Question 1

A price shock has the same effect as a demand shock.

Accepted Answer

A) True 
 B)False

Question 2

Suppose, for some hypothetical economy, an electric storm causes 90 percent of the CPU chips in the economy to become useless. Trace out the macroeconomic consequence of this phenomenon. Does this event result in stagflation? Why?

Accepted Answer

This will cause a supply shock. Potentia

Question 3

The most recent recession of the United States occurred

Accepted Answer

A) between 2001 and 2006. 
B) between the end of 2007 and the middle of 2009. 
C) between 2005 and the present. 
D) between 1929 and 1933. 
E) in 2001. 
A) between 2001 and 2006. 
B) between the end of 2007 and the middle of 2009. 
C) between 2005 and the present. 
D) between 1929 and 1933. 
E) in 2001.

Question 4

If the Fed thinks inflation is too high, it will

Accepted Answer

A) lower the target inflation rate and lower interest rates. 
B) lower the target inflation rate and raise interest rates. 
C) lower the target inflation rate and leave interest rates unchanged. 
D) raise the target inflation rate and raise interest rates. 
E) raise the target inflation rate and lower interest rates. 
A) lower the target inflation rate and lower interest rates. 
B) lower the target inflation rate and raise interest rates. 
C) lower the target inflation rate and leave interest rates unchanged. 
D) raise the target inflation rate and raise interest rates. 
E) raise the target inflation rate and lower interest rates.

Question 5

Which of the following is the best definition of disinflation?

Accepted Answer

A) A reduction in the inflation rate 
B) A reduction in the overall price level of the economy 
C) A surprisingly high rate of inflation 
D) of these 
A) A reduction in the inflation rate 
B) A reduction in the overall price level of the economy 
C) A surprisingly high rate of inflation 
D) of these

Question 6

The medium run is usually

Accepted Answer

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

Question 7

A price shock occurs when

Accepted Answer

A) the monetary policy rule changes. 
B) the Fed acts to raise interest rates. 
C) the spending balance changes. 
D) key commodity prices change. 
E) the AD curve shifts to the right. 
A) the monetary policy rule changes. 
B) the Fed acts to raise interest rates. 
C) the spending balance changes. 
D) key commodity prices change. 
E) the AD curve shifts to the right.

Question 8

The long-run effect of a decline in exports is

Accepted Answer

A) an ambiguous change in net exports and a decline in both investment and consumption. 
B) for there to be no change in any of the aggregate expenditure categories. 
C) for net exports to decline, with no change in investment or consumption. 
D) an ambiguous change in net exports and an increase in both consumption and investment. 
E) an increase in net exports, consumption, and investment. 
A) an ambiguous change in net exports and a decline in both investment and consumption. 
B) for there to be no change in any of the aggregate expenditure categories. 
C) for net exports to decline, with no change in investment or consumption. 
D) an ambiguous change in net exports and an increase in both consumption and investment. 
E) an increase in net exports, consumption, and investment.

Question 9

In a diagram that includes both the IA line and the AD curve, the price adjustment resulting from an increase in spending is shown by

Accepted Answer

A) the AD curve shifting to the left. 
B) the AD curve shifting to the right. 
C) the IA line shifting down. 
D) the IA line shifting up. 
E) the movement along the IA line. 
A) the AD curve shifting to the left. 
B) the AD curve shifting to the right. 
C) the IA line shifting down. 
D) the IA line shifting up. 
E) the movement along the IA line.

Question 10

An economic recovery occurs only if the Fed shifts its policy.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the GDP deflator is 100 in 2015 and 101 in 2016.

Accepted Answer

The answer of Suppose the GDP deflator is 100 in...

Question 12

Exhibit 25-2  
-According to Exhibit 25-2, which point best represents where the U.S. economy was in mid-2007?

Accepted Answer

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

Question 13

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 long run,

Accepted Answer

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

Question 14

The long-run effect of an increase in oil prices is a

Accepted Answer

A) fall in potential GDP. 
B) lengthy recession until circumstances change and the aggregate demand curve shifts to the right. 
C) permanent increase in inflation. 
D) lengthy recession until the Fed changes monetary policy and the aggregate demand curve shifts to the right. 
E) downward movement of the inflation adjustment line until the rate of inflation returns to the baseline rate. 
A) fall in potential GDP. 
B) lengthy recession until circumstances change and the aggregate demand curve shifts to the right. 
C) permanent increase in inflation. 
D) lengthy recession until the Fed changes monetary policy and the aggregate demand curve shifts to the right. 
E) downward movement of the inflation adjustment line until the rate of inflation returns to the baseline rate.

Question 15

If oil prices increase, inflation will be permanently higher in the long run.

Accepted Answer

A) True 
 B)False

Question 16

A permanent price shock results in

Accepted Answer

A) a positive correlation between real GDP and inflation. 
B) no correlation between real GDP and inflation. 
C) an uncertain correlation between real GDP and inflation. 
D) a negative correlation between real GDP and inflation. 
E) a permanent decline in potential GDP. 
A) a positive correlation between real GDP and inflation. 
B) no correlation between real GDP and inflation. 
C) an uncertain correlation between real GDP and inflation. 
D) a negative correlation between real GDP and inflation. 
E) a permanent decline in potential GDP.

Exam 25: Using the Economic Fluctuations Model

A price shock has the same effect as a demand shock.

Suppose, for some hypothetical economy, an electric storm causes 90 percent of the CPU chips in the economy to become useless. Trace out the macroeconomic consequence of this phenomenon. Does this event result in stagflation? Why?

The most recent recession of the United States occurred

If the Fed thinks inflation is too high, it will

Which of the following is the best definition of disinflation?

The medium run is usually

A price shock occurs when

The long-run effect of a decline in exports is

In a diagram that includes both the IA line and the AD curve, the price adjustment resulting from an increase in spending is shown by

An economic recovery occurs only if the Fed shifts its policy.

Suppose the GDP deflator is 100 in 2015 and 101 in 2016.

Exhibit 25-2 -According to Exhibit 25-2, which point best represents where the U.S. economy was in mid-2007?

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 long run,

The long-run effect of an increase in oil prices is a

If oil prices increase, inflation will be permanently higher in the long run.

A permanent price shock results in

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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