Question 1

In a binding situation, the interest rate is always zero.

Accepted Answer

A) True 
 B)False

Question 2

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 an increase in government spending, 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 3

A cost shock, such as a natural disaster, shifts the aggregate supply curve to the left.

Accepted Answer

A) True 
 B)False

Question 4

An increase in future price expectations may act like a cost shock, shifting the aggregate supply curve to the left.

Accepted Answer

A) True 
 B)False

Question 5

Rising output coupled with falling prices is called stagflation.

Accepted Answer

A) True 
 B)False

Question 6

Related to the Economics in Practice on p. 558: An earthquake destroyed 50% of the Moldovian manufacturing base. The Moldovian government decided to use a contractionary fiscal policy to counter the effects of the earthquake on the economy. The use of the contractionary fiscal policy would have caused

Accepted Answer

A)  the price level to be lower and the output level to be higher than they would have been without the policy action. 
B)  both the price level and the output level to be higher than they would have been without the policy action. 
C)  both the price level and output level to be lower than what they would have been without the policy action. 
D)  the price level to be higher and the output level to be lower than they would have been without the policy action. 
A)  the price level to be lower and the output level to be higher than they would have been without the policy action. 
B)  both the price level and the output level to be higher than they would have been without the policy action. 
C)  both the price level and output level to be lower than what they would have been without the policy action. 
D)  the price level to be higher and the output level to be lower than they would have been without the policy action.

Question 7

A decrease in net taxation increases aggregate demand.

Accepted Answer

A) True 
 B)False

Question 8

During the recession of 1980-1982, output, the inflation rate, and the interest rate all increased.

Accepted Answer

A) True 
 B)False

Question 9

Economic policies are ineffective concerning quantities of output directly when

Accepted Answer

A)  the aggregate supply curve is flat. 
B)  the aggregate demand is flat. 
C)  the aggregate supply is vertical. 
D)  the economy is not producing at capacity. 
A)  the aggregate supply curve is flat. 
B)  the aggregate demand is flat. 
C)  the aggregate supply is vertical. 
D)  the economy is not producing at capacity.

Question 10

Since 1970, the Fed has usually raised interest rates to combat inflation, even when output was low.

Accepted Answer

A) True 
 B)False

Question 11

In a binding situation, the AD curve is vertical.

Accepted Answer

A) True 
 B)False

Question 12

With a cost shock, a small decrease in output relative to the increase in the price level would occur if the ________ curve is relatively ________.

Accepted Answer

A)  AS; flat 
B)  AS; steep 
C)  AD; flat 
D)  AD; steep 
A)  AS; flat 
B)  AS; steep 
C)  AD; flat 
D)  AD; steep

Question 13

Expansionary economic policies are things the government can do to decrease aggregate demand or aggregate supply.

Accepted Answer

A) True 
 B)False

Question 14

Economic policies are effective at changing output when

Accepted Answer

A)  the economy is not producing at capacity. 
B)  the economy is producing at its potential output. 
C)  the unemployment rate is at the natural rate. 
D)  the aggregate supply curve is vertical. 
A)  the economy is not producing at capacity. 
B)  the economy is producing at its potential output. 
C)  the unemployment rate is at the natural rate. 
D)  the aggregate supply curve is vertical.

Question 15

The Fed generally had high interest rates ________ as it fought inflation.

Accepted Answer

A)  in the 1970s and early 1980s 
B)  in the 1980s and 1990s 
C)  in the late-1990s 
D)  in the 2000s 
A)  in the 1970s and early 1980s 
B)  in the 1980s and 1990s 
C)  in the late-1990s 
D)  in the 2000s

Question 16

The United States experienced a zero bound interest rate

Accepted Answer

A)  in the 1970s. 
B)  in the 1980s. 
C)  in the 1990s. 
D)  starting at the end of 2008. 
A)  in the 1970s. 
B)  in the 1980s. 
C)  in the 1990s. 
D)  starting at the end of 2008.

Question 17

Refer to the information provided in Figure 27.4 below to answer the question(s) that follow.   Figure 27.4
-Refer to Figure 27.4. A higher price level with higher unemployment would result in

Accepted Answer

A)  deflation. 
B)  stagflation. 
C)  inflationary growth. 
D)  deflationary growth. 
A)  deflation. 
B)  stagflation. 
C)  inflationary growth. 
D)  deflationary growth.

Question 18

A decrease in net taxes at a given price level leads to

Accepted Answer

A)  no change in aggregate demand. 
B)  an increase in aggregate demand. 
C)  a decrease in aggregate demand. 
D)  a decrease in aggregate supply. 
A)  no change in aggregate demand. 
B)  an increase in aggregate demand. 
C)  a decrease in aggregate demand. 
D)  a decrease in aggregate supply.

Question 19

Demand-pull inflation and cost-push inflation both lead to a higher price level and lower output.

Accepted Answer

A) True 
 B)False

Question 20

The objective of an expansionary fiscal policy is to

Accepted Answer

A)  reduce unemployment. 
B)  reduce inflation. 
C)  reduce growth in output. 
D)  reduce growth in international trade. 
A)  reduce unemployment. 
B)  reduce inflation. 
C)  reduce growth in output. 
D)  reduce growth in international trade.

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

In a binding situation, the interest rate is always zero.

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 an increase in government spending, the Fed would increase the interest rate by the greatest amount when the aggregate demand curve shifts from

A cost shock, such as a natural disaster, shifts the aggregate supply curve to the left.

An increase in future price expectations may act like a cost shock, shifting the aggregate supply curve to the left.

Rising output coupled with falling prices is called stagflation.

A decrease in net taxation increases aggregate demand.

During the recession of 1980-1982, output, the inflation rate, and the interest rate all increased.

Economic policies are ineffective concerning quantities of output directly when

Since 1970, the Fed has usually raised interest rates to combat inflation, even when output was low.

In a binding situation, the AD curve is vertical.

With a cost shock, a small decrease in output relative to the increase in the price level would occur if the ________ curve is relatively ________.

Expansionary economic policies are things the government can do to decrease aggregate demand or aggregate supply.

Economic policies are effective at changing output when

The Fed generally had high interest rates ________ as it fought inflation.

The United States experienced a zero bound interest rate

Refer to the information provided in Figure 27.4 below to answer the question(s) that follow. Figure 27.4 -Refer to Figure 27.4. A higher price level with higher unemployment would result in

A decrease in net taxes at a given price level leads to

Demand-pull inflation and cost-push inflation both lead to a higher price level and lower output.

The objective of an expansionary fiscal policy is to

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

With a cost shock, a small decrease in output relative to the increase in the price level would occur if the curve is relatively .