Question 1

Which of the following unemployment rates can be negative?

Accepted Answer

A)  the cyclical unemployment rate 
B)  the natural unemployment rate 
C)  the seasonal unemployment rate 
D)  the unemployment rate that includes underemployment 
A)  the cyclical unemployment rate 
B)  the natural unemployment rate 
C)  the seasonal unemployment rate 
D)  the unemployment rate that includes underemployment

Question 2

Which one of the following is an example of passive policymaking?

Accepted Answer

A)  introducing expansionary monetary policy to combat a recession 
B)  introducing expansionary monetary policy to combat inflation 
C)  introducing expansionary fiscal policy to combat a recession 
D)  following a predetermined monetary policy rule 
A)  introducing expansionary monetary policy to combat a recession 
B)  introducing expansionary monetary policy to combat inflation 
C)  introducing expansionary fiscal policy to combat a recession 
D)  following a predetermined monetary policy rule

Question 3

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

Question 4

Adding the assumption of pure competition and complete flexibility of all prices and wages to the rational expectations hypothesis yields a theory that provides support for

Accepted Answer

A)  passive policy making. 
B)  active policy making. 
C)  discretionary policy making. 
D)  irrelevant policy making. 
A)  passive policy making. 
B)  active policy making. 
C)  discretionary policy making. 
D)  irrelevant policy making.

Question 5

Suppose that the economy is in long-run equilibrium and the central bank decided to engage in unexpected 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.

Question 6

The most important new Keynesian assumption that distinguishes this theory from the real-business-cycle theory is the new Keynesian assumption

Accepted Answer

A)  of a horizontal aggregate demand curve. 
B)  of price flexibility. 
C)  about the importance of interest rates in determining investment spending. 
D)  of a horizontal short-run aggregate curve. 
A)  of a horizontal aggregate demand curve. 
B)  of price flexibility. 
C)  about the importance of interest rates in determining investment spending. 
D)  of a horizontal short-run aggregate curve.

Question 7

The short-run Phillips curve and the long-run Phillips curve are different because

Accepted Answer

A)  the expected rate of inflation is always zero in the long run, while it is a positive number in the short run. 
B)  the expected rate of inflation is always zero in the short run, while it is a positive number in the long run. 
C)  the actual and expected rate of inflation are equal in the short run. 
D)  the actual and expected rate of inflation are equal in the long run. 
A)  the expected rate of inflation is always zero in the long run, while it is a positive number in the short run. 
B)  the expected rate of inflation is always zero in the short run, while it is a positive number in the long run. 
C)  the actual and expected rate of inflation are equal in the short run. 
D)  the actual and expected rate of inflation are equal in the long run.

Question 8

The idea that anticipated monetary policy changes cannot affect real GDP or employment is known as

Accepted Answer

A)  the systematic policy hypothesis. 
B)  the policy irrelevance theorem. 
C)  the bounded rationality hypothesis. 
D)  the Keynesian hypothesis. 
A)  the systematic policy hypothesis. 
B)  the policy irrelevance theorem. 
C)  the bounded rationality hypothesis. 
D)  the Keynesian hypothesis.

Question 9

Economists Milton Friedman and E.S. Phelps suggested that the apparent trade-off suggested by the Phillips curve could not be exploited by policy makers, because

Accepted Answer

A)  economic participants routinely incorporate changes in the inflation rate into their expectations. 
B)  economic participants are not rational, and therefore act unpredictably to any policy change. 
C)  unemployment levels and the inflation rate have a clear, positive relationship. 
D)  unemployment levels and the inflation rate have a negative (inverse) relationship. 
A)  economic participants routinely incorporate changes in the inflation rate into their expectations. 
B)  economic participants are not rational, and therefore act unpredictably to any policy change. 
C)  unemployment levels and the inflation rate have a clear, positive relationship. 
D)  unemployment levels and the inflation rate have a negative (inverse) relationship.

Question 10

The argument for passive policymaking will be stronger if

Accepted Answer

A)  pure competition is widespread. 
B)  price flexibility is common. 
C)  wage flexibility is common. 
D)  all of the above. 
A)  pure competition is widespread. 
B)  price flexibility is common. 
C)  wage flexibility is common. 
D)  all of the above.

Question 11

-Refer to the above figure. Suppose the economy is at point B and the central bank adopts contractionary monetary policy. In the short run, this will result in

Accepted Answer

A)  the economy moving towards point A. 
B)  the economy staying at point B. 
C)  the economy moving towards point C. 
D)  an outcome that cannot be predicted, because not enough information is given. 
A)  the economy moving towards point A. 
B)  the economy staying at point B. 
C)  the economy moving towards point C. 
D)  an outcome that cannot be predicted, because not enough information is given.

Question 12

According to A.W. Phillips, an inverse relationship has existed between

Accepted Answer

A)  unemployment and interest rates. 
B)  the rate of growth of the money supply and the unemployment rate. 
C)  the inflation rate and unemployment rate. 
D)  the inflation rate and the money supply. 
A)  unemployment and interest rates. 
B)  the rate of growth of the money supply and the unemployment rate. 
C)  the inflation rate and unemployment rate. 
D)  the inflation rate and the money supply.

Question 13

Assume the Fed initiates an expansionary monetary policy that is correctly anticipated by economic agents in the economy. According to the rational expectation hypothesis, the result is

Accepted Answer

A)  an increased price level in the short run, but no effect on price level in the long run. 
B)  decreased real Gross Domestic Product (GDP) in the short run, but increased real Gross Domestic Product (GDP) in the long run. 
C)  increased real Gross Domestic Product (GDP) and increased employment in the long run. 
D)  an increased price level, but no change in real Gross Domestic Product (GDP) in the long run. 
A)  an increased price level in the short run, but no effect on price level in the long run. 
B)  decreased real Gross Domestic Product (GDP) in the short run, but increased real Gross Domestic Product (GDP) in the long run. 
C)  increased real Gross Domestic Product (GDP) and increased employment in the long run. 
D)  an increased price level, but no change in real Gross Domestic Product (GDP) in the long run.

Question 14

Frictional and structural unemployment both exist

Accepted Answer

A)  when inflation becomes very high. 
B)  when the economy is in long-run equilibrium. 
C)  only when the economy is at the peak of the business cycle. 
D)  only when the economy is in recession. 
A)  when inflation becomes very high. 
B)  when the economy is in long-run equilibrium. 
C)  only when the economy is at the peak of the business cycle. 
D)  only when the economy is in recession.

Question 15

How do rational expectations models differ from traditional classical economics? How does the new Keynesian model differ from the traditional Keynesian view?

Accepted Answer

A rational expectations model sees no re

Question 16

If people experience rational inattention, then during the interval between the public's informational updates

Accepted Answer

A)  the Phillips curve slopes upward. 
B)  the Phillips curve slopes downward. 
C)  the Phillips curve does not exist. 
D)  the Phillips curve becomes vertical. 
A)  the Phillips curve slopes upward. 
B)  the Phillips curve slopes downward. 
C)  the Phillips curve does not exist. 
D)  the Phillips curve becomes vertical.

Question 17

An unexpected decrease in aggregate demand

Accepted Answer

A)  causes the price level to fall and the unemployment rate to rise. 
B)  causes the price level to fall and the unemployment rate to fall. 
C)  causes the price level to rise and the unemployment rate to rise. 
D)  causes the price level to rise and the unemployment rate to fall. 
A)  causes the price level to fall and the unemployment rate to rise. 
B)  causes the price level to fall and the unemployment rate to fall. 
C)  causes the price level to rise and the unemployment rate to rise. 
D)  causes the price level to rise and the unemployment rate to fall.

Question 18

When policymakers make decisions in response to a pre-specified rule, they are undertaking

Accepted Answer

A)  active policy. 
B)  discretionary policy. 
C)  passive policy. 
D)  irrational policy. 
A)  active policy. 
B)  discretionary policy. 
C)  passive policy. 
D)  irrational policy.

Question 19

Available evidence about price adjustments across U.S. industries indicates that

Accepted Answer

A)  prices are very flexible in all industries. 
B)  prices are very sticky in all industries. 
C)  prices are equally flexible in all industries. 
D)  there is considerable variation in price flexibility across industries. 
A)  prices are very flexible in all industries. 
B)  prices are very sticky in all industries. 
C)  prices are equally flexible in all industries. 
D)  there is considerable variation in price flexibility across industries.

Question 20

Which of the following scenarios can be classified as passive policymaking?

Accepted Answer

A)  The Federal Reserve cuts the federal funds rate in order to increase economic activity. 
B)  The federal government increases spending in order to create jobs. 
C)  The Federal Reserve adjusts the money supply as appropriate to attain a target rate of inflation. 
D)  Congress increases expenditures in an effort to stimulate economic activity. 
A)  The Federal Reserve cuts the federal funds rate in order to increase economic activity. 
B)  The federal government increases spending in order to create jobs. 
C)  The Federal Reserve adjusts the money supply as appropriate to attain a target rate of inflation. 
D)  Congress increases expenditures in an effort to stimulate economic activity.

Exam 17: Stabilization in an Integrated World Economy

Which of the following unemployment rates can be negative?

Which one of the following is an example of passive policymaking?

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

Adding the assumption of pure competition and complete flexibility of all prices and wages to the rational expectations hypothesis yields a theory that provides support for

Suppose that the economy is in long-run equilibrium and the central bank decided to engage in unexpected 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 most important new Keynesian assumption that distinguishes this theory from the real-business-cycle theory is the new Keynesian assumption

The short-run Phillips curve and the long-run Phillips curve are different because

The idea that anticipated monetary policy changes cannot affect real GDP or employment is known as

Economists Milton Friedman and E.S. Phelps suggested that the apparent trade-off suggested by the Phillips curve could not be exploited by policy makers, because

The argument for passive policymaking will be stronger if

-Refer to the above figure. Suppose the economy is at point B and the central bank adopts contractionary monetary policy. In the short run, this will result in

According to A.W. Phillips, an inverse relationship has existed between

Assume the Fed initiates an expansionary monetary policy that is correctly anticipated by economic agents in the economy. According to the rational expectation hypothesis, the result is

Frictional and structural unemployment both exist

How do rational expectations models differ from traditional classical economics? How does the new Keynesian model differ from the traditional Keynesian view?

If people experience rational inattention, then during the interval between the public's informational updates

An unexpected decrease in aggregate demand

When policymakers make decisions in response to a pre-specified rule, they are undertaking

Available evidence about price adjustments across U.S. industries indicates that

Which of the following scenarios can be classified as passive policymaking?

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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