Question 1

Compared to the baseline, the long-run effect of a monetary policy change to reduce the rate of inflation is for there to be

Accepted Answer

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

Question 2

Explain what effect a monetary policy designed to bring about disinflation would have on the economy. Be sure to discuss what happens in the short run, the medium run, and the long run.

Accepted Answer

The short-run effect is for the monetary

Question 3

Suppose there is a sharp decline in oil prices. According to the theory of economic fluctuations,

Accepted Answer

A) real GDP will fall. 
B) real GDP will not change. 
C) its effect on real GDP is uncertain. 
D) real GDP will increase. 
E) potential GDP will fall. 
A) real GDP will fall. 
B) real GDP will not change. 
C) its effect on real GDP is uncertain. 
D) real GDP will increase. 
E) potential GDP will fall.

Question 4

The long run is usually

Accepted Answer

A) ten years or more. 
B) two to three years. 
C) one to two years. 
D) four to five years or more. 
E) one year. 
A) ten years or more. 
B) two to three years. 
C) one to two years. 
D) four to five years or more. 
E) one year.

Question 5

Suppose the target rate of inflation is 3 percent and real GDP equals potential GDP. Now, suppose a major oil-producing country decides to increase the supply of oil in order to discipline the other members of the oil-producing cartel. There is a sharp decline in the price of oil, and, in turn, the rate of inflation falls to 2 percent in the short run. The Fed views this decline in inflation as temporary and expects the price adjustment line to shift back up to 3 percent next year, which it does.

Accepted Answer

The answer of Suppose the target rate of inflation is...

Question 6

Economic fluctuations in the United States during the 2007-09 period are best explained by shifts of the inflation adjustment line.

Accepted Answer

A) True 
 B)False

Question 7

A price shock is the same as a demand shock.

Accepted Answer

A) True 
 B)False

Question 8

Between 1979 and 1985 the rate of inflation

Accepted Answer

A) fell from over 20 percent to around 2 percent. 
B) rose from around 2 percent to over 20 percent. 
C) remained constant. 
D) fell from over 10 percent to around 4 percent. 
E) rose from around 4 percent to over 10 percent. 
A) fell from over 20 percent to around 2 percent. 
B) rose from around 2 percent to over 20 percent. 
C) remained constant. 
D) fell from over 10 percent to around 4 percent. 
E) rose from around 4 percent to over 10 percent.

Question 9

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 10

What is the difference between a temporary growth slowdown and a recession?

Accepted Answer

During a temporary growth slow

Question 11

The long-run effects of an increase in government purchases are that interest rates will ____, inflation will ____, and real GDP will ____.

Accepted Answer

A) decrease; decrease; remain unchanged 
B) increase; increase; remain unchanged 
C) remain unchanged; increase; remain unchanged 
D) increase; increase; increase 
E) decrease; increase; remain unchanged 
A) decrease; decrease; remain unchanged 
B) increase; increase; remain unchanged 
C) remain unchanged; increase; remain unchanged 
D) increase; increase; increase 
E) decrease; increase; remain unchanged

Question 12

A reduction in the inflation rate is called

Accepted Answer

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

Question 13

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 14

Suppose the relationship between real GDP and inflation is depicted as shown in the table below. Assume that real and potential GDP are equal to each other at $5,400 billion. Suppose government purchases decline by $100 billion and the slope of the aggregate expenditure line is 0.5.

Accepted Answer

The answer of Suppose the relationship between real GDP and...

Question 15

All of the inflation that occurred in the 1970s can be explained by reinflation policies.

Accepted Answer

A) True 
 B)False

Question 16

If real GDP is below potential GDP,

Accepted Answer

A) long-run equilibrium will be achieved once the aggregate demand curve shifts to the right. 
B) the economy is in a short-run equilibrium. 
C) long-run equilibrium will be achieved once inflation has stopped declining. 
D) the economy is in a medium-run equilibrium. 
E) long-run equilibrium will be achieved once prices have stopped declining. 
A) long-run equilibrium will be achieved once the aggregate demand curve shifts to the right. 
B) the economy is in a short-run equilibrium. 
C) long-run equilibrium will be achieved once inflation has stopped declining. 
D) the economy is in a medium-run equilibrium. 
E) long-run equilibrium will be achieved once prices have stopped declining.

Question 17

Real business cycle theories emphasize price shocks.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Which of the following best depicts the short-run effect of a price shock due to a large increase in oil prices?

Accepted Answer

A) The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the right. 
B) The IA line shifts up, causing interest rates to rise, which causes a leftward movement along the AD curve. 
C) The AD curve shifts to the left, causing interest rates to rise, which causes the IA line to shift down. 
D) The IA line shifts down, causing interest rates to rise, which causes a leftward movement along the AD curve. 
E) The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the left. 
A) The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the right. 
B) The IA line shifts up, causing interest rates to rise, which causes a leftward movement along the AD curve. 
C) The AD curve shifts to the left, causing interest rates to rise, which causes the IA line to shift down. 
D) The IA line shifts down, causing interest rates to rise, which causes a leftward movement along the AD curve. 
E) The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the left.

Question 20

The short run is usually

Accepted Answer

A) less than half a year. 
B) one to three years. 
C) two to three years. 
D) one year. 
E) four to five years. 
A) less than half a year. 
B) one to three years. 
C) two to three years. 
D) one year. 
E) four to five years.

Exam 25: Using the Economic Fluctuations Model

Compared to the baseline, the long-run effect of a monetary policy change to reduce the rate of inflation is for there to be

Explain what effect a monetary policy designed to bring about disinflation would have on the economy. Be sure to discuss what happens in the short run, the medium run, and the long run.

Suppose there is a sharp decline in oil prices. According to the theory of economic fluctuations,

The long run is usually

Economic fluctuations in the United States during the 2007-09 period are best explained by shifts of the inflation adjustment line.

A price shock is the same as a demand shock.

Between 1979 and 1985 the rate of inflation

Disinflation can be defined as

What is the difference between a temporary growth slowdown and a recession?

The long-run effects of an increase in government purchases are that interest rates will ____, inflation will ____, and real GDP will ____.

A reduction in the inflation rate is called

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

Suppose the relationship between real GDP and inflation is depicted as shown in the table below. Assume that real and potential GDP are equal to each other at $5,400 billion. Suppose government purchases decline by $100 billion and the slope of the aggregate expenditure line is 0.5.

All of the inflation that occurred in the 1970s can be explained by reinflation policies.

If real GDP is below potential GDP,

Real business cycle theories emphasize price shocks.

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

Which of the following best depicts the short-run effect of a price shock due to a large increase in oil prices?

The short run is usually

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

Filters

The long-run effects of an increase in government purchases are that interest rates will , inflation will , and real GDP will .