Question 1

Suppose real and potential GDP are initially equal. If government purchases change, which of the following best explains what will happen first?

Accepted Answer

A)  Potential GDP will change by the same amount as aggregate expenditure. 
B)  The AD curve will shift. 
C)  Both the AD curve and the IA line will shift. 
D)  The IA line will shift. 
E)  There will be movement along the AD curve. 
A)  Potential GDP will change by the same amount as aggregate expenditure. 
B)  The AD curve will shift. 
C)  Both the AD curve and the IA line will shift. 
D)  The IA line will shift. 
E)  There will be movement along the AD curve.

Question 2

All of the following are likely reasons for the 2007-09 recession in the United States except

Accepted Answer

A)  a rightward shift of the AD curve. 
B)  an upward shift of the IA line. 
C)  an increase in potential GDP. 
D)  a decrease in potential GDP. 
E)  an increase in aggregate supply. 
A)  a rightward shift of the AD curve. 
B)  an upward shift of the IA line. 
C)  an increase in potential GDP. 
D)  a decrease in potential GDP. 
E)  an increase in aggregate supply.

Question 3

In the short run, when government purchases decrease, real GDP falls by more than the change in government purchases because

Accepted Answer

A)  prices increase. 
B)  taxes increase. 
C)  consumption decreases. 
D)  investment decreases. 
E)  taxes decrease. 
A)  prices increase. 
B)  taxes increase. 
C)  consumption decreases. 
D)  investment decreases. 
E)  taxes decrease.

Question 4

Graphically show the difference between what is meant by a growth slowdown as opposed to a recession.

Accepted Answer

The figure below is an example of a grow

Question 5

The long-run effect of increased government purchases is crowding out.

Accepted Answer

A) True 
 B)False

Question 6

Disinflation can be defined as

Accepted Answer

A)  a decrease in the overall price level. 
B)  a higher rate of inflation that is accompanied by economic growth. 
C)  a rate of inflation that is spiraling out of control. 
D)  an inflation hike that is not accompanied by a higher nominal interest rate, thereby creating negative real rates of return. 
E)  None of these. 
A)  a decrease in the overall price level. 
B)  a higher rate of inflation that is accompanied by economic growth. 
C)  a rate of inflation that is spiraling out of control. 
D)  an inflation hike that is not accompanied by a higher nominal interest rate, thereby creating negative real rates of return. 
E)  None of these.

Question 7

Since there is no single explanation for what caused the 2007-08 financial crisis and the corresponding recession, the aggregate demand inflation adjustment model is of no use. Please comment.

Accepted Answer

This statement is incorrect. It's true i

Question 8

The initial response of real GDP to a change in aggregate spending is referred to as

Accepted Answer

A)  a depression. 
B)  a boom. 
C)  a recession. 
D)  the short run. 
E)  a recovery. 
A)  a depression. 
B)  a boom. 
C)  a recession. 
D)  the short run. 
E)  a recovery.

Question 9

Which of the following would be a direct result of real GDP being above potential GDP?

Accepted Answer

A)  Firms would raise their prices and there would be a subsequent rise in inflation. 
B)  Firms would lower their prices and there would be a subsequent decrease in inflation. 
C)  Government spending would decline. 
D)  None of the above would be a result. 
E)  Real GDP can never be above potential GDP. 
A)  Firms would raise their prices and there would be a subsequent rise in inflation. 
B)  Firms would lower their prices and there would be a subsequent decrease in inflation. 
C)  Government spending would decline. 
D)  None of the above would be a result. 
E)  Real GDP can never be above potential GDP.

Question 10

Suppose, for a certain economy, real and potential GDP are initially equal. Then government purchases permanently increase. Compared to the baseline, we would expect to see, in the medium run,

Accepted Answer

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

Question 11

If government purchases decrease, in the short run

Accepted Answer

A)  consumption will increase as income increases. 
B)  consumption, investment, and net exports will increase as income increases. 
C)  consumption and investment will increase as income increases. 
D)  consumption will fall and net exports will increase as income falls. 
E)  consumption will increase, and real GDP will remain at potential GDP. 
A)  consumption will increase as income increases. 
B)  consumption, investment, and net exports will increase as income increases. 
C)  consumption and investment will increase as income increases. 
D)  consumption will fall and net exports will increase as income falls. 
E)  consumption will increase, and real GDP will remain at potential GDP.

Question 12

The medium-run effect of a monetary policy that seeks to lower the rate of inflation is best depicted by

Accepted Answer

A)  the AD curve shifting to the right. 
B)  an upward movement of the IA line. 
C)  an upward movement along the AD curve. 
D)  a downward movement along the AD curve. 
E)  the AD curve shifting to the left. 
A)  the AD curve shifting to the right. 
B)  an upward movement of the IA line. 
C)  an upward movement along the AD curve. 
D)  a downward movement along the AD curve. 
E)  the AD curve shifting to the left.

Question 13

During the period known as the Volcker disinflation

Accepted Answer

A)  the unemployment rate rose to 10.8 percent. 
B)  real GDP fell below potential GDP. 
C)  investment and net exports declined. 
D)  the real interest rate rose. 
E)  All of these 
A)  the unemployment rate rose to 10.8 percent. 
B)  real GDP fell below potential GDP. 
C)  investment and net exports declined. 
D)  the real interest rate rose. 
E)  All of these

Question 14

Suppose government purchases have decreased. Which of the following is true?

Accepted Answer

A)  If inflation is lower in the new equilibrium, the Fed has allowed the target rate of inflation to drift up. 
B)  If inflation is constant in the new equilibrium, the Fed has decreased the target rate of inflation. 
C)  If inflation is lower in the new equilibrium, the Fed has allowed the target rate of inflation to drift down. 
D)  If inflation is lower in the new equilibrium, there has been no change in the target rate of inflation. 
E)  If inflation is constant in the new equilibrium, the Fed has increased the target rate of inflation. 
A)  If inflation is lower in the new equilibrium, the Fed has allowed the target rate of inflation to drift up. 
B)  If inflation is constant in the new equilibrium, the Fed has decreased the target rate of inflation. 
C)  If inflation is lower in the new equilibrium, the Fed has allowed the target rate of inflation to drift down. 
D)  If inflation is lower in the new equilibrium, there has been no change in the target rate of inflation. 
E)  If inflation is constant in the new equilibrium, the Fed has increased the target rate of inflation.

Question 15

Exhibit 25-2  
-According to Exhibit 25-2, which point best represents where the U.S. economy was in 2009?

Accepted Answer

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

Question 16

If the Fed raises interest rates because it believes inflation is too high, this may cause a recession.

Accepted Answer

A) True 
 B)False

Question 17

The recession in the United States during the period 2007-09 are best explained by changes in fiscal policy.

Accepted Answer

A) True 
 B)False

Question 18

Compared to the baseline, the short-run effect of a monetary policy change to lower inflation is for

Accepted Answer

A)  consumption and net exports to decline, while investment stays constant. 
B)  consumption, investment, net exports, and government purchases to decline. 
C)  consumption, investment, and net exports to decline. 
D)  consumption and investment to decline while net exports increase. 
E)  consumption and net exports to increase while investment falls. 
A)  consumption and net exports to decline, while investment stays constant. 
B)  consumption, investment, net exports, and government purchases to decline. 
C)  consumption, investment, and net exports to decline. 
D)  consumption and investment to decline while net exports increase. 
E)  consumption and net exports to increase while investment falls.

Exam 13: Using the Economic Fluctuations Model

Suppose real and potential GDP are initially equal. If government purchases change, which of the following best explains what will happen first?

All of the following are likely reasons for the 2007-09 recession in the United States except

In the short run, when government purchases decrease, real GDP falls by more than the change in government purchases because

Graphically show the difference between what is meant by a growth slowdown as opposed to a recession.

The long-run effect of increased government purchases is crowding out.

Disinflation can be defined as

Since there is no single explanation for what caused the 2007-08 financial crisis and the corresponding recession, the aggregate demand inflation adjustment model is of no use. Please comment.

The initial response of real GDP to a change in aggregate spending is referred to as

Which of the following would be a direct result of real GDP being above potential GDP?

Suppose, for a certain economy, real and potential GDP are initially equal. Then government purchases permanently increase. Compared to the baseline, we would expect to see, in the medium run,

If government purchases decrease, in the short run

The medium-run effect of a monetary policy that seeks to lower the rate of inflation is best depicted by

During the period known as the Volcker disinflation

Suppose government purchases have decreased. Which of the following is true?

Exhibit 25-2 -According to Exhibit 25-2, which point best represents where the U.S. economy was in 2009?

If the Fed raises interest rates because it believes inflation is too high, this may cause a recession.

The recession in the United States during the period 2007-09 are best explained by changes in fiscal policy.

Compared to the baseline, the short-run effect of a monetary policy change to lower inflation is for

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