Question 1

Zero interest rate bound means the interest rate cannot go below zero.

Accepted Answer

A) True 
 B)False

Question 2

If wages adjust fully to price increases in the long run, fiscal policy will

Accepted Answer

A)  have no affect on the price level. 
B)  have no affect on output. 
C)  have no affect on either output or the price level. 
D)  affect both output and the price level. 
A)  have no affect on the price level. 
B)  have no affect on output. 
C)  have no affect on either output or the price level. 
D)  affect both output and the price level.

Question 3

In a binding situation,an increase in government spending

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 4

In a binding situation, a decrease in net taxes

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 5

If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and a very small increase in the price level, then the U.S. economy must have been

Accepted Answer

A)  on the very steep part of the short-run aggregate supply curve. 
B)  on the very flat part of the short-run aggregate supply curve. 
C)  on the very steep part of the short-run aggregate demand curve. 
D)  on the very flat part of the short-run aggregate demand curve. 
A)  on the very steep part of the short-run aggregate supply curve. 
B)  on the very flat part of the short-run aggregate supply curve. 
C)  on the very steep part of the short-run aggregate demand curve. 
D)  on the very flat part of the short-run aggregate demand curve.

Question 6

When analyzing the effects of cost shocks, the shape of the aggregate demand curve is irrelevant.

Accepted Answer

A) True 
 B)False

Question 7

The economy is in a binding situation when the Fed rule calls for a very high interest rate.

Accepted Answer

A) True 
 B)False

Question 8

For an economy to experience both a recession and inflation at the same time

Accepted Answer

A)  the aggregate supply curve must shift to the right. 
B)  the aggregate supply curve must shift to the left. 
C)  the aggregate demand curve must shift to the left. 
D)  the aggregate demand curve must shift to the right. 
A)  the aggregate supply curve must shift to the right. 
B)  the aggregate supply curve must shift to the left. 
C)  the aggregate demand curve must shift to the left. 
D)  the aggregate demand curve must shift to the right.

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 net taxes, 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 the AD curve is vertical, a positive cost shock will cause ________ in output and ________ in the price level.

Accepted Answer

A)  no change; no change 
B)  a decrease; an increase 
C)  no change; an increase 
D)  a decrease; no change 
A)  no change; no change 
B)  a decrease; an increase 
C)  no change; an increase 
D)  a decrease; no change

Question 11

An increase in AD will primarily increase the price level when the economy is on the steep part of the AS curve.

Accepted Answer

A) True 
 B)False

Question 12

If the economy is on the steep portion of the AS curve and taxes decrease, ________ crowds out ________.

Accepted Answer

A)  consumption; planned investment 
B)  government spending; planned investment 
C)  planned investment; consumption 
D)  planned investment; government spending 
A)  consumption; planned investment 
B)  government spending; planned investment 
C)  planned investment; consumption 
D)  planned investment; government spending

Question 13

A(n) ________ in inflationary expectations that causes firms to increase their prices shifts the aggregate supply curve to the ________.

Accepted Answer

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

Question 14

The aggregate demand curve would shift to the right if

Accepted Answer

A)  government spending were decreased. 
B)  net taxes were decreased. 
C)  the money supply were decreased. 
D)  the cost of energy were to increase. 
A)  government spending were decreased. 
B)  net taxes were decreased. 
C)  the money supply were decreased. 
D)  the cost of energy were to increase.

Question 15

Which of the following is an example of a contractionary fiscal policy?

Accepted Answer

A)  the Fed buying government securities in the open market 
B)  the federal government decreasing the marginal tax rate on incomes below $200,000 
C)  the federal government decreasing the amount of money spent on public health programs 
D)  the federal government reducing pollution standards to allow firms to produce more output 
A)  the Fed buying government securities in the open market 
B)  the federal government decreasing the marginal tax rate on incomes below $200,000 
C)  the federal government decreasing the amount of money spent on public health programs 
D)  the federal government reducing pollution standards to allow firms to produce more output

Question 16

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. In response to a decrease in net taxes, the Fed would increase the interest rate by the greatest amount when the aggregate demand curve shifts from

Accepted Answer

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

Question 17

An increase in aggregate demand causes stagflation.

Accepted Answer

A) True 
 B)False

Question 18

When the AD curve is relatively flat, the Fed

Accepted Answer

A)  is only willing to accept small changes in output to keep the price level stable. 
B)  is willing to accept large changes in the price level to keep output stable. 
C)  is not willing to accept any changes in output to keep the price level stable. 
D)  is willing to accept large changes in output to keep the price level stable. 
A)  is only willing to accept small changes in output to keep the price level stable. 
B)  is willing to accept large changes in the price level to keep output stable. 
C)  is not willing to accept any changes in output to keep the price level stable. 
D)  is willing to accept large changes in output to keep the price level stable.

Question 19

Other things equal, demand-pull inflation results in output ________ and the price level ________.

Accepted Answer

A)  increasing; increasing 
B)  increasing; decreasing 
C)  decreasing; increasing 
D)  decreasing; decreasing 
A)  increasing; increasing 
B)  increasing; decreasing 
C)  decreasing; increasing 
D)  decreasing; decreasing

Question 20

If the economy is on the flat portion of the AS curve

Accepted Answer

A)  there is little crowding out of planned investment. 
B)  there is almost complete crowding out of planned investment. 
C)  consumption, but not government spending, crowds out planned investment. 
D)  government spending, but not consumption, crowds out planned investment. 
A)  there is little crowding out of planned investment. 
B)  there is almost complete crowding out of planned investment. 
C)  consumption, but not government spending, crowds out planned investment. 
D)  government spending, but not consumption, crowds out planned investment.

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

Zero interest rate bound means the interest rate cannot go below zero.

If wages adjust fully to price increases in the long run, fiscal policy will

In a binding situation,an increase in government spending

In a binding situation, a decrease in net taxes

If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and a very small increase in the price level, then the U.S. economy must have been

When analyzing the effects of cost shocks, the shape of the aggregate demand curve is irrelevant.

The economy is in a binding situation when the Fed rule calls for a very high interest rate.

For an economy to experience both a recession and inflation at the same time

If the AD curve is vertical, a positive cost shock will cause ________ in output and ________ in the price level.

An increase in AD will primarily increase the price level when the economy is on the steep part of the AS curve.

If the economy is on the steep portion of the AS curve and taxes decrease, ________ crowds out ________.

A(n) ________ in inflationary expectations that causes firms to increase their prices shifts the aggregate supply curve to the ________.

The aggregate demand curve would shift to the right if

Which of the following is an example of a contractionary fiscal policy?

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. In response to a decrease in net taxes, the Fed would increase the interest rate by the greatest amount when the aggregate demand curve shifts from

An increase in aggregate demand causes stagflation.

When the AD curve is relatively flat, the Fed

Other things equal, demand-pull inflation results in output ________ and the price level ________.

If the economy is on the flat portion of the AS curve

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

If the AD curve is vertical, a positive cost shock will cause in output and in the price level.

If the economy is on the steep portion of the AS curve and taxes decrease, crowds out .

A(n) in inflationary expectations that causes firms to increase their prices shifts the aggregate supply curve to the .

Other things equal, demand-pull inflation results in output and the price level .