Question 1

Recent economic fluctuations in the U.S. economy are best explained by

Accepted Answer

A)  shifts of the aggregate demand curve. 
B)  changes in potential GDP. 
C)  shifts of the inflation adjustment line. 
D)  price shocks. 
E)  changes in aggregate supply. 
A)  shifts of the aggregate demand curve. 
B)  changes in potential GDP. 
C)  shifts of the inflation adjustment line. 
D)  price shocks. 
E)  changes in aggregate supply.

Question 2

Among economists, there is a consensus that the recovery from the Great Depression was due to

Accepted Answer

A)  increases in government purchases. 
B)  decreases in taxes. 
C)  None of these 
D)  a falling price level. 
E)  lower interest rates. 
A)  increases in government purchases. 
B)  decreases in taxes. 
C)  None of these 
D)  a falling price level. 
E)  lower interest rates.

Question 3

A reduction in the target rate of inflation

Accepted Answer

A)  occurred during the 1970s. 
B)  has never occurred in the United States. 
C)  is what caused the Great Depression. 
D)  occurred in the United States during the early 1980s. 
E)  occurred in the United States during the late 1960s. 
A)  occurred during the 1970s. 
B)  has never occurred in the United States. 
C)  is what caused the Great Depression. 
D)  occurred in the United States during the early 1980s. 
E)  occurred in the United States during the late 1960s.

Question 4

Explain what effect a monetary policy designed to bring about disinflation would have on the economy. Be sure to discuss what happens in the short run, the medium run, and the long run.

Accepted Answer

The short-run effect is for the monetary

Question 5

Discuss why the Fed may in some cases need to cause a small recession to reduce inflation in the economy. Hint: Think about how firms set their prices.

Accepted Answer

Firms make pricing decisions based on th

Question 6

In the economic fluctuations model, the so-called long run normally refers to the time it takes for the economy to return to full employment or, in other words, for real GDP to be back to potential GDP.

Accepted Answer

A) True 
 B)False

Question 7

If real GDP stays below potential GDP,

Accepted Answer

A)  the AD curve will begin to shift to the left. 
B)  the IA line will shift down. 
C)  potential GDP will decline. 
D)  the IA line will shift up. 
E)  the AD curve will begin to shift to the right. 
A)  the AD curve will begin to shift to the left. 
B)  the IA line will shift down. 
C)  potential GDP will decline. 
D)  the IA line will shift up. 
E)  the AD curve will begin to shift to the right.

Question 8

Reinflation causes

Accepted Answer

A)  a temporary boom. 
B)  a price shock. 
C)  an increase in potential GDP. 
D)  a growth slowdown. 
E)  a temporary recession. 
A)  a temporary boom. 
B)  a price shock. 
C)  an increase in potential GDP. 
D)  a growth slowdown. 
E)  a temporary recession.

Question 9

Exhibit 25-1  
-Suppose the economy is initially at point A in Exhibit 25-1. If government purchases increase, which point best depicts where the economy will be in the long run as a result of the change in spending?

Accepted Answer

A)  F 
B)  D 
C)  B 
D)  E 
E)  C 
A)  F 
B)  D 
C)  B 
D)  E 
E)  C

Question 10

Assume that real and potential GDP are initially equal. If government purchases permanently increase, we would expect that in the short run

Accepted Answer

A)  consumption and investment will be higher than baseline, and net exports will be lower. 
B)  consumption will be higher than baseline, and net exports and investment will be the same. 
C)  consumption, investment, and net exports will be higher than baseline. 
D)  consumption and net exports will be higher than baseline, and investment will be the same. 
E)  consumption will be higher than baseline, net exports will be lower, and investment will be the same. 
A)  consumption and investment will be higher than baseline, and net exports will be lower. 
B)  consumption will be higher than baseline, and net exports and investment will be the same. 
C)  consumption, investment, and net exports will be higher than baseline. 
D)  consumption and net exports will be higher than baseline, and investment will be the same. 
E)  consumption will be higher than baseline, net exports will be lower, and investment will be the same.

Question 11

Disinflation most likely occurs when

Accepted Answer

A)  output grows at an increasing rate over time.. 
B)  output grows at a decreasing rate over time. 
C)  output growth becomes negative. 
D)  the overall price level declines over time. 
E)  the overall price level is negative. 
A)  output grows at an increasing rate over time.. 
B)  output grows at a decreasing rate over time. 
C)  output growth becomes negative. 
D)  the overall price level declines over time. 
E)  the overall price level is negative.

Question 12

In 2008, stock markets in the United States and worldwide registered

Accepted Answer

A)  increases of 30-50%. 
B)  decreases of 30-50%. 
C)  decreases of 5-10%. 
D)  increases of 5-10%. 
E)  decreases of over 100%. 
A)  increases of 30-50%. 
B)  decreases of 30-50%. 
C)  decreases of 5-10%. 
D)  increases of 5-10%. 
E)  decreases of over 100%.

Question 13

In economics, the short run is an expression used to describe events that take at least two to three weeks to unfold.

Accepted Answer

A) True 
 B)False

Question 14

In a diagram that includes both the IA line and the AD curve, the price adjustment resulting from an increase in spending is shown by

Accepted Answer

A)  the AD curve shifting to the left. 
B)  the AD curve shifting to the right. 
C)  the IA line shifting down. 
D)  the IA line shifting up. 
E)  the movement along the IA line. 
A)  the AD curve shifting to the left. 
B)  the AD curve shifting to the right. 
C)  the IA line shifting down. 
D)  the IA line shifting up. 
E)  the movement along the IA line.

Question 15

The tendency of prices to adjust over time is shown by an upward movement along the IA line.

Accepted Answer

A) True 
 B)False

Question 16

Answer the questions below:
(A)Is there a unique rate of inflation that corresponds to long-run equilibrium? Explain. What determines the rate of inflation when the economy is at long-run equilibrium?
(B)Suppose the central bank is interested in stimulating growth in the economy. Should it aim for a higher or lower target inflation rate? Will higher growth be achieved in the short run and the long run?

Accepted Answer

(A)No. The target rate of inflation is t

Question 17

If the Fed raises interest rates because inflation is too high, this will cause

Accepted Answer

A)  a long-term recession. 
B)  a temporary slowdown in growth but not a recession. 
C)  a permanent slowdown in growth. 
D)  either a temporary slowdown in growth or a recession. 
E)  a temporary recession. 
A)  a long-term recession. 
B)  a temporary slowdown in growth but not a recession. 
C)  a permanent slowdown in growth. 
D)  either a temporary slowdown in growth or a recession. 
E)  a temporary recession.

Question 18

A price shock causes the AD curve to shift.

Accepted Answer

A) True 
 B)False

Question 19

Suppose government purchases have decreased and the economy has reached a new long-run equilibrium. Which of the following best describes the new equilibrium?

Accepted Answer

A)  Nothing has changed because real GDP is again equal to potential GDP. 
B)  Consumers are better off because taxes are lower. 
C)  The economy is growing more rapidly because investment is higher. 
D)  The economy is better off because consumption is higher. 
E)  The economy is growing more slowly because consumption is higher. 
A)  Nothing has changed because real GDP is again equal to potential GDP. 
B)  Consumers are better off because taxes are lower. 
C)  The economy is growing more rapidly because investment is higher. 
D)  The economy is better off because consumption is higher. 
E)  The economy is growing more slowly because consumption is higher.

Question 20

Suppose the Fed engages in a policy to reduce the inflation rate for any given level of real GDP. This would be depicted by a(n)

Accepted Answer

A)  downward movement along the monetary policy line. 
B)  leftward shift of the monetary policy line. 
C)  upward movement along the monetary policy line. 
D)  rightward shift of the monetary policy line. 
E)  rightward shift of the AD curve. 
A)  downward movement along the monetary policy line. 
B)  leftward shift of the monetary policy line. 
C)  upward movement along the monetary policy line. 
D)  rightward shift of the monetary policy line. 
E)  rightward shift of the AD curve.

Exam 13: Using the Economic Fluctuations Model

Recent economic fluctuations in the U.S. economy are best explained by

Among economists, there is a consensus that the recovery from the Great Depression was due to

A reduction in the target rate of inflation

Explain what effect a monetary policy designed to bring about disinflation would have on the economy. Be sure to discuss what happens in the short run, the medium run, and the long run.

Discuss why the Fed may in some cases need to cause a small recession to reduce inflation in the economy. Hint: Think about how firms set their prices.

In the economic fluctuations model, the so-called long run normally refers to the time it takes for the economy to return to full employment or, in other words, for real GDP to be back to potential GDP.

If real GDP stays below potential GDP,

Reinflation causes

Exhibit 25-1 -Suppose the economy is initially at point A in Exhibit 25-1. If government purchases increase, which point best depicts where the economy will be in the long run as a result of the change in spending?

Assume that real and potential GDP are initially equal. If government purchases permanently increase, we would expect that in the short run

Disinflation most likely occurs when

In 2008, stock markets in the United States and worldwide registered

In economics, the short run is an expression used to describe events that take at least two to three weeks to unfold.

In a diagram that includes both the IA line and the AD curve, the price adjustment resulting from an increase in spending is shown by

The tendency of prices to adjust over time is shown by an upward movement along the IA line.

If the Fed raises interest rates because inflation is too high, this will cause

A price shock causes the AD curve to shift.

Suppose government purchases have decreased and the economy has reached a new long-run equilibrium. Which of the following best describes the new equilibrium?

Suppose the Fed engages in a policy to reduce the inflation rate for any given level of real GDP. This would be depicted by a(n)

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