Question 1

The medium run is usually

Accepted Answer

A)  two to three years. 
B)  four to five years. 
C)  more than five years. 
D)  one-half to one year. 
E)  one year. 
A)  two to three years. 
B)  four to five years. 
C)  more than five years. 
D)  one-half to one year. 
E)  one year.

Question 2

A decrease in government purchases causes the interest-sensitive components of GDP to increase in the long run.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following was not a factor that led to the recession that began at the end of 2007?

Accepted Answer

A)  Commodity price inflation. 
B)  Increased government expenditure due to a war. 
C)  Financial crisis. 
D)  Collapse of the housing bubble. 
E)  Stock market collapse. 
A)  Commodity price inflation. 
B)  Increased government expenditure due to a war. 
C)  Financial crisis. 
D)  Collapse of the housing bubble. 
E)  Stock market collapse.

Question 4

What is the difference between deflation and disinflation?

Accepted Answer

A)  Deflation is used in microeconomics, whereas disinflation is used in macroeconomics. 
B)  Deflation refers to changes in expected inflation, while disinflation refers to changes in the actual rate of inflation. 
C)  Deflation refers to a decrease in the overall price level, or negative inflation, while disinflation simply refers to a decrease in the inflation rate. 
D)  There is no difference between these two concepts; they are synonyms. 
A)  Deflation is used in microeconomics, whereas disinflation is used in macroeconomics. 
B)  Deflation refers to changes in expected inflation, while disinflation refers to changes in the actual rate of inflation. 
C)  Deflation refers to a decrease in the overall price level, or negative inflation, while disinflation simply refers to a decrease in the inflation rate. 
D)  There is no difference between these two concepts; they are synonyms.

Question 5

If real GDP is below potential GDP,

Accepted Answer

A)  long-run equilibrium will be achieved once the aggregate demand curve shifts to the right. 
B)  the economy is in a short-run equilibrium. 
C)  long-run equilibrium will be achieved once inflation has stopped declining. 
D)  the economy is in a medium-run equilibrium. 
E)  long-run equilibrium will be achieved once prices have stopped declining. 
A)  long-run equilibrium will be achieved once the aggregate demand curve shifts to the right. 
B)  the economy is in a short-run equilibrium. 
C)  long-run equilibrium will be achieved once inflation has stopped declining. 
D)  the economy is in a medium-run equilibrium. 
E)  long-run equilibrium will be achieved once prices have stopped declining.

Question 6

A change in the price of a key commodity such as oil, usually because of a shortage, that causes a shift in the inflation adjustment line is known as a

Accepted Answer

A)  commodity shock. 
B)  price shock. 
C)  price revamping. 
D)  disinflation. 
E)  None of these 
A)  commodity shock. 
B)  price shock. 
C)  price revamping. 
D)  disinflation. 
E)  None of these

Question 7

What is the difference between a price shock and a supply shock?

Accepted Answer

A price shock arises from a sh

Question 8

Suppose the economy is initially at potential GDP.
(A)Draw an aggregate demand curve and price adjustment line, and label the initial equilibrium with an A.
(B)Suppose government purchases increase. Illustrate the short-run effect on your diagram. Label the new equilibrium with a B.
(C)Explain the short-run effect on C, I, G, X, R, and inflation, as compared to baseline.
(D)Illustrate the long-run effect on your diagram, and label the long-run equilibrium with a C.
(E)Explain the long-run effect on C, I, G, X, R, and inflation, as compared to baseline.

Accepted Answer

(A)See graph below. @#IMG-DLM& (B)See graph above.

Question 9

The figure below shows the effect of a 2001 increase in government purchases on the hypothetical path of real GDP compared to the path of potential GDP (the baseline) between 2001 and 2005.   (A)Using the AD curve and IA line analysis, explain what is occurring between 2001 and 2002.
(B)Using the AD curve and IA line analysis, explain what is occurring between 2002 and 2004.
(C)Using the AD curve and IA line analysis, explain what is occurring between 2004 and 2005.

Accepted Answer

(A)As a result of the increase in govern

Question 10

The best explanation for the recent economic fluctuations observed in the U.S. economy is

Accepted Answer

A)  one leftward shift of the aggregate demand curve, followed by price adjustment, followed by one rightward shift of the aggregate demand curve, followed by price adjustment. 
B)  one leftward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. 
C)  one rightward shift of the aggregate demand curve, followed by price adjustment, followed by one leftward shift of the aggregate demand curve, followed by price adjustment. 
D)  one rightward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. 
E)  one leftward shift of the aggregate demand curve followed by one rightward shift. 
A)  one leftward shift of the aggregate demand curve, followed by price adjustment, followed by one rightward shift of the aggregate demand curve, followed by price adjustment. 
B)  one leftward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. 
C)  one rightward shift of the aggregate demand curve, followed by price adjustment, followed by one leftward shift of the aggregate demand curve, followed by price adjustment. 
D)  one rightward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. 
E)  one leftward shift of the aggregate demand curve followed by one rightward shift.

Question 11

If government spending decreases, the long-run income effect on net exports and consumption will be the same as in the baseline case.

Accepted Answer

A) True 
 B)False

Question 12

The period from 1979 to 1987 is an example of

Accepted Answer

A)  the large effect monetary policy can have on potential GDP. 
B)  how monetary policy can be managed so it causes only a temporary growth slowdown. 
C)  why monetary policy doesn't always work. 
D)  how monetary policy brings about disinflation. 
E)  how monetary policy results in reinflation. 
A)  the large effect monetary policy can have on potential GDP. 
B)  how monetary policy can be managed so it causes only a temporary growth slowdown. 
C)  why monetary policy doesn't always work. 
D)  how monetary policy brings about disinflation. 
E)  how monetary policy results in reinflation.

Question 13

A supply shock is exactly the opposite of a price shock.

Accepted Answer

A) True 
 B)False

Question 14

The United States economy never recovered from the recession brought about by the Volcker disinflation.

Accepted Answer

A) True 
 B)False

Question 15

The long-run overall effect of decreased government purchases is that

Accepted Answer

A)  investment is higher. 
B)  consumption and net exports are the same, and investment is higher. 
C)  consumption is lower, and investment is higher. 
D)  consumption and net exports are higher. 
E)  consumption, investment, and net exports are all higher. 
A)  investment is higher. 
B)  consumption and net exports are the same, and investment is higher. 
C)  consumption is lower, and investment is higher. 
D)  consumption and net exports are higher. 
E)  consumption, investment, and net exports are all higher.

Question 16

An increase in the target inflation rate by the central bank is referred to as

Accepted Answer

A)  disinflation. 
B)  deflation. 
C)  reinflation. 
D)  accommodation. 
E)  stagflation. 
A)  disinflation. 
B)  deflation. 
C)  reinflation. 
D)  accommodation. 
E)  stagflation.

Question 17

All of the inflation that occurred in the 1970s can be explained by reinflation policies.

Accepted Answer

A) True 
 B)False

Question 18

The short-run effects of an increase in government purchases are that inflation will ____, and real GDP will ____.

Accepted Answer

A)  decrease; increase 
B)  increase; remain unchanged 
C)  remain unchanged; decrease 
D)  remain unchanged; increase 
E)  increase; increase 
A)  decrease; increase 
B)  increase; remain unchanged 
C)  remain unchanged; decrease 
D)  remain unchanged; increase 
E)  increase; increase

Question 19

Which of the following is the best definition of disinflation?

Accepted Answer

A)  A reduction in the inflation rate 
B)  A reduction in the overall price level of the economy 
C)  A surprisingly high rate of inflation 
D)  None of these 
A)  A reduction in the inflation rate 
B)  A reduction in the overall price level of the economy 
C)  A surprisingly high rate of inflation 
D)  None of these

Question 20

What is meant by the term stagflation?

Accepted Answer

Stagflation is the word used to describe

Exam 13: Using the Economic Fluctuations Model

The medium run is usually

A decrease in government purchases causes the interest-sensitive components of GDP to increase in the long run.

Which of the following was not a factor that led to the recession that began at the end of 2007?

What is the difference between deflation and disinflation?

If real GDP is below potential GDP,

A change in the price of a key commodity such as oil, usually because of a shortage, that causes a shift in the inflation adjustment line is known as a

What is the difference between a price shock and a supply shock?

The best explanation for the recent economic fluctuations observed in the U.S. economy is

If government spending decreases, the long-run income effect on net exports and consumption will be the same as in the baseline case.

The period from 1979 to 1987 is an example of

A supply shock is exactly the opposite of a price shock.

The United States economy never recovered from the recession brought about by the Volcker disinflation.

The long-run overall effect of decreased government purchases is that

An increase in the target inflation rate by the central bank is referred to as

All of the inflation that occurred in the 1970s can be explained by reinflation policies.

The short-run effects of an increase in government purchases are that inflation will ____, and real GDP will ____.

Which of the following is the best definition of disinflation?

What is meant by the term stagflation?

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

The short-run effects of an increase in government purchases are that inflation will , and real GDP will .