Question 1

A conclusion of the theory of rational expectations is that, in the short run, the impact of a correctly anticipated fiscal policy designed to decrease AD will:

Accepted Answer

A) ​result in no net change in AD once people's expectations adjustments have been accounted for. 
B) ​shift AD in the opposite direction intended once people's expectations adjustments have been accounted for. 
C) ​decrease the price level. 
D) ​result in no change in the price level. 
A) ​result in no net change in AD once people's expectations adjustments have been accounted for. 
B) ​shift AD in the opposite direction intended once people's expectations adjustments have been accounted for. 
C) ​decrease the price level. 
D) ​result in no change in the price level.

Question 2

A conclusion of the theory of rational expectations is that, in the short run, the impact of discretionary fiscal policies designed to shift the AD curve will:

Accepted Answer

A) ​result in no net change in AD once people's expectations adjustments have been accounted for. 
B) ​shift AD in the opposite direction intended once people's expectations adjustments have been accounted for. 
C) ​be anticipated and compensated for, causing no significant effect on real GDP or employment if people's anticipations are correct. 
D) ​have to be anticipated to change real output in the intended direction. 
A) ​result in no net change in AD once people's expectations adjustments have been accounted for. 
B) ​shift AD in the opposite direction intended once people's expectations adjustments have been accounted for. 
C) ​be anticipated and compensated for, causing no significant effect on real GDP or employment if people's anticipations are correct. 
D) ​have to be anticipated to change real output in the intended direction.

Question 3

If the economy is fully employed, then the inflationary costs of expansionary policy are likely to be:

Accepted Answer

A) ​low, and the unemployment gains minimal. 
B) ​low, and the unemployment gains large. 
C) ​high, and the unemployment gains minimal. 
D) ​high, and the unemployment gains large. 
A) ​low, and the unemployment gains minimal. 
B) ​low, and the unemployment gains large. 
C) ​high, and the unemployment gains minimal. 
D) ​high, and the unemployment gains large.

Question 4

Rational expectations theory would imply that the graphical relationship between unemployment and inflation indicated by the Phillips curve is ____ in the short-run.

Accepted Answer

A) ​vertical 
B) ​positively sloped 
C) ​negatively sloped 
D) ​horizontal 
A) ​vertical 
B) ​positively sloped 
C) ​negatively sloped 
D) ​horizontal

Question 5

In the short run, the Phillips Curve indicates a(n):

Accepted Answer

A) ​inverse relationship between inflation and unemployment. 
B) ​direct relationship between inflation and unemployment. 
C) ​inverse relationship between GDP and unemployment. 
D) ​direct relationship between GDP and unemployment. 
A) ​inverse relationship between inflation and unemployment. 
B) ​direct relationship between inflation and unemployment. 
C) ​inverse relationship between GDP and unemployment. 
D) ​direct relationship between GDP and unemployment.

Question 6

The short-run Phillips curve suggests that ____ rates of unemployment can be traded off for ____ rates of inflation.

Accepted Answer

A) ​lower; higher 
B) ​greater; relatively high 
C) ​less; relatively low 
D) ​less; relatively high 
A) ​lower; higher 
B) ​greater; relatively high 
C) ​less; relatively low 
D) ​less; relatively high

Question 7

When the actual inflation rate exceeds the expected inflation rate due to changes in aggregate demand:

Accepted Answer

A) ​Unemployment is below the natural rate of unemployment. 
B) ​Unemployment is above the natural rate of unemployment. 
C) ​Unemployment equals the natural rate of unemployment. 
D) ​Unemployment could be above, equal to, or below the natural rate of unemployment. 
A) ​Unemployment is below the natural rate of unemployment. 
B) ​Unemployment is above the natural rate of unemployment. 
C) ​Unemployment equals the natural rate of unemployment. 
D) ​Unemployment could be above, equal to, or below the natural rate of unemployment.

Question 8

If people underestimate the effects of expansionary policy, an increase in the growth rate of aggregate demand will tend to increase real GDP:

Accepted Answer

A) ​in both the short run and the long run. 
B) ​in the short run but not the long run. 
C) ​in the long run but not the short run. 
D) ​in neither the short run nor the long run. 
A) ​in both the short run and the long run. 
B) ​in the short run but not the long run. 
C) ​in the long run but not the short run. 
D) ​in neither the short run nor the long run.

Question 9

The short-run Phillips curve is downward sloping but the long-run is a vertical line.

Accepted Answer

A) True 
 B)False

Question 10

If all decisions makers had rational expectations and their expectations were correct, would the Phillips curve be vertical or horizontal in the short-run? Explain why.

Accepted Answer

If we assume that the all decision maker

Question 11

According to the Taylor rule, the Fed should:

Accepted Answer

A) ​lower the fed funds rate by 2.0% if inflation rises 1.0% above its target of 1.0%. 
B) ​raise the fed funds rate by 2.0% if inflation rises 1.0% above its target of 1.0%. 
C) ​lower the fed funds rate by 0.5% if inflation rises 1.0% above its target of 2.0%. 
D) ​raise the fed funds rate by 0.5% if inflation rises 1.0% above its target of 2.0%. 
A) ​lower the fed funds rate by 2.0% if inflation rises 1.0% above its target of 1.0%. 
B) ​raise the fed funds rate by 2.0% if inflation rises 1.0% above its target of 1.0%. 
C) ​lower the fed funds rate by 0.5% if inflation rises 1.0% above its target of 2.0%. 
D) ​raise the fed funds rate by 0.5% if inflation rises 1.0% above its target of 2.0%.

Question 12

The Taylor rule is an example of:

Accepted Answer

A) ​a non-discretionary rule. 
B) ​a discretionary policy. 
C) ​a hybrid-part rule, part discretion. 
D) ​neither a rule nor a discretionary policy. 
A) ​a non-discretionary rule. 
B) ​a discretionary policy. 
C) ​a hybrid-part rule, part discretion. 
D) ​neither a rule nor a discretionary policy.

Question 13

Which of the following would shift the short-run Phillips curve to the right?

Accepted Answer

A) ​an negative supply shock 
B) ​an increase in inflationary expectations 
C) ​a decrease in inflationary expectations 
D) ​either (a) or (b) 
A) ​an negative supply shock 
B) ​an increase in inflationary expectations 
C) ​a decrease in inflationary expectations 
D) ​either (a) or (b)

Question 14

An increase in aggregate demand tends to cause a ____ a short run Phillips curve at first, then cause a ____ in the short run Phillips curve as people adjust their expectations.

Accepted Answer

A) ​Movement up along; upward shift. 
B) ​Movement up along; downward shift. 
C) ​Movement down along; upward shift. 
D) ​Movement down along; downward shift. 
A) ​Movement up along; upward shift. 
B) ​Movement up along; downward shift. 
C) ​Movement down along; upward shift. 
D) ​Movement down along; downward shift.

Question 15

Which of the following is false?

Accepted Answer

A) ​Rational expectations theory suggests that government economic policies designed to alter aggregate demand to meet macroeconomic goals are of very limited effectiveness, because when policy targets become public, people will alter their own behavior from what it would otherwise have been, and in so doing, they largely negate the intended impact of policy changes. 
B) ​If changes in inflation surprise people, they will have little effect on unemployment or real output in the short run. 
C) ​An unanticipated increase in AD as a result of an expansionary monetary policy stimulates real output and employment in the short run, but an anticipated increase in AD does not. 
D) ​Unanticipated increases in AD expands output and employment in the short run, but only increases the price level in the long run. 
A) ​Rational expectations theory suggests that government economic policies designed to alter aggregate demand to meet macroeconomic goals are of very limited effectiveness, because when policy targets become public, people will alter their own behavior from what it would otherwise have been, and in so doing, they largely negate the intended impact of policy changes. 
B) ​If changes in inflation surprise people, they will have little effect on unemployment or real output in the short run. 
C) ​An unanticipated increase in AD as a result of an expansionary monetary policy stimulates real output and employment in the short run, but an anticipated increase in AD does not. 
D) ​Unanticipated increases in AD expands output and employment in the short run, but only increases the price level in the long run.

Question 16

A decrease in aggregate demand tends to cause a ____ a short run Phillips curve at first, then cause a ____ in the short run Phillips curve as people adjust their expectations.

Accepted Answer

A) ​Movement up along; upward shift. 
B) ​Movement up along; downward shift. 
C) ​Movement down along; upward shift. 
D) ​Movement down along; downward shift. 
A) ​Movement up along; upward shift. 
B) ​Movement up along; downward shift. 
C) ​Movement down along; upward shift. 
D) ​Movement down along; downward shift.

Question 17

According to economist Milton Friedman,

Accepted Answer

A) ​the short-term validity of the Phillips curve is questionable. 
B) ​there might be a short-term trade-off between unemployment and inflation but not a permanent trade-off. 
C) ​trade-off happens between unemployment and inflation happens in the long run but not in the short run. 
D) ​the long-run trade-off between unemployment and inflation comes from unanticipated inflation. 
A) ​the short-term validity of the Phillips curve is questionable. 
B) ​there might be a short-term trade-off between unemployment and inflation but not a permanent trade-off. 
C) ​trade-off happens between unemployment and inflation happens in the long run but not in the short run. 
D) ​the long-run trade-off between unemployment and inflation comes from unanticipated inflation.

Question 18

If inflationary expectations are stable and there is no current inflation, the short-run Phillips curve will intersect the long-run Phillips curve at:

Accepted Answer

A) ​a 0 percent unemployment rate. 
B) ​a 2 percent unemployment rate. 
C) ​a 4 percent unemployment rate. 
D) ​the natural rate of unemployment. 
A) ​a 0 percent unemployment rate. 
B) ​a 2 percent unemployment rate. 
C) ​a 4 percent unemployment rate. 
D) ​the natural rate of unemployment.

Question 19

At low rates of unemployment the Phillips curve becomes:

Accepted Answer

A) ​quite flat. 
B) ​unitary elastic. 
C) ​a positive relationship. 
D) ​very steep. 
A) ​quite flat. 
B) ​unitary elastic. 
C) ​a positive relationship. 
D) ​very steep.

Question 20

Critics of targeting a zero inflation rate believe that achieving zero inflation is almost impossible and the costs are too high.

Accepted Answer

A) True 
 B)False

Exam 19: Measuring Economic Performance

A conclusion of the theory of rational expectations is that, in the short run, the impact of a correctly anticipated fiscal policy designed to decrease AD will:

A conclusion of the theory of rational expectations is that, in the short run, the impact of discretionary fiscal policies designed to shift the AD curve will:

If the economy is fully employed, then the inflationary costs of expansionary policy are likely to be:

Rational expectations theory would imply that the graphical relationship between unemployment and inflation indicated by the Phillips curve is ____ in the short-run.

In the short run, the Phillips Curve indicates a(n):

The short-run Phillips curve suggests that ____ rates of unemployment can be traded off for ____ rates of inflation.

When the actual inflation rate exceeds the expected inflation rate due to changes in aggregate demand:

If people underestimate the effects of expansionary policy, an increase in the growth rate of aggregate demand will tend to increase real GDP:

The short-run Phillips curve is downward sloping but the long-run is a vertical line.

If all decisions makers had rational expectations and their expectations were correct, would the Phillips curve be vertical or horizontal in the short-run? Explain why.

According to the Taylor rule, the Fed should:

The Taylor rule is an example of:

Which of the following would shift the short-run Phillips curve to the right?

An increase in aggregate demand tends to cause a ____ a short run Phillips curve at first, then cause a ____ in the short run Phillips curve as people adjust their expectations.

Which of the following is false?

A decrease in aggregate demand tends to cause a ____ a short run Phillips curve at first, then cause a ____ in the short run Phillips curve as people adjust their expectations.

According to economist Milton Friedman,

If inflationary expectations are stable and there is no current inflation, the short-run Phillips curve will intersect the long-run Phillips curve at:

At low rates of unemployment the Phillips curve becomes:

Critics of targeting a zero inflation rate believe that achieving zero inflation is almost impossible and the costs are too high.

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Filters

The short-run Phillips curve suggests that rates of unemployment can be traded off for rates of inflation.

An increase in aggregate demand tends to cause a a short run Phillips curve at first, then cause a in the short run Phillips curve as people adjust their expectations.

A decrease in aggregate demand tends to cause a a short run Phillips curve at first, then cause a in the short run Phillips curve as people adjust their expectations.