Question 1

The short-run effect of an oil price increase is

Accepted Answer

A)  an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed raises interest rates. 
B)  an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed lowers the target inflation rate. 
C)  an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as spending falls. 
D)  a downward shift of the inflation adjustment line. 
E)  an upward shift of the inflation adjustment line. 
A)  an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed raises interest rates. 
B)  an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed lowers the target inflation rate. 
C)  an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as spending falls. 
D)  a downward shift of the inflation adjustment line. 
E)  an upward shift of the inflation adjustment line.

Question 2

Data for the U.S. economy in the years 2007-2009 show that real GDP and inflation moved in the direction predicted by the economic fluctuations model.

Accepted Answer

A) True 
 B)False

Question 3

If government purchases change, which variable is fixed in the short run as a result of the change?

Accepted Answer

A)  Saving 
B)  All of these 
C)  Consumption 
D)  Net exports 
E)  Inflation 
A)  Saving 
B)  All of these 
C)  Consumption 
D)  Net exports 
E)  Inflation

Question 4

The inflationary experience of the United States during the 1970s can be interpreted as a time when the Fed increased the target rate of inflation.

Accepted Answer

A) True 
 B)False

Question 5

When government purchases decrease, the short-run effect can be described as the period of time when

Accepted Answer

A)  there is no spending balance. 
B)  inflation is constant. 
C)  real GDP and inflation are adjusting to their new long-run levels. 
D)  real GDP is below potential GDP. 
E)  the inflation adjustment line has not reached the new intersection of aggregate demand at the level of potential GDP. 
A)  there is no spending balance. 
B)  inflation is constant. 
C)  real GDP and inflation are adjusting to their new long-run levels. 
D)  real GDP is below potential GDP. 
E)  the inflation adjustment line has not reached the new intersection of aggregate demand at the level of potential GDP.

Question 6

Stagflation refers to the situation in which inflation is up and real GDP is down.

Accepted Answer

A) True 
 B)False

Question 7

An economic recovery occurs only if the Fed shifts its policy.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  remain the same, as this represents a movement along the IA line. 
B)  shift upward. 
C)  shift downward. 
D)  That could never happen. 
E)  None of these 
A)  remain the same, as this represents a movement along the IA line. 
B)  shift upward. 
C)  shift downward. 
D)  That could never happen. 
E)  None of these

Question 9

The difference between the medium run and the long run is that inflation is constant in the long run.

Accepted Answer

A) True 
 B)False

Question 10

The head of the Federal Reserve from 1979 through 1987 was

Accepted Answer

A)  Alan Greenspan. 
B)  Ben Bernanke. 
C)  Paul Volcker. 
D)  Robert Lucas. 
E)  Milton Friedman. 
A)  Alan Greenspan. 
B)  Ben Bernanke. 
C)  Paul Volcker. 
D)  Robert Lucas. 
E)  Milton Friedman.

Question 11

A price shock is

Accepted Answer

A)  a shift in the aggregate demand curve. 
B)  the same as a demand shock. 
C)  a change in potential GDP. 
D)  the same as a supply shock. 
E)  a shift in the inflation adjustment line. 
A)  a shift in the aggregate demand curve. 
B)  the same as a demand shock. 
C)  a change in potential GDP. 
D)  the same as a supply shock. 
E)  a shift in the inflation adjustment line.

Question 12

In the economic fluctuations model, the so-called short run normally refers to

Accepted Answer

A)  the first couple of days after a shock to aggregate demand. 
B)  the first month after a shock to aggregate demand. 
C)  the initial departure of real GDP from potential GDP after a shock to aggregate demand. 
D)  the time it takes for a full recovery to take place after a shock to aggregate demand. 
E)  None of these 
A)  the first couple of days after a shock to aggregate demand. 
B)  the first month after a shock to aggregate demand. 
C)  the initial departure of real GDP from potential GDP after a shock to aggregate demand. 
D)  the time it takes for a full recovery to take place after a shock to aggregate demand. 
E)  None of these

Question 13

If oil prices increase, inflation will be permanently higher in the long run.

Accepted Answer

A) True 
 B)False

Question 14

Draw an aggregate demand inflation adjustment diagram that illustrates the path of inflation and the percentage deviation of real GDP from potential for the U.S. economy from 2007 to 2009.

Accepted Answer

The spending boom caused by rising housi

Question 15

An increase in government purchases

Accepted Answer

A)  has a positive effect on real GDP in the long run. 
B)  has a negative effect on real GDP in the long run. 
C)  results in a lower rate of inflation in the long run. 
D)  results in lower interest rates in the long run. 
E)  results in a higher rate of inflation in the long run. 
A)  has a positive effect on real GDP in the long run. 
B)  has a negative effect on real GDP in the long run. 
C)  results in a lower rate of inflation in the long run. 
D)  results in lower interest rates in the long run. 
E)  results in a higher rate of inflation in the long run.

Question 16

In the long run, a price shock results in

Accepted Answer

A)  an inflation rate greater than the baseline. 
B)  an inflation rate the same as the baseline. 
C)  an inflation rate lower than the baseline. 
D)  a permanent decline in potential GDP. 
E)  real GDP being less than potential GDP. 
A)  an inflation rate greater than the baseline. 
B)  an inflation rate the same as the baseline. 
C)  an inflation rate lower than the baseline. 
D)  a permanent decline in potential GDP. 
E)  real GDP being less than potential GDP.

Question 17

The long run is usually

Accepted Answer

A)  ten years or more. 
B)  two to three years. 
C)  one to two years. 
D)  four to five years or more. 
E)  one year. 
A)  ten years or more. 
B)  two to three years. 
C)  one to two years. 
D)  four to five years or more. 
E)  one year.

Question 18

Which of the following would lead to lower inflation in the long run?

Accepted Answer

A)  An increase in business confidence 
B)  An increase in government spending 
C)  An increase in oil prices 
D)  A decrease in imports 
E)  A decrease in consumer confidence 
A)  An increase in business confidence 
B)  An increase in government spending 
C)  An increase in oil prices 
D)  A decrease in imports 
E)  A decrease in consumer confidence

Question 19

A sharp increase in oil prices will result in

Accepted Answer

A)  a deflation. 
B)  a decline in potential GDP. 
C)  stagflation. 
D)  disinflation. 
E)  hyperinflation. 
A)  a deflation. 
B)  a decline in potential GDP. 
C)  stagflation. 
D)  disinflation. 
E)  hyperinflation.

Question 20

A price shock has the same effect as a demand shock.

Accepted Answer

A) True 
 B)False

Exam 13: Using the Economic Fluctuations Model

The short-run effect of an oil price increase is

Data for the U.S. economy in the years 2007-2009 show that real GDP and inflation moved in the direction predicted by the economic fluctuations model.

If government purchases change, which variable is fixed in the short run as a result of the change?

The inflationary experience of the United States during the 1970s can be interpreted as a time when the Fed increased the target rate of inflation.

When government purchases decrease, the short-run effect can be described as the period of time when

Stagflation refers to the situation in which inflation is up and real GDP is down.

An economic recovery occurs only if the Fed shifts its policy.

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

The difference between the medium run and the long run is that inflation is constant in the long run.

The head of the Federal Reserve from 1979 through 1987 was

A price shock is

In the economic fluctuations model, the so-called short run normally refers to

If oil prices increase, inflation will be permanently higher in the long run.

Draw an aggregate demand inflation adjustment diagram that illustrates the path of inflation and the percentage deviation of real GDP from potential for the U.S. economy from 2007 to 2009.

An increase in government purchases

In the long run, a price shock results in

The long run is usually

Which of the following would lead to lower inflation in the long run?

A sharp increase in oil prices will result in

A price shock has the same effect as a demand shock.

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