Question 1

The rational expectations equilibrium approach claims that the price level can be reduced through restrictive monetary policy without causing a lengthy and deep recession

Accepted Answer

A) if the monetary policy change is announced in advance 
B) since workers will increase their work effort as soon as they discover that actual prices are below expected prices 
C) since even unanticipated money supply changes have only a short-lived influence on economic activity and are soon fully reflected in price changes 
D) since people will revise their forecasts of wages and prices as soon as they find out how much money supply has changed 
E) all of the above 
A) if the monetary policy change is announced in advance 
B) since workers will increase their work effort as soon as they discover that actual prices are below expected prices 
C) since even unanticipated money supply changes have only a short-lived influence on economic activity and are soon fully reflected in price changes 
D) since people will revise their forecasts of wages and prices as soon as they find out how much money supply has changed 
E) all of the above

Question 2

Which of the following is a key assumption in Mankiw's model of price stickiness?

Accepted Answer

A) people have adaptive expectations 
B) the private benefits from changing prices are smaller than the social benefits 
C) GDP will never return to trend after a disturbance 
D) firms do not have enough market power to set their own prices 
E) markets always clear immediately 
A) people have adaptive expectations 
B) the private benefits from changing prices are smaller than the social benefits 
C) GDP will never return to trend after a disturbance 
D) firms do not have enough market power to set their own prices 
E) markets always clear immediately

Question 3

The real business cycle theory asserts that

Accepted Answer

A) markets clear fairly rapidly but fluctuations in output occur because of a variety of real shocks that can hit the economy 
B) misguided monetary policy is the main contributor to business cycles 
C) markets cannot clear easily since wages and prices are not very flexible 
D) business cycles occur because firms have incomplete information about relative and absolute prices 
E) firms tend to pay higher than market-clearing wages even at times of high unemployment 
A) markets clear fairly rapidly but fluctuations in output occur because of a variety of real shocks that can hit the economy 
B) misguided monetary policy is the main contributor to business cycles 
C) markets cannot clear easily since wages and prices are not very flexible 
D) business cycles occur because firms have incomplete information about relative and absolute prices 
E) firms tend to pay higher than market-clearing wages even at times of high unemployment

Question 4

According to the real business cycle theory, which of the following will NOT cause real output to change?

Accepted Answer

A) an expected change in money supply 
B) an increase in material prices 
C) a change in labor productivity 
D) a technological advance 
E) new and more efficient methods of production 
A) an expected change in money supply 
B) an increase in material prices 
C) a change in labor productivity 
D) a technological advance 
E) new and more efficient methods of production

Question 5

The Lucas rational expectations model and the frictionless classical model

Accepted Answer

A) both allow for transitory deviation from full employment 
B) both predict that neither fiscal nor monetary policy can affect the equilibrium level of output in the long run 
C) both predict that the short-run outcome will be different depending on whether a policy is anticipated or unanticipated 
D) disagree in one aspect: the classical model assumes that people do not make systematic errors, but Lucas assumes they do 
E) disagree on the long-run outcome of fiscal policy changes 
A) both allow for transitory deviation from full employment 
B) both predict that neither fiscal nor monetary policy can affect the equilibrium level of output in the long run 
C) both predict that the short-run outcome will be different depending on whether a policy is anticipated or unanticipated 
D) disagree in one aspect: the classical model assumes that people do not make systematic errors, but Lucas assumes they do 
E) disagree on the long-run outcome of fiscal policy changes

Question 6

The random walk of GDP model asserts that

Accepted Answer

A) aggregate demand fluctuations are fairly short-lived 
B) aggregate supply shocks tend to have a long-lasting impact 
C) there are frequent transitory demand side shocks but infrequent permanent supply shocks 
D) after a severe supply shock the economy has no tendency to return to the growth trend 
E) all of the above 
A) aggregate demand fluctuations are fairly short-lived 
B) aggregate supply shocks tend to have a long-lasting impact 
C) there are frequent transitory demand side shocks but infrequent permanent supply shocks 
D) after a severe supply shock the economy has no tendency to return to the growth trend 
E) all of the above

Question 7

Even if people have rational expectations,

Accepted Answer

A) unannounced changes in monetary policy can never affect output 
B) unemployment can never go below its natural rate 
C) income tax cuts will have a permanent effect on output 
D) supply shocks will not affect output or pries as long as the central bank accommodates them 
E) money supply changes can affect real output if individuals mistake movements in absolute prices for relative price changes 
A) unannounced changes in monetary policy can never affect output 
B) unemployment can never go below its natural rate 
C) income tax cuts will have a permanent effect on output 
D) supply shocks will not affect output or pries as long as the central bank accommodates them 
E) money supply changes can affect real output if individuals mistake movements in absolute prices for relative price changes

Question 8

The rational expectations approach differs from the perfect foresight approach, since the rational expectations approach assumes that

Accepted Answer

A) the monetary policy multiplier is non-zero in the long run, but only if monetary policy is anticipated 
B) the monetary policy multiplier is non-zero in the long run if monetary policy is unanticipated 
C) the monetary policy multiplier is non-zero in the short run if monetary policy is unanticipated 
D) people make systematic errors 
E) after a disturbance, GDP never returns to trend 
A) the monetary policy multiplier is non-zero in the long run, but only if monetary policy is anticipated 
B) the monetary policy multiplier is non-zero in the long run if monetary policy is unanticipated 
C) the monetary policy multiplier is non-zero in the short run if monetary policy is unanticipated 
D) people make systematic errors 
E) after a disturbance, GDP never returns to trend

Question 9

The dynamic stochastic general equilibrium (DSGE) models assume

Accepted Answer

A) perfectly competitive markets 
B) that prices respond quickly to changes in economic conditions 
C) that economic agents' current decisions are influenced only by current policy changes 
D) a limited ability of firms to adjust prices 
E) that markets tend to clear very slowly 
A) perfectly competitive markets 
B) that prices respond quickly to changes in economic conditions 
C) that economic agents' current decisions are influenced only by current policy changes 
D) a limited ability of firms to adjust prices 
E) that markets tend to clear very slowly

Question 10

The so-called DSGE models assume that

Accepted Answer

A) what happens in the future depends to a large degree on the decisions that economic agents make in the present 
B) people have rationally designed long?term plans and adapt fairly easily to unexpected shocks to the economy 
C) markets tend to clear even though they are not always all perfectly competitive 
D) the forward?looking behavior of economic agents is the result of their rational expectations 
E) all of the above 
A) what happens in the future depends to a large degree on the decisions that economic agents make in the present 
B) people have rationally designed long?term plans and adapt fairly easily to unexpected shocks to the economy 
C) markets tend to clear even though they are not always all perfectly competitive 
D) the forward?looking behavior of economic agents is the result of their rational expectations 
E) all of the above

The rational expectations equilibrium approach claims that the price level can be reduced through restrictive monetary policy without causing a lengthy and deep recession

Which of the following is a key assumption in Mankiw's model of price stickiness?

The real business cycle theory asserts that

According to the real business cycle theory, which of the following will NOT cause real output to change?

The Lucas rational expectations model and the frictionless classical model

The random walk of GDP model asserts that

Even if people have rational expectations,

The rational expectations approach differs from the perfect foresight approach, since the rational expectations approach assumes that

The dynamic stochastic general equilibrium (DSGE) models assume

The so-called DSGE models assume that

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Consumption and saving

Investment spending

The demand for money

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Filters

Exam 24: Advanced topics

The rational expectations equilibrium approach claims that the price level can be reduced through restrictive monetary policy without causing a lengthy and deep recession

Which of the following is a key assumption in Mankiw's model of price stickiness?

The real business cycle theory asserts that

According to the real business cycle theory, which of the following will NOT cause real output to change?

The Lucas rational expectations model and the frictionless classical model

The random walk of GDP model asserts that

Even if people have rational expectations,

The rational expectations approach differs from the perfect foresight approach, since the rational expectations approach assumes that

The dynamic stochastic general equilibrium (DSGE) models assume

The so-called DSGE models assume that

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Consumption and saving

Investment spending

The demand for money

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Filters