Question 1

A sharp increase in oil prices will result in

Accepted Answer

A) a deflation. 
B) a decline in potential GDP. 
C) stagflation. 
D) disinflation. 
E) hyperinflation. 
A) a deflation. 
B) a decline in potential GDP. 
C) stagflation. 
D) disinflation. 
E) hyperinflation.

Question 2

A price shock causes movement along the monetary policy rule line.

Accepted Answer

A) True 
 B)False

Question 3

An increase in the target inflation rate by the central bank is referred to as

Accepted Answer

A) disinflation. 
B) deflation. 
C) reinflation. 
D) accommodation. 
E) stagflation. 
A) disinflation. 
B) deflation. 
C) reinflation. 
D) accommodation. 
E) stagflation.

Question 4

Which of the following is the most appropriate explanation of a price shock?

Accepted Answer

A) A large shift in the AD curve 
B) A large shift in the aggregate expenditure line 
C) A shift in potential GDP 
D) A large change in a key commodity price 
E) A shift in the monetary policy rule line 
A) A large shift in the AD curve 
B) A large shift in the aggregate expenditure line 
C) A shift in potential GDP 
D) A large change in a key commodity price 
E) A shift in the monetary policy rule line

Question 5

Suppose government purchases have decreased. Which of the following is true?

Accepted Answer

A) If inflation is lower in the new equilibrium, the Fed has allowed the target rate of inflation to drift up. 
B) If inflation is constant in the new equilibrium, the Fed has decreased the target rate of inflation. 
C) If inflation is lower in the new equilibrium, the Fed has allowed the target rate of inflation to drift down. 
D) If inflation is lower in the new equilibrium, there has been no change in the target rate of inflation. 
E) If inflation is constant in the new equilibrium, the Fed has increased the target rate of inflation. 
A) If inflation is lower in the new equilibrium, the Fed has allowed the target rate of inflation to drift up. 
B) If inflation is constant in the new equilibrium, the Fed has decreased the target rate of inflation. 
C) If inflation is lower in the new equilibrium, the Fed has allowed the target rate of inflation to drift down. 
D) If inflation is lower in the new equilibrium, there has been no change in the target rate of inflation. 
E) If inflation is constant in the new equilibrium, the Fed has increased the target rate of inflation.

Question 6

Monetary policy designed to reduce the rate of inflation in the early 1980s resulted in a recession.

Accepted Answer

A) True 
 B)False

Question 7

The best explanation for the recent economic fluctuations observed in the U.S. economy is

Accepted Answer

A) one leftward shift of the aggregate demand curve, followed by price adjustment, followed by one rightward shift of the aggregate demand curve, followed by price adjustment. 
B) one leftward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. 
C) one rightward shift of the aggregate demand curve, followed by price adjustment, followed by one leftward shift of the aggregate demand curve, followed by price adjustment. 
D) one rightward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. 
E) one leftward shift of the aggregate demand curve followed by one rightward shift. 
A) one leftward shift of the aggregate demand curve, followed by price adjustment, followed by one rightward shift of the aggregate demand curve, followed by price adjustment. 
B) one leftward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. 
C) one rightward shift of the aggregate demand curve, followed by price adjustment, followed by one leftward shift of the aggregate demand curve, followed by price adjustment. 
D) one rightward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. 
E) one leftward shift of the aggregate demand curve followed by one rightward shift.

Question 8

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

Accepted Answer

A) An increase in business confidence 
B) An increase in government spending 
C) An increase in oil prices 
D) A decrease in imports 
E) A decrease in consumer confidence 
A) An increase in business confidence 
B) An increase in government spending 
C) An increase in oil prices 
D) A decrease in imports 
E) A decrease in consumer confidence

Question 9

Over the past 25 years, price shocks have occurred due to sharp changes in

Accepted Answer

A) coffee prices. 
B) oil prices. 
C) gold prices. 
D) silver prices. 
E) interest rates. 
A) coffee prices. 
B) oil prices. 
C) gold prices. 
D) silver prices. 
E) interest rates.

Question 10

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

Accepted Answer

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

Question 11

It is difficult to determine whether a price shock is permanent or temporary.

Accepted Answer

A) True 
 B)False

Question 12

A change in monetary policy will not cause the AD curve to shift.

Accepted Answer

A) True 
 B)False

Question 13

A reduction in the target rate of inflation

Accepted Answer

A) occurred during the 1970s. 
B) has never occurred in the United States. 
C) is what caused the Great Depression. 
D) occurred in the United States during the early 1980s. 
E) occurred in the United States during the late 1960s. 
A) occurred during the 1970s. 
B) has never occurred in the United States. 
C) is what caused the Great Depression. 
D) occurred in the United States during the early 1980s. 
E) occurred in the United States during the late 1960s.

Question 14

Suppose, for a certain economy, real and potential GDP are initially equal. Then government purchases permanently increase. Compared to the baseline, we would expect to see, in the medium run,

Accepted Answer

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

Question 15

Which of the following did not contribute to the decline in aggregate demand during 2007?

Accepted Answer

A) A commodity price shock 
B) A drop in stock prices 
C) A change in monetary policy 
D) A drop in consumer confidence 
E) A decrease in lending from banks 
A) A commodity price shock 
B) A drop in stock prices 
C) A change in monetary policy 
D) A drop in consumer confidence 
E) A decrease in lending from banks

Question 16

The short-run effect of a change in autonomous expenditures is shown by the AD curve moving along the IA line.

Accepted Answer

A) True 
 B)False

Question 17

By definition, real GDP can never be above potential GDP.

Accepted Answer

A) True 
 B)False

Question 18

The short-run effect of an increase in government purchases is

Accepted Answer

A) a rightward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. 
B) a leftward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. 
C) a rightward shift of the aggregate demand curve and a downward shift of the inflation adjustment line. 
D) a rightward shift of the aggregate demand curve and movement along the inflation adjustment line. 
E) a leftward shift of the aggregate demand curve and movement along the inflation adjustment line. 
A) a rightward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. 
B) a leftward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. 
C) a rightward shift of the aggregate demand curve and a downward shift of the inflation adjustment line. 
D) a rightward shift of the aggregate demand curve and movement along the inflation adjustment line. 
E) a leftward shift of the aggregate demand curve and movement along the inflation adjustment line.

Question 19

Which of the following descriptions best depicts the short-run effect of a leftward shift of the monetary policy line?

Accepted Answer

A) An increase in the rate of interest and a decline in both the rate of inflation and real GDP 
B) A decline in both the rate of inflation and the rate of interest, along with an increase in real GDP 
C) An increase in the rate of interest, no change in the rate of inflation, and a decline in real GDP 
D) A decline in real GDP and no change in either the rate of inflation or the rate of interest 
E) A decline in the rate of inflation, the rate of interest, and real GDP 
A) An increase in the rate of interest and a decline in both the rate of inflation and real GDP 
B) A decline in both the rate of inflation and the rate of interest, along with an increase in real GDP 
C) An increase in the rate of interest, no change in the rate of inflation, and a decline in real GDP 
D) A decline in real GDP and no change in either the rate of inflation or the rate of interest 
E) A decline in the rate of inflation, the rate of interest, and real GDP

Question 20

What is the difference between a price shock and a supply shock?

Accepted Answer

A price shock arises from a sh

Exam 25: Using the Economic Fluctuations Model

A sharp increase in oil prices will result in

A price shock causes movement along the monetary policy rule line.

An increase in the target inflation rate by the central bank is referred to as

Which of the following is the most appropriate explanation of a price shock?

Suppose government purchases have decreased. Which of the following is true?

Monetary policy designed to reduce the rate of inflation in the early 1980s resulted in a recession.

The best explanation for the recent economic fluctuations observed in the U.S. economy is

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

Over the past 25 years, price shocks have occurred due to sharp changes in

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

It is difficult to determine whether a price shock is permanent or temporary.

A change in monetary policy will not cause the AD curve to shift.

A reduction in the target rate of inflation

Suppose, for a certain economy, real and potential GDP are initially equal. Then government purchases permanently increase. Compared to the baseline, we would expect to see, in the medium run,

Which of the following did not contribute to the decline in aggregate demand during 2007?

The short-run effect of a change in autonomous expenditures is shown by the AD curve moving along the IA line.

By definition, real GDP can never be above potential GDP.

The short-run effect of an increase in government purchases is

Which of the following descriptions best depicts the short-run effect of a leftward shift of the monetary policy line?

What is the difference between a price shock and a supply shock?

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 short-run effects of an increase in government purchases are that inflation will , and real GDP will .