Question 1

Why do net exports increase when government purchases decline?

Accepted Answer

The fall in income reduces imp

Question 2

Draw an aggregate demand inflation adjustment diagram that illustrates the path of inflation and the percentage deviation of real GDP from potential for the U.S. economy from 2007 to 2009.

Accepted Answer

The spending boom caused by rising housi

Question 3

If there is a sharp increase in oil prices, in the short run

Accepted Answer

A) consumption and investment will fall. 
B) consumption will fall, investment will increase, and net exports will fall. 
C) consumption, investment, and net exports will stay constant. 
D) consumption will fall while investment and net exports will stay constant. 
E) consumption will fall, net exports will increase, and investment will stay constant. 
A) consumption and investment will fall. 
B) consumption will fall, investment will increase, and net exports will fall. 
C) consumption, investment, and net exports will stay constant. 
D) consumption will fall while investment and net exports will stay constant. 
E) consumption will fall, net exports will increase, and investment will stay constant.

Question 4

The head of the Federal Reserve from 1979 through 1987 was

Accepted Answer

A) Alan Greenspan. 
B) Ben Bernanke. 
C) Paul Volcker. 
D) Robert Lucas. 
E) Milton Friedman. 
A) Alan Greenspan. 
B) Ben Bernanke. 
C) Paul Volcker. 
D) Robert Lucas. 
E) Milton Friedman.

Question 5

A single factor caused the 2008-09 recession.

Accepted Answer

A) True 
 B)False

Question 6

Disinflation refers to a situation in which the overall price level falls.

Accepted Answer

A) True 
 B)False

Question 7

If exports permanently decline, we would expect, in the medium run,

Accepted Answer

A) interest rates to increase and the rate of inflation to fall. 
B) interest rates to fall and the rate of inflation to increase. 
C) a decline in both the rate of inflation and interest rates. 
D) no change in interest rates or the rate of inflation. 
E) a decline in both the price level and interest rates. 
A) interest rates to increase and the rate of inflation to fall. 
B) interest rates to fall and the rate of inflation to increase. 
C) a decline in both the rate of inflation and interest rates. 
D) no change in interest rates or the rate of inflation. 
E) a decline in both the price level and interest rates.

Question 8

What is the difference between deflation and disinflation?

Accepted Answer

A) Deflation is used in microeconomics, whereas disinflation is used in macroeconomics. 
B) Deflation refers to changes in expected inflation, while disinflation refers to changes in the actual rate of inflation. 
C) Deflation refers to a decrease in the overall price level, or negative inflation, while disinflation simply refers to a decrease in the inflation rate. 
D) is no difference between these two concepts; they are synonyms. 
A) Deflation is used in microeconomics, whereas disinflation is used in macroeconomics. 
B) Deflation refers to changes in expected inflation, while disinflation refers to changes in the actual rate of inflation. 
C) Deflation refers to a decrease in the overall price level, or negative inflation, while disinflation simply refers to a decrease in the inflation rate. 
D) is no difference between these two concepts; they are synonyms.

Question 9

Suppose that, at any given level of income, people decide to import more.

Accepted Answer

The answer of Suppose that, at any given level of...

Question 10

Explain why the rate of inflation does not change in the long run as a result of a price shock.

Accepted Answer

This is because the AD curve d

Question 11

In the late 1960s and 1970s inflation decreased around the world.

Accepted Answer

A) True 
 B)False

Question 12

Exhibit 25-2  
-According to Exhibit 25-2, which point best represents where the U.S. economy was in 2009?

Accepted Answer

A) A 
B) E 
C) C 
D) D 
E) F 
A) A 
B) E 
C) C 
D) D 
E) F

Question 13

Price shocks are always accompanied by a shift in potential GDP.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the central bank lowers its target inflation rate from 3 percent to 1.5 percent. Use the aggregate demand/inflation curve and the price adjustment line to show the short-run, medium-run, and long-run effects of this policy change. Assume the economy is initially at the point of long-run equilibrium.

Accepted Answer

The real rate of interest will rise beca

Question 15

A price shock causes the AD curve to shift.

Accepted Answer

A) True 
 B)False

Question 16

Disinflation most likely occurs when

Accepted Answer

A) output grows at an increasing rate over time.. 
B) output grows at a decreasing rate over time. 
C) output growth becomes negative. 
D) the overall price level declines over time. 
E) the overall price level is negative. 
A) output grows at an increasing rate over time.. 
B) output grows at a decreasing rate over time. 
C) output growth becomes negative. 
D) the overall price level declines over time. 
E) the overall price level is negative.

Question 17

A supply shock is exactly the opposite of a price shock.

Accepted Answer

A) True 
 B)False

Question 18

In the economic fluctuations model, the so-called short run normally refers to

Accepted Answer

A) the first couple of days after a shock to aggregate demand. 
B) the first month after a shock to aggregate demand. 
C) the initial departure of real GDP from potential GDP after a shock to aggregate demand. 
D) the time it takes for a full recovery to take place after a shock to aggregate demand. 
E) None of these 
A) the first couple of days after a shock to aggregate demand. 
B) the first month after a shock to aggregate demand. 
C) the initial departure of real GDP from potential GDP after a shock to aggregate demand. 
D) the time it takes for a full recovery to take place after a shock to aggregate demand. 
E) None of these

Question 19

During the early 1980s the Federal Reserve increased the target rate of inflation.

Accepted Answer

A) True 
 B)False

Question 20

A decrease in government purchases causes the interest-sensitive components of aggregate expenditure to increase in the short run.

Accepted Answer

A) True 
 B)False

Exam 25: Using the Economic Fluctuations Model

Why do net exports increase when government purchases decline?

Draw an aggregate demand inflation adjustment diagram that illustrates the path of inflation and the percentage deviation of real GDP from potential for the U.S. economy from 2007 to 2009.

If there is a sharp increase in oil prices, in the short run

The head of the Federal Reserve from 1979 through 1987 was

A single factor caused the 2008-09 recession.

Disinflation refers to a situation in which the overall price level falls.

If exports permanently decline, we would expect, in the medium run,

What is the difference between deflation and disinflation?

Suppose that, at any given level of income, people decide to import more.

Explain why the rate of inflation does not change in the long run as a result of a price shock.

In the late 1960s and 1970s inflation decreased around the world.

Exhibit 25-2 -According to Exhibit 25-2, which point best represents where the U.S. economy was in 2009?

Price shocks are always accompanied by a shift in potential GDP.

A price shock causes the AD curve to shift.

Disinflation most likely occurs when

A supply shock is exactly the opposite of a price shock.

In the economic fluctuations model, the so-called short run normally refers to

During the early 1980s the Federal Reserve increased the target rate of inflation.

A decrease in government purchases causes the interest-sensitive components of aggregate expenditure to increase in the short 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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