  frictional unemployment 
D)  structural unemployment

Question 8

According to the rational inattention theory, during the periods between informational updates

Accepted Answer

A)  firms fully adjust product prices. 
B)  firms fail to fully adjust product prices. 
C)  firms always change product prices more than the inflation rate. 
D)  firms change the wages of their employees but keep product prices unchanged. 
A)  firms fully adjust product prices. 
B)  firms fail to fully adjust product prices. 
C)  firms always change product prices more than the inflation rate. 
D)  firms change the wages of their employees but keep product prices unchanged.

Question 9

Economists who believe in activist policymaking argue that

Accepted Answer

A)  decreases in aggregate demand impact the economy only in the long run. 
B)  decreases in aggregate demand definitely impact the economy in the short run. 
C)  only planned changes in the money supply impact the economy. 
D)  only increases in the minimum wage levels improve economic well-being. 
A)  decreases in aggregate demand impact the economy only in the long run. 
B)  decreases in aggregate demand definitely impact the economy in the short run. 
C)  only planned changes in the money supply impact the economy. 
D)  only increases in the minimum wage levels improve economic well-being.

Question 10

An unexpected increase in aggregate demand typically causes

Accepted Answer

A)  frictional unemployment to increase but structural unemployment to decrease. 
B)  the price level to increase but has no effect on the unemployment rate. 
C)  the price level to increase and the unemployment rate to fall. 
D)  the price level to increase and the unemployment rate to increase. 
A)  frictional unemployment to increase but structural unemployment to decrease. 
B)  the price level to increase but has no effect on the unemployment rate. 
C)  the price level to increase and the unemployment rate to fall. 
D)  the price level to increase and the unemployment rate to increase.

Question 11

Those who accept both the rational expectations hypothesis and the assumption of flexibility of wages and price would likely argue that

Accepted Answer

A)  saving and investment do not contribute to economic growth. 
B)  active policy making does not contribute to economic stability. 
C)  if policy makers are willing to accept a high inflation rate, they can reduce unemployment to a point below the natural rate. 
D)  policy makers can eliminate fluctuations in the level of business activity with careful planning of a widely publicized monetary policy. 
A)  saving and investment do not contribute to economic growth. 
B)  active policy making does not contribute to economic stability. 
C)  if policy makers are willing to accept a high inflation rate, they can reduce unemployment to a point below the natural rate. 
D)  policy makers can eliminate fluctuations in the level of business activity with careful planning of a widely publicized monetary policy.

Question 12

If all the assumptions underpinning the policy irrelevance proposition are in place, fully anticipated monetary policy will

Accepted Answer

A)  affect the unemployment rate but have no impact on the level of real Gross Domestic Product (GDP). 
B)  have an impact on real Gross Domestic Product (GDP) but cannot alter the level of unemployment. 
C)  effectively alter both the rate of unemployment and the level of real Gross Domestic Product (GDP). 
D)  not change either the level of real Gross Domestic Product (GDP) or the unemployment rate. 
A)  affect the unemployment rate but have no impact on the level of real Gross Domestic Product (GDP). 
B)  have an impact on real Gross Domestic Product (GDP) but cannot alter the level of unemployment. 
C)  effectively alter both the rate of unemployment and the level of real Gross Domestic Product (GDP). 
D)  not change either the level of real Gross Domestic Product (GDP) or the unemployment rate.

Question 13

According to the theory based on rational expectations and flexible wages and prices,

Accepted Answer

A)  fiscal policy has less effect on real GDP than monetary policy in the long run. 
B)  monetary policy has less effect on real GDP than fiscal policy in the long run. 
C)  neither fiscal nor monetary policy influence real GDP in the long run. 
D)  only the combination of discretionary fiscal policy and conservative monetary policy can affect real GDP in the long run. 
A)  fiscal policy has less effect on real GDP than monetary policy in the long run. 
B)  monetary policy has less effect on real GDP than fiscal policy in the long run. 
C)  neither fiscal nor monetary policy influence real GDP in the long run. 
D)  only the combination of discretionary fiscal policy and conservative monetary policy can affect real GDP in the long run.

Question 14

The longer is the interval between firms' price adjustments

Accepted Answer

A)  the longer the interval that the horizontal new Keynesian aggregate supply curve will remain in position. 
B)  the shorter the interval the horizontal new Keynesian aggregate supply curve will remain in position. 
C)  the new Keynesian aggregate supply curve will become steeper. 
D)  the smaller the output effect of a given change in the money supply. 
A)  the longer the interval that the horizontal new Keynesian aggregate supply curve will remain in position. 
B)  the shorter the interval the horizontal new Keynesian aggregate supply curve will remain in position. 
C)  the new Keynesian aggregate supply curve will become steeper. 
D)  the smaller the output effect of a given change in the money supply.

Question 15

Prices are sticky as a result of

Accepted Answer

A)  rational inattention. 
B)  frequent information updates. 
C)  rational expectations. 
D)  market competition. 
A)  rational inattention. 
B)  frequent information updates. 
C)  rational expectations. 
D)  market competition.

Question 16

If a policymaker is convinced that time lags frequently negate the impact of short-run stabilization efforts, it is likely she would favor ________ policymaking.

Accepted Answer

A)  nondiscretionary 
B)  discretionary 
C)  active 
D)  aggressive 
A)  nondiscretionary 
B)  discretionary 
C)  active 
D)  aggressive

Question 17

Policymakers' attempts to use the Phillips curve to reduce the unemployment rate below the natural rate

Accepted Answer

A)  will be successful since the Phillips curve shows the relationship between the inflation rate and the unemployment rate. 
B)  will be successful if monetary policy is used. 
C)  will be unsuccessful if monetary policy is used since monetary policy leads to higher prices. 
D)  will be unsuccessful since workers' expectations adjust to attempts to reduce unemployment below the natural rate. 
A)  will be successful since the Phillips curve shows the relationship between the inflation rate and the unemployment rate. 
B)  will be successful if monetary policy is used. 
C)  will be unsuccessful if monetary policy is used since monetary policy leads to higher prices. 
D)  will be unsuccessful since workers' expectations adjust to attempts to reduce unemployment below the natural rate.

Question 18

According to the rational expectations hypothesis, individuals form their expectations about future values of economic variables by all of the following EXCEPT

Accepted Answer

A)  past information. 
B)  current information. 
C)  their understanding of how the economy operates. 
D)  formal macroeconomic theories. 
A)  past information. 
B)  current information. 
C)  their understanding of how the economy operates. 
D)  formal macroeconomic theories.

Question 19

According to some New Keynesian theories, one possible rationale for active policy making is

Accepted Answer

A)  flexible prices. 
B)  sluggish adjustment of the price level in response to changes in aggregate demand 
C)  people are not rational and so do not react to incentives. 
D)  growing competition in U.S. product markets. 
A)  flexible prices. 
B)  sluggish adjustment of the price level in response to changes in aggregate demand 
C)  people are not rational and so do not react to incentives. 
D)  growing competition in U.S. product markets.

Question 20

What kind of relationship appears to actually exist, if one examines the actual data regarding the inflation rate and the unemployment rate for all years since 1953?

Accepted Answer

A)  a direct relationship 
B)  a one-to-one relationship 
C)  an inverse relationship 
D)  no relationship in the long run 
A)  a direct relationship 
B)  a one-to-one relationship 
C)  an inverse relationship 
D)  no relationship in the long run

Exam 17: Stabilization in an Integrated World Economy

If people do NOT always make the same mistakes when forecasting the future, then

-Refer to the above figure. Line ABCD is a(n)

Deviations of the actual unemployment rate from the natural rate of unemployment are called

When it comes to active policymaking most economists agree that

The Phillips curve shows the relationship between

An increase in unemployment insurance and other transfer payments may

Which type of unemployment is associated with the slump in aggregate demand that accompanies a recession?

According to the rational inattention theory, during the periods between informational updates

Economists who believe in activist policymaking argue that

An unexpected increase in aggregate demand typically causes

Those who accept both the rational expectations hypothesis and the assumption of flexibility of wages and price would likely argue that

If all the assumptions underpinning the policy irrelevance proposition are in place, fully anticipated monetary policy will

According to the theory based on rational expectations and flexible wages and prices,

The longer is the interval between firms' price adjustments

Prices are sticky as a result of

If a policymaker is convinced that time lags frequently negate the impact of short-run stabilization efforts, it is likely she would favor ________ policymaking.

Policymakers' attempts to use the Phillips curve to reduce the unemployment rate below the natural rate

According to the rational expectations hypothesis, individuals form their expectations about future values of economic variables by all of the following EXCEPT

According to some New Keynesian theories, one possible rationale for active policy making is

What kind of relationship appears to actually exist, if one examines the actual data regarding the inflation rate and the unemployment rate for all years since 1953?

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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