Question 1

The period from 1979 to 1987 is an example of

Accepted Answer

A) the large effect monetary policy can have on potential GDP. 
B) how monetary policy can be managed so it causes only a temporary growth slowdown. 
C) why monetary policy doesn't always work. 
D) how monetary policy brings about disinflation. 
E) how monetary policy results in reinflation. 
A) the large effect monetary policy can have on potential GDP. 
B) how monetary policy can be managed so it causes only a temporary growth slowdown. 
C) why monetary policy doesn't always work. 
D) how monetary policy brings about disinflation. 
E) how monetary policy results in reinflation.

Question 2

A demand shock is a shift in the aggregate demand curve, whereas a price shock is typically a shift in the supply curve.

Accepted Answer

A) True 
 B)False

Question 3

The long-run income effect (the effect of real GDP changes on spending) of decreased government purchases is that consumption

Accepted Answer

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

Question 4

Suppose the economy is initially at potential GDP.

Accepted Answer

The answer of Suppose the economy is initially at potential...

Question 5

The short-run effect of an oil price increase is

Accepted Answer

A) an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed raises interest rates. 
B) an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed lowers the target inflation rate. 
C) an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as spending falls. 
D) a downward shift of the inflation adjustment line. 
E) an upward shift of the inflation adjustment line. 
A) an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed raises interest rates. 
B) an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed lowers the target inflation rate. 
C) an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as spending falls. 
D) a downward shift of the inflation adjustment line. 
E) an upward shift of the inflation adjustment line.

Question 6

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

Accepted Answer

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

Question 7

When the Volcker disinflation began,

Accepted Answer

A) the rate of inflation rose to over 20 percent. 
B) the rate of inflation fell to 1 percent. 
C) the federal funds rate had risen above 20 percent. 
D) the federal funds rate fell to 2 percent. 
E) the rate of inflation became negative. 
A) the rate of inflation rose to over 20 percent. 
B) the rate of inflation fell to 1 percent. 
C) the federal funds rate had risen above 20 percent. 
D) the federal funds rate fell to 2 percent. 
E) the rate of inflation became negative.

Question 8

The economic fluctuations model is used by economists to determine the path the economy takes after a shift in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 9

The medium-run effect of a monetary policy that seeks to lower the rate of inflation is best depicted by

Accepted Answer

A) the AD curve shifting to the right. 
B) an upward movement of the IA line. 
C) an upward movement along the AD curve. 
D) a downward movement along the AD curve. 
E) the AD curve shifting to the left. 
A) the AD curve shifting to the right. 
B) an upward movement of the IA line. 
C) an upward movement along the AD curve. 
D) a downward movement along the AD curve. 
E) the AD curve shifting to the left.

Question 10

The inflationary experience of the United States during the 1970s can be interpreted as a time when the Fed increased the target rate of inflation.

Accepted Answer

A) True 
 B)False

Question 11

Among the factors that might have led to the outbreak of the 2007-09 recession, which most likely caused a shift of the IA line instead of the AD curve?

Accepted Answer

A) Sharp increases in commodity prices. 
B) Credit crunch. 
C) Financial crisis. 
D) Collapse of the housing bubble. 
E) Stock market collapse. 
A) Sharp increases in commodity prices. 
B) Credit crunch. 
C) Financial crisis. 
D) Collapse of the housing bubble. 
E) Stock market collapse.

Question 12

Reinflation causes

Accepted Answer

A) a temporary boom. 
B) a price shock. 
C) an increase in potential GDP. 
D) a growth slowdown. 
E) a temporary recession. 
A) a temporary boom. 
B) a price shock. 
C) an increase in potential GDP. 
D) a growth slowdown. 
E) a temporary recession.

Question 13

What is the name commonly given to the situation in which inflation is up and real GDP is down?

Accepted Answer

A) Stagflation 
B) Reinflation 
C) Disinflation 
D) Backward recession 
E) None of these 
A) Stagflation 
B) Reinflation 
C) Disinflation 
D) Backward recession 
E) None of these

Question 14

The leftward shift of the aggregate demand curve in 2007 is explained in part by

Accepted Answer

A) a change in net exports. 
B) a sharp increase in oil prices. 
C) a decrease in government spending. 
D) a change in monetary policy. 
E) an increase in taxes. 
A) a change in net exports. 
B) a sharp increase in oil prices. 
C) a decrease in government spending. 
D) a change in monetary policy. 
E) an increase in taxes.

Question 15

If the Fed raises interest rates because inflation is too high, this will cause

Accepted Answer

A) a long-term recession. 
B) a temporary slowdown in growth but not a recession. 
C) a permanent slowdown in growth. 
D) either a temporary slowdown in growth or a recession. 
E) a temporary recession. 
A) a long-term recession. 
B) a temporary slowdown in growth but not a recession. 
C) a permanent slowdown in growth. 
D) either a temporary slowdown in growth or a recession. 
E) a temporary recession.

Question 16

In economics, the short run is an expression used to describe events that take at least two to three weeks to unfold.

Accepted Answer

A) True 
 B)False

Question 17

If government purchases change, which variable is fixed in the short run as a result of the change?

Accepted Answer

A) Saving 
B) All of these 
C) Consumption 
D) Net exports 
E) Inflation 
A) Saving 
B) All of these 
C) Consumption 
D) Net exports 
E) Inflation

Question 18

If a price shock caused by a sharp increase in oil prices is believed to be temporary, then the Fed will

Accepted Answer

A) raise interest rates based on its monetary policy rule. 
B) lower interest rates based on its monetary policy rule. 
C) do nothing. 
D) lower interest rates, but not by as much as it would if the price shock were permanent. 
E) raise interest rates, but not by as much as it would if the price shock were permanent. 
A) raise interest rates based on its monetary policy rule. 
B) lower interest rates based on its monetary policy rule. 
C) do nothing. 
D) lower interest rates, but not by as much as it would if the price shock were permanent. 
E) raise interest rates, but not by as much as it would if the price shock were permanent.

Question 19

The tendency of prices to adjust over time is shown by an upward movement along the IA line.

Accepted Answer

A) True 
 B)False

Question 20

If ever real GDP is above potential real GDP, the inflation adjustment line (IA) must shift downward.

Accepted Answer

A) True 
 B)False

Exam 25: Using the Economic Fluctuations Model

The period from 1979 to 1987 is an example of

A demand shock is a shift in the aggregate demand curve, whereas a price shock is typically a shift in the supply curve.

The long-run income effect (the effect of real GDP changes on spending) of decreased government purchases is that consumption

Suppose the economy is initially at potential GDP.

The short-run effect of an oil price increase is

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

When the Volcker disinflation began,

The economic fluctuations model is used by economists to determine the path the economy takes after a shift in aggregate demand.

The medium-run effect of a monetary policy that seeks to lower the rate of inflation is best depicted by

The inflationary experience of the United States during the 1970s can be interpreted as a time when the Fed increased the target rate of inflation.

Among the factors that might have led to the outbreak of the 2007-09 recession, which most likely caused a shift of the IA line instead of the AD curve?

Reinflation causes

What is the name commonly given to the situation in which inflation is up and real GDP is down?

The leftward shift of the aggregate demand curve in 2007 is explained in part by

If the Fed raises interest rates because inflation is too high, this will cause

In economics, the short run is an expression used to describe events that take at least two to three weeks to unfold.

If government purchases change, which variable is fixed in the short run as a result of the change?

If a price shock caused by a sharp increase in oil prices is believed to be temporary, then the Fed will

The tendency of prices to adjust over time is shown by an upward movement along the IA line.

If ever real GDP is above potential real GDP, the inflation adjustment line (IA) must shift downward.

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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