Question 1

A permanent price shock results in

Accepted Answer

A)  a positive correlation between real GDP and inflation. 
B)  no correlation between real GDP and inflation. 
C)  an uncertain correlation between real GDP and inflation. 
D)  a negative correlation between real GDP and inflation. 
E)  a permanent decline in potential GDP. 
A)  a positive correlation between real GDP and inflation. 
B)  no correlation between real GDP and inflation. 
C)  an uncertain correlation between real GDP and inflation. 
D)  a negative correlation between real GDP and inflation. 
E)  a permanent decline in potential GDP.

Question 2

What is the difference between a temporary growth slowdown and a recession?

Accepted Answer

During a temporary growth slow

Question 3

If exports permanently decline, we would expect, in the medium run,

Accepted Answer

A)  interest rates to increase and the rate of inflation to fall. 
B)  interest rates to fall and the rate of inflation to increase. 
C)  a decline in both the rate of inflation and interest rates. 
D)  no change in interest rates or the rate of inflation. 
E)  a decline in both the price level and interest rates. 
A)  interest rates to increase and the rate of inflation to fall. 
B)  interest rates to fall and the rate of inflation to increase. 
C)  a decline in both the rate of inflation and interest rates. 
D)  no change in interest rates or the rate of inflation. 
E)  a decline in both the price level and interest rates.

Question 4

When Paul Volcker first started to head the Fed, the Federal Reserve began a policy of

Accepted Answer

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

Question 5

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

Accepted Answer

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

Question 6

The long-run effect of increased government purchases is that the sum of consumption, investment, and net exports will be lower than it would be in the baseline case.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following best depicts the short-run effect of a price shock due to a large increase in oil prices?

Accepted Answer

A)  The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the right. 
B)  The IA line shifts up, causing interest rates to rise, which causes a leftward movement along the AD curve. 
C)  The AD curve shifts to the left, causing interest rates to rise, which causes the IA line to shift down. 
D)  The IA line shifts down, causing interest rates to rise, which causes a leftward movement along the AD curve. 
E)  The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the left. 
A)  The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the right. 
B)  The IA line shifts up, causing interest rates to rise, which causes a leftward movement along the AD curve. 
C)  The AD curve shifts to the left, causing interest rates to rise, which causes the IA line to shift down. 
D)  The IA line shifts down, causing interest rates to rise, which causes a leftward movement along the AD curve. 
E)  The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the left.

Question 8

Between 1979 and 1985 the rate of inflation

Accepted Answer

A)  fell from over 20 percent to around 2 percent. 
B)  rose from around 2 percent to over 20 percent. 
C)  remained constant. 
D)  fell from over 10 percent to around 4 percent. 
E)  rose from around 4 percent to over 10 percent. 
A)  fell from over 20 percent to around 2 percent. 
B)  rose from around 2 percent to over 20 percent. 
C)  remained constant. 
D)  fell from over 10 percent to around 4 percent. 
E)  rose from around 4 percent to over 10 percent.

Question 9

Among economists,

Accepted Answer

A)  there is more disagreement about what caused the Great Depression than about what brought about the recovery from it. 
B)  there is more disagreement about what brought about the recovery from the Great Depression than about what caused it. 
C)  there is much disagreement about both what caused the Great Depression and what brought about the recovery from it. 
D)  there is wide consensus about both what caused the Great Depression and what brought about the recovery from it. 
E)  there is little reason to be concerned with either the Great Depression's causes or what caused the economy to recover from it. 
A)  there is more disagreement about what caused the Great Depression than about what brought about the recovery from it. 
B)  there is more disagreement about what brought about the recovery from the Great Depression than about what caused it. 
C)  there is much disagreement about both what caused the Great Depression and what brought about the recovery from it. 
D)  there is wide consensus about both what caused the Great Depression and what brought about the recovery from it. 
E)  there is little reason to be concerned with either the Great Depression's causes or what caused the economy to recover from it.

Question 10

A temporary growth slowdown results in a

Accepted Answer

A)  disinflation. 
B)  deflation. 
C)  boom. 
D)  fall in the price level. 
E)  recession. 
A)  disinflation. 
B)  deflation. 
C)  boom. 
D)  fall in the price level. 
E)  recession.

Question 11

A reduction in the inflation rate is called

Accepted Answer

A)  disinflation. 
B)  a recession. 
C)  reinflation. 
D)  deflation. 
E)  a price shock. 
A)  disinflation. 
B)  a recession. 
C)  reinflation. 
D)  deflation. 
E)  a price shock.

Question 12

The long-run effect of a change in expenditures occurs when

Accepted Answer

A)  a spending balance is achieved. 
B)  the recovery period begins. 
C)  interest rates begin to adjust. 
D)  real GDP is nearly back to equaling potential GDP. 
E)  the AD line intersects the IA line. 
A)  a spending balance is achieved. 
B)  the recovery period begins. 
C)  interest rates begin to adjust. 
D)  real GDP is nearly back to equaling potential GDP. 
E)  the AD line intersects the IA line.

Question 13

The long-run income effect (the effect of real GDP changes on spending) of decreased government purchases is that consumption

Accepted Answer

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

Question 14

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 medium 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 15

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

Accepted Answer

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

Question 16

Monetary policy that attempts to increase the rate of inflation is called a

Accepted Answer

A)  reinflation. 
B)  supply shock. 
C)  recession. 
D)  temporary growth slowdown. 
E)  disinflation. 
A)  reinflation. 
B)  supply shock. 
C)  recession. 
D)  temporary growth slowdown. 
E)  disinflation.

Question 17

A change in monetary policy will not cause the AD curve to shift.

Accepted Answer

A) True 
 B)False

Question 18

If a price shock caused by a sharp increase in oil prices is believed to be temporary, then the Fed will

Accepted Answer

A)  raise interest rates based on its monetary policy rule. 
B)  lower interest rates based on its monetary policy rule. 
C)  do nothing. 
D)  lower interest rates, but not by as much as it would if the price shock were permanent. 
E)  raise interest rates, but not by as much as it would if the price shock were permanent. 
A)  raise interest rates based on its monetary policy rule. 
B)  lower interest rates based on its monetary policy rule. 
C)  do nothing. 
D)  lower interest rates, but not by as much as it would if the price shock were permanent. 
E)  raise interest rates, but not by as much as it would if the price shock were permanent.

Question 19

A decrease in government purchases causes the interest-sensitive components of aggregate expenditure to increase in the short run.

Accepted Answer

A) True 
 B)False

Question 20

Over the past 25 years, price shocks have occurred due to sharp changes in

Accepted Answer

A)  coffee prices. 
B)  oil prices. 
C)  gold prices. 
D)  silver prices. 
E)  interest rates. 
A)  coffee prices. 
B)  oil prices. 
C)  gold prices. 
D)  silver prices. 
E)  interest rates.

Exam 13: Using the Economic Fluctuations Model

A permanent price shock results in

What is the difference between a temporary growth slowdown and a recession?

If exports permanently decline, we would expect, in the medium run,

When Paul Volcker first started to head the Fed, the Federal Reserve began a policy of

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

The long-run effect of increased government purchases is that the sum of consumption, investment, and net exports will be lower than it would be in the baseline case.

Which of the following best depicts the short-run effect of a price shock due to a large increase in oil prices?

Between 1979 and 1985 the rate of inflation

Among economists,

A temporary growth slowdown results in a

A reduction in the inflation rate is called

The long-run effect of a change in expenditures occurs when

The long-run income effect (the effect of real GDP changes on spending) of decreased government purchases is that consumption

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 medium run as a result of the change in spending?

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

Monetary policy that attempts to increase the rate of inflation is called a

A change in monetary policy will not cause the AD curve to shift.

If a price shock caused by a sharp increase in oil prices is believed to be temporary, then the Fed will

A decrease in government purchases causes the interest-sensitive components of aggregate expenditure to increase in the short run.

Over the past 25 years, price shocks have occurred due to sharp changes in

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 long-run effects of an increase in government purchases are that interest rates will , inflation will , and real GDP will .