Question 1

The short-run effect of a change in autonomous expenditures is shown by the AD curve moving along the IA line.

Accepted Answer

A) True 
 B)False  True

Question 2

Exhibit 25-2  
-According to Exhibit 25-2, which of the following best describes the path followed by the U.S. economy during recent economic fluctuations?

Accepted Answer

A)  FCBAD 
B)  FCGBA 
C)  CBADE 
D)  CGBED 
E)  CGBEF 
A)  FCBAD 
B)  FCGBA 
C)  CBADE 
D)  CGBED 
E)  CGBEF D

Question 3

It is difficult to determine whether a price shock is permanent or temporary.

Accepted Answer

A) True 
 B)False  True

Question 4

The long-run effect of an increase in oil prices is a

Accepted Answer

A)  fall in potential GDP. 
B)  lengthy recession until circumstances change and the aggregate demand curve shifts to the right. 
C)  permanent increase in inflation. 
D)  lengthy recession until the Fed changes monetary policy and the aggregate demand curve shifts to the right. 
E)  downward movement of the inflation adjustment line until the rate of inflation returns to the baseline rate. 
A)  fall in potential GDP. 
B)  lengthy recession until circumstances change and the aggregate demand curve shifts to the right. 
C)  permanent increase in inflation. 
D)  lengthy recession until the Fed changes monetary policy and the aggregate demand curve shifts to the right. 
E)  downward movement of the inflation adjustment line until the rate of inflation returns to the baseline rate.

Question 5

According to the economic fluctuations model, what would happen if real GDP went above potential GDP?

Accepted Answer

This situation is sometimes known as an

Question 6

If there is a temporary growth slowdown, real GDP will not go below potential GDP.

Accepted Answer

A) True 
 B)False

Question 7

Among the factors that might have led to the outbreak of the 2007-09 recession, which most likely caused a shift of the IA line instead of the AD curve?

Accepted Answer

A)  Sharp increases in commodity prices. 
B)  Credit crunch. 
C)  Financial crisis. 
D)  Collapse of the housing bubble. 
E)  Stock market collapse. 
A)  Sharp increases in commodity prices. 
B)  Credit crunch. 
C)  Financial crisis. 
D)  Collapse of the housing bubble. 
E)  Stock market collapse.

Question 8

What is meant by a baseline?

Accepted Answer

This is the path the

Question 9

If ever real GDP is above potential real GDP, the inflation adjustment line (IA) must shift downward.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is the most appropriate explanation of a supply shock?

Accepted Answer

A)  A large shift in the AD curve 
B)  A shift in the monetary policy rule line 
C)  A shift in potential GDP 
D)  A large shift in the aggregate expenditure line 
E)  A large change in a key commodity price 
A)  A large shift in the AD curve 
B)  A shift in the monetary policy rule line 
C)  A shift in potential GDP 
D)  A large shift in the aggregate expenditure line 
E)  A large change in a key commodity price

Question 11

When the Fed changes monetary policy to reduce the rate of inflation, which of the following should occur in the medium run?

Accepted Answer

A)  The AD curve should shift to the right. 
B)  The IA line should shift down. 
C)  The AD curve should shift to the left. 
D)  The IA line should shift up. 
E)  The aggregate expenditure line should shift down. 
A)  The AD curve should shift to the right. 
B)  The IA line should shift down. 
C)  The AD curve should shift to the left. 
D)  The IA line should shift up. 
E)  The aggregate expenditure line should shift down.

Question 12

Suppose exports increase. According to the shares of spending model from Chapter 19, what would happen to interest rates, consumption, investment, and net exports in the long run? According to this chapter's model, which is made up of the aggregate demand curves and the inflation adjustment line, what will happen to interest rates, consumption, investment, and net exports in the long run?

Accepted Answer

According to the model in Chapter 19, an

Question 13

Which of the following is another term for the recovery period?

Accepted Answer

A)  Medium run 
B)  Recession 
C)  Short run 
D)  Boom 
E)  Long run 
A)  Medium run 
B)  Recession 
C)  Short run 
D)  Boom 
E)  Long run

Question 14

Compared to the baseline, the long-run effect of a monetary policy change to reduce the rate of inflation is for there to be

Accepted Answer

A)  an increase in investment and net exports along with a decrease in consumption. 
B)  an increase in consumption, a decrease in investment, and no change in net exports. 
C)  an increase in consumption and net exports and a decrease in investment. 
D)  no change in consumption, investment, and net exports. 
E)  no change in consumption and investment, but a decrease in net exports. 
A)  an increase in investment and net exports along with a decrease in consumption. 
B)  an increase in consumption, a decrease in investment, and no change in net exports. 
C)  an increase in consumption and net exports and a decrease in investment. 
D)  no change in consumption, investment, and net exports. 
E)  no change in consumption and investment, but a decrease in net exports.

Question 15

The housing bubble and bust was partly caused by the Fed's policy of keeping low interest rates.

Accepted Answer

A) True 
 B)False

Question 16

What is the name commonly given to the situation in which inflation is up and real GDP is down?

Accepted Answer

A)  Stagflation 
B)  Reinflation 
C)  Disinflation 
D)  Backward recession 
E)  None of these 
A)  Stagflation 
B)  Reinflation 
C)  Disinflation 
D)  Backward recession 
E)  None of these

Question 17

In the short run, when government purchases fall, income and hence consumption fall, so

Accepted Answer

A)  real GDP falls by more than the fall in government purchases. 
B)  both real GDP and potential GDP fall by the same amount as the fall in government purchases. 
C)  real GDP falls by the same amount as the fall in government purchases. 
D)  real GDP falls by less than the fall in government purchases. 
E)  both real GDP and potential GDP fall by more than the fall in government purchases. 
A)  real GDP falls by more than the fall in government purchases. 
B)  both real GDP and potential GDP fall by the same amount as the fall in government purchases. 
C)  real GDP falls by the same amount as the fall in government purchases. 
D)  real GDP falls by less than the fall in government purchases. 
E)  both real GDP and potential GDP fall by more than the fall in government purchases.

Question 18

Economic fluctuations in the United States during the period 2007-09 are best explained by shifts of the inflation adjustment line.

Accepted Answer

A) True 
 B)False

Question 19

If a shock to aggregate demand occurs, the period of the initial change in real GDP is called

Accepted Answer

A)  the short run. 
B)  the medium run. 
C)  the long run. 
D)  a recovery. 
E)  the steady state. 
A)  the short run. 
B)  the medium run. 
C)  the long run. 
D)  a recovery. 
E)  the steady state.

Question 20

A price shock causes movement along the monetary policy rule line.

Accepted Answer

A) True 
 B)False

Exam 13: Using the Economic Fluctuations Model

The short-run effect of a change in autonomous expenditures is shown by the AD curve moving along the IA line.

Exhibit 25-2 -According to Exhibit 25-2, which of the following best describes the path followed by the U.S. economy during recent economic fluctuations?

It is difficult to determine whether a price shock is permanent or temporary.

The long-run effect of an increase in oil prices is a

According to the economic fluctuations model, what would happen if real GDP went above potential GDP?

If there is a temporary growth slowdown, real GDP will not go below potential GDP.

Among the factors that might have led to the outbreak of the 2007-09 recession, which most likely caused a shift of the IA line instead of the AD curve?

What is meant by a baseline?

If ever real GDP is above potential real GDP, the inflation adjustment line (IA) must shift downward.

Which of the following is the most appropriate explanation of a supply shock?

When the Fed changes monetary policy to reduce the rate of inflation, which of the following should occur in the medium run?

Which of the following is another term for the recovery period?

Compared to the baseline, the long-run effect of a monetary policy change to reduce the rate of inflation is for there to be

The housing bubble and bust was partly caused by the Fed's policy of keeping low interest rates.

What is the name commonly given to the situation in which inflation is up and real GDP is down?

In the short run, when government purchases fall, income and hence consumption fall, so

Economic fluctuations in the United States during the period 2007-09 are best explained by shifts of the inflation adjustment line.

If a shock to aggregate demand occurs, the period of the initial change in real GDP is called

A price shock causes movement along the monetary policy rule line.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

The Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Capital and Financial Markets

Economic Growth and Globalization

International Trade

International Finance

Reading, Understanding, and Creating Graphs

the Miracle of Compound Growth

Present Discounted Value

Deriving the Growth Accounting Formula

Filters