Question 1

Use the figure below to answer the following questions.
  
Figure 28.2.3
-Refer to Figure 28.2.3. Assume that the figure illustrates an economy initially in equilibrium at the intersection of the SAS₀ curve and the AD₀ curve. If the aggregate demand curve is expected to remain at AD₀ but shifts to AD₁, the new equilibrium real GDP is ________ and the new equilibrium price level is ________.

Accepted Answer

A) $380 billion; 125 
B) $500 billion; 150 
C) $500 billion; 100 
D) $620 billion; 125 
E) $500 billion; 125

Question 2

Use the figure below to answer the following questions.
  
Figure 28.2.6
-Refer to Figure 28.2.6. Starting at point A, the initial effect of a demand-pull inflation is a move to point ________. As a demand-pull inflation spiral proceeds, it follows the path ________.

Accepted Answer

A) E; I 
B) C; E, H, I 
C) C; B, H, G, I 
D) B; E, G, I 
E) C; F, H, I

Question 3

For a given expected inflation rate, the higher the unemployment rate, the lower is the actual inflation rate. This relationship is the ________ Phillips curve. When the expected inflation rate changes, this is shown as a movement along the ________ Phillips curve.

Accepted Answer

A) short-run; short-run 
B) long-run; long-run 
C) long-run; natural 
D) natural; short-run 
E) short-run; long-run

Question 4

Along the short-run Phillips curve, if the actual unemployment rate falls below the natural unemployment rate, the

Accepted Answer

A) actual inflation rate will be equal to the expected inflation rate. 
B) actual inflation rate will be greater than the expected inflation rate. 
C) actual inflation rate will be less than the expected inflation rate. 
D) actual inflation rate may be greater than, equal to, or less than the expected inflation rate 
E) expected inflation rate will fall to zero.

Question 5

Use the figure below to answer the following questions.
  
Figure 28.4.1
-Refer to Figure 28.4.1. The figure illustrates an economy's Phillips curves. If the current inflation rate is 4 percent, what is the natural unemployment rate?

Accepted Answer

A) 9 percent 
B) 6 percent 
C) 4 percent 
D) 3 percent 
E) cannot be determined without more information

Question 6

Use the table below to answer the following questions.
Table 28.4.2
 
-The economy's natural unemployment rate is 4 percent. Table 28.4.2 gives some points on the economy's short-run Phillips curve. If the expected inflation rate rises to 8 percent a year,

Accepted Answer

A) the long-run Phillips curve shifts leftward. 
B) the short-run Phillips curve shifts upward. 
C) the short-run Phillips curve shifts downward. 
D) Both A and B are correct. 
E) Both A and C are correct.

Question 7

Use the table below to answer the following questions.
Table 28.4.2
 
-The economy's natural unemployment rate is 4 percent. Table 28.4.2 gives some points on the economy's short-run Phillips curve. When the unemployment rate is 4 percent,

Accepted Answer

A) actual inflation is greater than expected inflation. 
B) actual inflation is less than expected inflation. 
C) and the inflation rate is 6 percent a year, the short-run and long-run Phillips curves intersect. 
D) and the expected inflation rate is 8 percent a year, the short-run Phillips curve shifts downward. 
E) aggregate demand increases.

Question 8

The factor leading to business cycles in the ________ cycle theory is unexpected fluctuations in aggregate demand while in the ________ cycle theory both unexpected and expected fluctuations in aggregate demand are factors that lead to business cycles.

Accepted Answer

A) new classical; monetarist 
B) new classical; new Keynesian 
C) new Keynesian; Keynesian 
D) monetarist; new Keynesian 
E) real business; monetarist

Question 9

The key difference between new classical cycle theory and new Keynesian cycle theory is that the new classical cycle theory believes that ________ while the new Keynesian cycle theory believes that ________.

Accepted Answer

A) expected changes in aggregate demand change real GDP; expected changes in aggregate demand do not change real GDP 
B) only unexpected changes in aggregate demand change real GDP; only expected changes in aggregate demand change real GDP 
C) only unexpected changes in aggregate demand change real GDP; both expected and unexpected changes in aggregate demand change real GDP 
D) the short-run aggregate supply curve is horizontal; the short-run aggregate supply curve is vertical. 
E) expected and unexpected changes in aggregate demand change real GDP; only changes in labour productivity change aggregate demand

Question 10

A correctly anticipated increase in the quantity of money, in an economy with an unchanging long-run aggregate supply, will result in

Accepted Answer

A) a rise in the price level and an increase in real GDP. 
B) a rise in the price level and a decrease in real GDP. 
C) a proportional rise in the price level and no change in real GDP. 
D) no change in the price level and an increase in real GDP. 
E) no change in the price level and no change in real GDP.

Question 11

Suppose that a severe shock that decreases the demand for loanable funds hits Canada. Which of the following can we expect to occur according to real business cycle theory?

Accepted Answer

A) The real interest rate will fall. 
B) People will work fewer hours. 
C) The real wage rate will fall. 
D) The demand for loanable funds will decrease. 
E) All of the above are true.

Question 12

The new classical theory argues that the primary factor leading to business cycles is

Accepted Answer

A) expected fluctuations in aggregate demand. 
B) expected fluctuations in short-run aggregate supply. 
C) unexpected fluctuations in aggregate demand. 
D) unexpected fluctuations in short-run aggregate supply. 
E) unexpected fluctuations in long-run aggregate supply.

Question 13

Use the figure below to answer the following question.
  
Figure 28.2.5
-Refer to Figure 28.2.5. Which one of the graphs in the figure represents an economy experiencing stagflation?

Accepted Answer

A) (a)only 
B) (b)only 
C) (c)only 
D) (d)only 
E) Both (a)and (c)

Question 14

Use the figure below to answer the following questions.
  
Figure 28.2.2
-Refer to Figure 28.2.2. The economy is in long-run equilibrium. If the short-run aggregate supply curve shifts leftward from SAS₀ to SAS₁, ceteris paribus, then people expect

Accepted Answer

A) a 10 percent inflation. 
B) the price level to rise to 110. 
C) the real wage rate to fall by 10 percent. 
D) a real GDP decrease of $50 billion. 
E) a 15 percent inflation.

Question 15

Use the figure below to answer the following questions.
  
Figure 28.2.2
-Refer to Figure 28.2.2. The economy is in long-run equilibrium. If the short-run aggregate supply curve shifts leftward from SAS₀ to SAS₁, ceteris paribus, then the actual inflation rate

Accepted Answer

A) is greater than the expected inflation rate. 
B) is less than the expected inflation rate. 
C) is the same as the expected inflation rate. 
D) cannot be determined without more information. 
E) depends on what happens to wage settlements.

Question 16

Use the figure below to answer the following questions.
  
Figure 28.4.1
-Refer to Figure 28.4.1. The figure illustrates an economy's Phillips curves. If the expected inflation rate changes to 3 percent, the

Accepted Answer

A) short run Phillips curve will shift upward and the long run Phillips curve will not change. 
B) short run Phillips curve will shift downward and the long run Phillips curve will not change. 
C) short run Phillips curve will shift upward and the long run Phillips curve will shift leftward. 
D) short run Phillips curve will shift upward and the long run Phillips curve will shift rightward. 
E) short run Phillips curve will shift downward and the long run Phillips curve will shift rightward.

Question 17

"Intertemporal substitution" in real business cycle theory refers to the change in the ________ as a result of the change in the real interest rate.

Accepted Answer

A) personal tax rate 
B) demand for loanable funds 
C) supply of labour 
D) consumer demand for goods 
E) demand for labour

Question 18

Deflation ends with

Accepted Answer

A) an increase in the growth rate of the money stock. 
B) a one-time increase in the quantity of money. 
C) a rise in the interest rate. 
D) a decrease in the growth rate of the money stock. 
E) a one-time decrease in the quantity of money.

Question 19

Use the figure below to answer the following questions.
  
Figure 28.4.1
-Refer to Figure 28.4.1. The figure illustrates an economy's Phillips curves. If the current inflation rate is 4 percent, what is the current unemployment rate?

Accepted Answer

A) 9 percent 
B) 6 percent 
C) 4 percent 
D) 3 percent 
E) cannot be determined without more information

Question 20

Use the table below to answer the following questions.
Table 28.4.1
 
-Refer to Table 28.4.1. The table gives points on the short-run Phillips curve for the country of Ruritania. If the expected inflation rate is 10 percent, and the inflation rate unexpectedly rises to 12 percent and stays there for some period of time, the expected inflation rate becomes ________ percent and the natural unemployment rate is ________ percent.

Accepted Answer

A) 12; 4 
B) 10; 4 
C) 10; 6 
D) 12; 6 
E) 12; 5

Exam 28: The Business Cycle, Inflation, and Deflation

Use the figure below to answer the following questions. Figure 28.2.6 -Refer to Figure 28.2.6. Starting at point A, the initial effect of a demand-pull inflation is a move to point . As a demand-pull inflation spiral proceeds, it follows the path .

For a given expected inflation rate, the higher the unemployment rate, the lower is the actual inflation rate. This relationship is the Phillips curve. When the expected inflation rate changes, this is shown as a movement along the Phillips curve.

Along the short-run Phillips curve, if the actual unemployment rate falls below the natural unemployment rate, the

Use the figure below to answer the following questions. Figure 28.4.1 -Refer to Figure 28.4.1. The figure illustrates an economy's Phillips curves. If the current inflation rate is 4 percent, what is the natural unemployment rate?

Use the table below to answer the following questions. Table 28.4.2 -The economy's natural unemployment rate is 4 percent. Table 28.4.2 gives some points on the economy's short-run Phillips curve. If the expected inflation rate rises to 8 percent a year,

Use the table below to answer the following questions. Table 28.4.2 -The economy's natural unemployment rate is 4 percent. Table 28.4.2 gives some points on the economy's short-run Phillips curve. When the unemployment rate is 4 percent,

The factor leading to business cycles in the cycle theory is unexpected fluctuations in aggregate demand while in the cycle theory both unexpected and expected fluctuations in aggregate demand are factors that lead to business cycles.

The key difference between new classical cycle theory and new Keynesian cycle theory is that the new classical cycle theory believes that while the new Keynesian cycle theory believes that .

A correctly anticipated increase in the quantity of money, in an economy with an unchanging long-run aggregate supply, will result in

Suppose that a severe shock that decreases the demand for loanable funds hits Canada. Which of the following can we expect to occur according to real business cycle theory?

The new classical theory argues that the primary factor leading to business cycles is

Use the figure below to answer the following question. Figure 28.2.5 -Refer to Figure 28.2.5. Which one of the graphs in the figure represents an economy experiencing stagflation?

Use the figure below to answer the following questions. Figure 28.2.2 -Refer to Figure 28.2.2. The economy is in long-run equilibrium. If the short-run aggregate supply curve shifts leftward from SAS₀ to SAS₁, ceteris paribus, then people expect

Use the figure below to answer the following questions. Figure 28.2.2 -Refer to Figure 28.2.2. The economy is in long-run equilibrium. If the short-run aggregate supply curve shifts leftward from SAS₀ to SAS₁, ceteris paribus, then the actual inflation rate

Use the figure below to answer the following questions. Figure 28.4.1 -Refer to Figure 28.4.1. The figure illustrates an economy's Phillips curves. If the expected inflation rate changes to 3 percent, the

"Intertemporal substitution" in real business cycle theory refers to the change in the ________ as a result of the change in the real interest rate.

Deflation ends with

Use the figure below to answer the following questions. Figure 28.4.1 -Refer to Figure 28.4.1. The figure illustrates an economy's Phillips curves. If the current inflation rate is 4 percent, what is the current unemployment rate?

Exam 28: The Business Cycle, Inflation, and Deflation

Use the figure below to answer the following questions. Figure 28.2.6 -Refer to Figure 28.2.6. Starting at point A, the initial effect of a demand-pull inflation is a move to point ________. As a demand-pull inflation spiral proceeds, it follows the path ________.

For a given expected inflation rate, the higher the unemployment rate, the lower is the actual inflation rate. This relationship is the ________ Phillips curve. When the expected inflation rate changes, this is shown as a movement along the ________ Phillips curve.

Along the short-run Phillips curve, if the actual unemployment rate falls below the natural unemployment rate, the

Use the figure below to answer the following questions. Figure 28.4.1 -Refer to Figure 28.4.1. The figure illustrates an economy's Phillips curves. If the current inflation rate is 4 percent, what is the natural unemployment rate?

Use the table below to answer the following questions. Table 28.4.2 -The economy's natural unemployment rate is 4 percent. Table 28.4.2 gives some points on the economy's short-run Phillips curve. If the expected inflation rate rises to 8 percent a year,

Use the table below to answer the following questions. Table 28.4.2 -The economy's natural unemployment rate is 4 percent. Table 28.4.2 gives some points on the economy's short-run Phillips curve. When the unemployment rate is 4 percent,

The factor leading to business cycles in the ________ cycle theory is unexpected fluctuations in aggregate demand while in the ________ cycle theory both unexpected and expected fluctuations in aggregate demand are factors that lead to business cycles.

The key difference between new classical cycle theory and new Keynesian cycle theory is that the new classical cycle theory believes that ________ while the new Keynesian cycle theory believes that ________.

A correctly anticipated increase in the quantity of money, in an economy with an unchanging long-run aggregate supply, will result in

Suppose that a severe shock that decreases the demand for loanable funds hits Canada. Which of the following can we expect to occur according to real business cycle theory?

The new classical theory argues that the primary factor leading to business cycles is

Use the figure below to answer the following question. Figure 28.2.5 -Refer to Figure 28.2.5. Which one of the graphs in the figure represents an economy experiencing stagflation?

Use the figure below to answer the following questions. Figure 28.2.2 -Refer to Figure 28.2.2. The economy is in long-run equilibrium. If the short-run aggregate supply curve shifts leftward from SAS₀ to SAS₁, ceteris paribus, then people expect

Use the figure below to answer the following questions. Figure 28.2.2 -Refer to Figure 28.2.2. The economy is in long-run equilibrium. If the short-run aggregate supply curve shifts leftward from SAS₀ to SAS₁, ceteris paribus, then the actual inflation rate

Use the figure below to answer the following questions. Figure 28.4.1 -Refer to Figure 28.4.1. The figure illustrates an economy's Phillips curves. If the expected inflation rate changes to 3 percent, the

"Intertemporal substitution" in real business cycle theory refers to the change in the ________ as a result of the change in the real interest rate.

Deflation ends with

Use the figure below to answer the following questions. Figure 28.4.1 -Refer to Figure 28.4.1. The figure illustrates an economy's Phillips curves. If the current inflation rate is 4 percent, what is the current unemployment rate?

Use the figure below to answer the following questions. Figure 28.2.6 -Refer to Figure 28.2.6. Starting at point A, the initial effect of a demand-pull inflation is a move to point . As a demand-pull inflation spiral proceeds, it follows the path .

For a given expected inflation rate, the higher the unemployment rate, the lower is the actual inflation rate. This relationship is the Phillips curve. When the expected inflation rate changes, this is shown as a movement along the Phillips curve.

The factor leading to business cycles in the cycle theory is unexpected fluctuations in aggregate demand while in the cycle theory both unexpected and expected fluctuations in aggregate demand are factors that lead to business cycles.

The key difference between new classical cycle theory and new Keynesian cycle theory is that the new classical cycle theory believes that while the new Keynesian cycle theory believes that .