Question 1

Decreases in net taxes, decreases in the Z factors, and increases in government spending are expansionary policies.

Accepted Answer

A) True 
 B)False

Question 2

A cost shock, such as a natural disaster, leads to stagflation.

Accepted Answer

A) True 
 B)False

Question 3

In a binding situation, the Fed rule calls for

Accepted Answer

A)  a negative interest rate. 
B)  a positive interest rate. 
C)  a negative price level. 
D)  a negative output level. 
A)  a negative interest rate. 
B)  a positive interest rate. 
C)  a negative price level. 
D)  a negative output level.

Question 4

There is evidence that the Fed, under chairman Ben Bernanke, engaged in inflation targeting.

Accepted Answer

A) True 
 B)False

Question 5

The Fed acted aggressively in lowering the interest rate during the recession(s) of

Accepted Answer

A)  1974-1975 and 1980-1982. 
B)  1974-1975 and 2008-2009. 
C)  1990-1991, 2001, and 2008-2009. 
D)  1980-1982, 1990-1991, and 2008-2009. 
A)  1974-1975 and 1980-1982. 
B)  1974-1975 and 2008-2009. 
C)  1990-1991, 2001, and 2008-2009. 
D)  1980-1982, 1990-1991, and 2008-2009.

Question 6

An increase in government spending will completely crowd out investment if

Accepted Answer

A)  money supply is increased at the same time. 
B)  money demand is not sensitive to the interest rate. 
C)  the economy is operating at capacity. 
D)  the economy is operating well below capacity. 
A)  money supply is increased at the same time. 
B)  money demand is not sensitive to the interest rate. 
C)  the economy is operating at capacity. 
D)  the economy is operating well below capacity.

Question 7

Cost-push inflation corresponds to ________ output and demand-pull inflation corresponds to ________ output.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower 
A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Question 8

Inflation due to an increase in aggregate supply is called cost-push inflation.

Accepted Answer

A) True 
 B)False

Question 9

Refer to the information provided in Figure 27.3 below to answer the question(s) that follow.   Figure 27.3
-Refer to Figure 27.3. Assume the economy is at Point A. Higher oil prices shift the aggregate supply curve to AS2. If the government decides to counter the effects of higher oil prices by increasing government spending, then the price level will be ________ than P2 and output will be ________ than Y2.

Accepted Answer

A)  greater; greater 
B)  greater; less 
C)  less; less 
D)  less; greater 
A)  greater; greater 
B)  greater; less 
C)  less; less 
D)  less; greater

Question 10

If firms increase their prices because of a change in inflationary expectations, the AS curve will shift to the left.

Accepted Answer

A) True 
 B)False

Question 11

Other things equal, an increase in the Z factors will ________ the equilibrium price level and ________ equilibrium output.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 12

Aggregate demand increases if

Accepted Answer

A)  the government increases spending. 
B)  the Fed sells government bonds. 
C)  the government increases taxes. 
D)  the Fed raises the discount rate. 
A)  the government increases spending. 
B)  the Fed sells government bonds. 
C)  the government increases taxes. 
D)  the Fed raises the discount rate.

Question 13

Of the following recessionary periods in the United States, in which was the 3-month Treasury bill rate the highest?

Accepted Answer

A)  1974-1975 
B)  1980-1982 
C)  1990-1991 
D)  2008-2009 
A)  1974-1975 
B)  1980-1982 
C)  1990-1991 
D)  2008-2009

Question 14

If the Fed has a strong preference for stable prices relative to output, it responds to a price ________ with a ________ increase in the interest rate.

Accepted Answer

A)  increase; large 
B)  increase; small 
C)  decrease; large 
D)  decrease; small 
A)  increase; large 
B)  increase; small 
C)  decrease; large 
D)  decrease; small

Question 15

Demand-pull inflation is initiated by an increase in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 16

In a binding situation, a decrease in the Z factors

Accepted Answer

A)  shifts the AD curve to the right. 
B)  shifts the AD curve to the left. 
C)  does not shift the AD curve. 
D)  causes the AD curve to become horizontal. 
A)  shifts the AD curve to the right. 
B)  shifts the AD curve to the left. 
C)  does not shift the AD curve. 
D)  causes the AD curve to become horizontal.

Question 17

Refer to the information provided in Figure 27.1 below to answer the question(s) that follow.   Figure 27.1
-Refer to Figure 27.1. Suppose the economy is at Point A a(n) ________ can cause a movement to Point C.

Accepted Answer

A)  increase in government purchases 
B)  decrease in government purchases 
C)  decrease in aggregate demand 
D)  increase in aggregate demand 
A)  increase in government purchases 
B)  decrease in government purchases 
C)  decrease in aggregate demand 
D)  increase in aggregate demand

Question 18

Refer to the information provided in Figure 27.2 below to answer the question(s) that follow.   Figure 27.2
-Refer to Figure 27.2. An expansionary fiscal policy would be least effective in raising output with little or no inflation when the aggregate demand curve shifts from

Accepted Answer

A)  AD1 to AD2. 
B)  AD3 to AD4. 
C)  AD5 to AD6. 
D)  AD1 to AD6. 
A)  AD1 to AD2. 
B)  AD3 to AD4. 
C)  AD5 to AD6. 
D)  AD1 to AD6.

Question 19

Refer to the information provided in Figure 27.1 below to answer the question(s) that follow.   Figure 27.1
-Refer to Figure 27.1. Suppose the economy is at Point A. A(n) ________ can cause a movement to Point E.

Accepted Answer

A)  increase in the price level 
B)  decrease in the price level 
C)  decrease in aggregate demand 
D)  increase in aggregate demand 
A)  increase in the price level 
B)  decrease in the price level 
C)  decrease in aggregate demand 
D)  increase in aggregate demand

Question 20

Since 1970, the United States has experienced ________ recessionary periods and ________ inflationary periods.

Accepted Answer

A)  3; 0 
B)  2; 4 
C)  8; 1 
D)  5; 2 
A)  3; 0 
B)  2; 4 
C)  8; 1 
D)  5; 2

Exam 27: Policy Effects and Cost Shocks in the Asad Model

Decreases in net taxes, decreases in the Z factors, and increases in government spending are expansionary policies.

A cost shock, such as a natural disaster, leads to stagflation.

In a binding situation, the Fed rule calls for

There is evidence that the Fed, under chairman Ben Bernanke, engaged in inflation targeting.

The Fed acted aggressively in lowering the interest rate during the recession(s) of

An increase in government spending will completely crowd out investment if

Cost-push inflation corresponds to ________ output and demand-pull inflation corresponds to ________ output.

Inflation due to an increase in aggregate supply is called cost-push inflation.

If firms increase their prices because of a change in inflationary expectations, the AS curve will shift to the left.

Other things equal, an increase in the Z factors will ________ the equilibrium price level and ________ equilibrium output.

Aggregate demand increases if

Of the following recessionary periods in the United States, in which was the 3-month Treasury bill rate the highest?

If the Fed has a strong preference for stable prices relative to output, it responds to a price ________ with a ________ increase in the interest rate.

Demand-pull inflation is initiated by an increase in aggregate demand.

In a binding situation, a decrease in the Z factors

Refer to the information provided in Figure 27.1 below to answer the question(s) that follow. Figure 27.1 -Refer to Figure 27.1. Suppose the economy is at Point A a(n) ________ can cause a movement to Point C.

Refer to the information provided in Figure 27.2 below to answer the question(s) that follow. Figure 27.2 -Refer to Figure 27.2. An expansionary fiscal policy would be least effective in raising output with little or no inflation when the aggregate demand curve shifts from

Refer to the information provided in Figure 27.1 below to answer the question(s) that follow. Figure 27.1 -Refer to Figure 27.1. Suppose the economy is at Point A. A(n) ________ can cause a movement to Point E.

Since 1970, the United States has experienced ________ recessionary periods and ________ inflationary periods.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: The Labor and Land Markets

Input Demand: The Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

Introduction to Macroeconomics

Measuring National Output and National Income

Unemployment, Inflation, and Long-Run Growth

Aggregate Expenditure and Equilibrium Output

The Government and Fiscal Policy

Money, the Federal Reserve, and the Interest Rate

The Determination of Aggregate Output, the Price Level, and the Interest Rate

The Labor Market in the Macroeconomy

Financial Crises, Stabilization, and Deficits

Household and Firm Behavior in the Macroeconomy: a Further Look

Long-Run Growth

Alternative Views in Macroeconomics

International Trade, Comparative Advantage, and Protectionism

Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Cost-push inflation corresponds to output and demand-pull inflation corresponds to output.

Other things equal, an increase in the Z factors will the equilibrium price level and equilibrium output.

If the Fed has a strong preference for stable prices relative to output, it responds to a price with a increase in the interest rate.

Since 1970, the United States has experienced recessionary periods and inflationary periods.