Question 1

The leftward shift of the AD curve during 2007 occurred partly because of

Accepted Answer

A) higher net exports. 
B) a balanced federal government budget. 
C) an increase in consumer confidence. 
D) a stock market crash. 
E) the Fed lowering interest rates. 
A) higher net exports. 
B) a balanced federal government budget. 
C) an increase in consumer confidence. 
D) a stock market crash. 
E) the Fed lowering interest rates. D

Question 2

Data for the U.S. economy in the 2007-09 period show that real GDP and inflation moved in the direction predicted by the economic fluctuations model.

Accepted Answer

A) True 
 B)False  True

Question 3

Stagflation refers to the situation in which inflation is up and real GDP is down.

Accepted Answer

A) True 
 B)False  True

Question 4

If the price of salt quadruples, will this cause a price shock? Explain.

Accepted Answer

No. Salt is not an important c

Question 5

The long-run effect of a decrease in government purchases can be described as the period of time when

Accepted Answer

A) the inflation adjustment line intersects the aggregate demand curve at the level of potential GDP. 
B) firms are adjusting their prices and inflation is increasing to its new level. 
C) real GDP is below potential GDP. 
D) there is no spending balance. 
E) firms are adjusting their prices and inflation is decreasing to its new level. 
A) the inflation adjustment line intersects the aggregate demand curve at the level of potential GDP. 
B) firms are adjusting their prices and inflation is increasing to its new level. 
C) real GDP is below potential GDP. 
D) there is no spending balance. 
E) firms are adjusting their prices and inflation is decreasing to its new level.

Question 6

Discuss the difference in the short-run and long-run effects of a decrease in government purchases and a monetary policy change designed to lower inflation. Comment specifically on the four components of aggregate demand, interest rates, and inflation.

Accepted Answer

If government purchases decrease, the AD

Question 7

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 8

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

Accepted Answer

A) True 
 B)False

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

If government purchases decline, during the medium run consumption will be below its baseline level while net exports and investment will be above their baseline levels.

Accepted Answer

A) True 
 B)False

Question 11

A fall in the overall price level is called

Accepted Answer

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

Question 12

The long-run overall effect of decreased government purchases is that

Accepted Answer

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

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 exports increase. According to the shares of spending model from Chapter 7, what would happen to interest rates, consumption, investment, and net exports in the long run? According to this chapter's model, which is made up of the aggregate demand curves and the inflation adjustment line, what will happen to interest rates, consumption, investment, and net exports in the long run?

Accepted Answer

According to the model in Chapter 7, an

Question 15

In the economic fluctuations model, the so-called long run normally refers to the time it takes for the economy to return to full employment or, in other words, for real GDP to be back to potential GDP.

Accepted Answer

A) True 
 B)False

Question 16

Suppose the Fed engages in a policy to reduce the inflation rate for any given level of real GDP. This would be depicted by a(n)

Accepted Answer

A) downward movement along the monetary policy line. 
B) leftward shift of the monetary policy line. 
C) upward movement along the monetary policy line. 
D) rightward shift of the monetary policy line. 
E) rightward shift of the AD curve. 
A) downward movement along the monetary policy line. 
B) leftward shift of the monetary policy line. 
C) upward movement along the monetary policy line. 
D) rightward shift of the monetary policy line. 
E) rightward shift of the AD curve.

Question 17

In the long run, a price shock results in

Accepted Answer

A) an inflation rate greater than the baseline. 
B) an inflation rate the same as the baseline. 
C) an inflation rate lower than the baseline. 
D) a permanent decline in potential GDP. 
E) real GDP being less than potential GDP. 
A) an inflation rate greater than the baseline. 
B) an inflation rate the same as the baseline. 
C) an inflation rate lower than the baseline. 
D) a permanent decline in potential GDP. 
E) real GDP being less than potential GDP.

Question 18

If government spending decreases, the long-run income effect on net exports and consumption will be the same as in the baseline case.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following would lead to higher inflation in the long run?

Accepted Answer

A) A decrease in consumer confidence 
B) An increase in imports 
C) An increase in taxes 
D) An increase in government spending 
E) An increase in the savings rate 
A) A decrease in consumer confidence 
B) An increase in imports 
C) An increase in taxes 
D) An increase in government spending 
E) An increase in the savings rate

Question 20

When the Fed changes monetary policy to reduce the rate of inflation, which of the following should occur in the medium run?

Accepted Answer

A) The AD curve should shift to the right. 
B) The IA line should shift down. 
C) The AD curve should shift to the left. 
D) The IA line should shift up. 
E) The aggregate expenditure line should shift down. 
A) The AD curve should shift to the right. 
B) The IA line should shift down. 
C) The AD curve should shift to the left. 
D) The IA line should shift up. 
E) The aggregate expenditure line should shift down.

Exam 25: Using the Economic Fluctuations Model

The leftward shift of the AD curve during 2007 occurred partly because of

Data for the U.S. economy in the 2007-09 period show that real GDP and inflation moved in the direction predicted by the economic fluctuations model.

Stagflation refers to the situation in which inflation is up and real GDP is down.

If the price of salt quadruples, will this cause a price shock? Explain.

The long-run effect of a decrease in government purchases can be described as the period of time when

Discuss the difference in the short-run and long-run effects of a decrease in government purchases and a monetary policy change designed to lower inflation. Comment specifically on the four components of aggregate demand, interest rates, and inflation.

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

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

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

If government purchases decline, during the medium run consumption will be below its baseline level while net exports and investment will be above their baseline levels.

A fall in the overall price level is called

The long-run overall effect of decreased government purchases is that

During the period known as the Volcker disinflation

In the economic fluctuations model, the so-called long run normally refers to the time it takes for the economy to return to full employment or, in other words, for real GDP to be back to potential GDP.

Suppose the Fed engages in a policy to reduce the inflation rate for any given level of real GDP. This would be depicted by a(n)

In the long run, a price shock results in

If government spending decreases, the long-run income effect on net exports and consumption will be the same as in the baseline case.

Which of the following would lead to higher inflation in the long run?

When the Fed changes monetary policy to reduce the rate of inflation, which of the following should occur in the medium run?

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

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

The Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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