Question 1

New classical economists build their theories upon

Accepted Answer

A)  adaptive expectations. 
B)  inflexible wages and prices. 
C)  rational expectations. 
D)  the assumption that it takes a long time for markets to achieve equilibrium values. 
A)  adaptive expectations. 
B)  inflexible wages and prices. 
C)  rational expectations. 
D)  the assumption that it takes a long time for markets to achieve equilibrium values.

Question 2

Stagflation is the simultaneous occurrence of

Accepted Answer

A)  low inflation and high unemployment. 
B)  high inflation and low unemployment. 
C)  low inflation and low unemployment. 
D)  high inflation and high unemployment. 
A)  low inflation and high unemployment. 
B)  high inflation and low unemployment. 
C)  low inflation and low unemployment. 
D)  high inflation and high unemployment.

Question 3

In which of the following economic theories is it possible for an increase in the money supply to lead to a decrease in Real GDP in the short run?

Accepted Answer

A)  Keynesian theory 
B)  Monetarist theory 
C)  New classical theory 
D)  a and b 
E)  a and c 
A)  Keynesian theory 
B)  Monetarist theory 
C)  New classical theory 
D)  a and b 
E)  a and c

Question 4

According to Milton Friedman,there are two Phillips curves,a short-run one and a long-run one.

Accepted Answer

A) True 
 B)False

Question 5

The Samuelson-Solow version of the Phillips curve showed the relationship between unemployment rates and

Accepted Answer

A)  Real GDP growth rates. 
B)  price inflation rates. 
C)  wage inflation rates. 
D)  imports. 
A)  Real GDP growth rates. 
B)  price inflation rates. 
C)  wage inflation rates. 
D)  imports.

Question 6

One implication of the policy ineffectiveness proposition (PIP)is that expansionary __________ policy is not effective at raising __________.

Accepted Answer

A)  monetary; Real GDP 
B)  monetary; the price level 
C)  fiscal; the price level 
D)  a and b 
E)  a and c 
A)  monetary; Real GDP 
B)  monetary; the price level 
C)  fiscal; the price level 
D)  a and b 
E)  a and c

Question 7

An increase in the actual inflation rate is represented by a

Accepted Answer

A)  movement up and along a given Phillips curve. 
B)  movement down and along a given Phillips curve. 
C)  leftward shift in the Phillips curve. 
D)  rightward shift in the Phillips curve. 
A)  movement up and along a given Phillips curve. 
B)  movement down and along a given Phillips curve. 
C)  leftward shift in the Phillips curve. 
D)  rightward shift in the Phillips curve.

Question 8

Exhibit 16-5
  
-Refer to Exhibit 16-5. If the economy is at point 6,and the natural unemployment rate exists at points 1,4, and 5,it follows that

Accepted Answer

A)  Real GDP is greater than Natural Real GDP. 
B)  Real GDP is less than Natural Real GDP. 
C)  Real GDP is the same as Natural Real GDP. 
D)  the economy is in a recessionary gap. 
E)  b and d 
A)  Real GDP is greater than Natural Real GDP. 
B)  Real GDP is less than Natural Real GDP. 
C)  Real GDP is the same as Natural Real GDP. 
D)  the economy is in a recessionary gap. 
E)  b and d

Question 9

Real business cycle theory emphasizes that an adverse supply shock will shift the LRAS curve leftward and cause a decline in Real GDP.

Accepted Answer

A) True 
 B)False

Question 10

Suppose that the government implements expansionary fiscal policy that raises aggregate demand,but the policy is unanticipated. According to new classical theory,in the short run the price level would ____________ and Real GDP would ______________. In the long run,new classical theory would predict that the price level would ______________ compared to its original long-run equilibrium level and that Real GDP would ____________.

Accepted Answer

A)  rise; decline; rise; remain unchanged 
B)  rise; rise; rise; remain unchanged 
C)  rise; decline; remain unchanged; rise 
D)  fall; rise; remain unchanged; rise 
A)  rise; decline; rise; remain unchanged 
B)  rise; rise; rise; remain unchanged 
C)  rise; decline; remain unchanged; rise 
D)  fall; rise; remain unchanged; rise

Question 11

The difference between new classical theory and new Keynesian theory is that

Accepted Answer

A)  in new classical theory wages are assumed to be flexible, and in new Keynesian theory wages are assumed to be somewhat inflexible. 
B)  in new classical theory wages are assumed to be somewhat inflexible, and in new Keynesian theory wages are assumed to be flexible. 
C)  adaptive expectations is the dominant expectations theory in new classical theory, and rational expectations is the dominant expectations theory in new Keynesian theory. 
D)  in new Keynesian theory the short-run aggregate supply curve is vertical, and in new classical theory the short-run aggregate supply curve is upward sloping. 
A)  in new classical theory wages are assumed to be flexible, and in new Keynesian theory wages are assumed to be somewhat inflexible. 
B)  in new classical theory wages are assumed to be somewhat inflexible, and in new Keynesian theory wages are assumed to be flexible. 
C)  adaptive expectations is the dominant expectations theory in new classical theory, and rational expectations is the dominant expectations theory in new Keynesian theory. 
D)  in new Keynesian theory the short-run aggregate supply curve is vertical, and in new classical theory the short-run aggregate supply curve is upward sloping.

Question 12

In their 1960 article,Paul Samuelson and Robert Solow found

Accepted Answer

A)  a direct relationship between inflation and investment expenditures. 
B)  an inverse relationship between inflation and investment expenditures. 
C)  a direct relationship between inflation and unemployment. 
D)  an inverse relationship between inflation and unemployment. 
A)  a direct relationship between inflation and investment expenditures. 
B)  an inverse relationship between inflation and investment expenditures. 
C)  a direct relationship between inflation and unemployment. 
D)  an inverse relationship between inflation and unemployment.

Question 13

The real business cycle theory focuses on the impact that changes in long-run aggregate supply will have on the business cycle.

Accepted Answer

A) True 
 B)False

Question 14

Under new Keynesian theory,a correctly anticipated decrease in aggregate demand will lead to __________ in Real GDP and __________ in the price level.

Accepted Answer

A)  a decrease; a decrease 
B)  no change; an increase 
C)  no change; no change 
D)  an increase; an increase 
E)  an increase; no change 
A)  a decrease; a decrease 
B)  no change; an increase 
C)  no change; no change 
D)  an increase; an increase 
E)  an increase; no change

Question 15

The Friedman natural rate theory holds that there is an inverse relationship between inflation and unemployment in the long run,but not in the short run.

Accepted Answer

A) True 
 B)False

Question 16

The Phillips curve that Samuelson and Solow fitted to their data was

Accepted Answer

A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal. 
A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal.

Question 17

According to a new Keynesian theorist,a correctly anticipated increase in aggregate demand will

Accepted Answer

A)  cause the price level to increase by a greater amount in the short run than what a new classical rational expectations theorist would predict. 
B)  cause the price level to increase by a smaller amount in the short run than what a new classical rational expectations theorist would predict. 
C)  cause the price level to increase by the same amount in the short run that a new classical rational expectations theorist would predict. 
D)  leave the price level unchanged in the short run, but Real GDP will increase more than what a new classical theorist would predict. 
E)  leave the price level unchanged in the short run, but Real GDP will increase less than what a new classical theorist would predict. 
A)  cause the price level to increase by a greater amount in the short run than what a new classical rational expectations theorist would predict. 
B)  cause the price level to increase by a smaller amount in the short run than what a new classical rational expectations theorist would predict. 
C)  cause the price level to increase by the same amount in the short run that a new classical rational expectations theorist would predict. 
D)  leave the price level unchanged in the short run, but Real GDP will increase more than what a new classical theorist would predict. 
E)  leave the price level unchanged in the short run, but Real GDP will increase less than what a new classical theorist would predict.

Question 18

According to the original Phillips curve,the cost of reducing the unemployment rate in the short run is a

Accepted Answer

A)  fall in Real GDP. 
B)  fall in nominal GDP. 
C)  lower rate of price inflation. 
D)  higher rate of wage inflation. 
A)  fall in Real GDP. 
B)  fall in nominal GDP. 
C)  lower rate of price inflation. 
D)  higher rate of wage inflation.

Question 19

One of the arguments supporting new classical theory is the policy ineffectiveness proposition (PIP).

Accepted Answer

A) True 
 B)False

Question 20

New classical economists believe that there is

Accepted Answer

A)  a short-run tradeoff between inflation and unemployment when policy is unanticipated. 
B)  a short-run tradeoff between inflation and unemployment when policy is correctly anticipated. 
C)  no short-run tradeoff between inflation and unemployment when policy is correctly anticipated. 
D)  a and b 
E)  a and c 
A)  a short-run tradeoff between inflation and unemployment when policy is unanticipated. 
B)  a short-run tradeoff between inflation and unemployment when policy is correctly anticipated. 
C)  no short-run tradeoff between inflation and unemployment when policy is correctly anticipated. 
D)  a and b 
E)  a and c

Exam 16: Expectations Theory and the Economy

New classical economists build their theories upon

Stagflation is the simultaneous occurrence of

In which of the following economic theories is it possible for an increase in the money supply to lead to a decrease in Real GDP in the short run?

According to Milton Friedman,there are two Phillips curves,a short-run one and a long-run one.

The Samuelson-Solow version of the Phillips curve showed the relationship between unemployment rates and

One implication of the policy ineffectiveness proposition (PIP)is that expansionary __________ policy is not effective at raising __________.

An increase in the actual inflation rate is represented by a

Exhibit 16-5 -Refer to Exhibit 16-5. If the economy is at point 6,and the natural unemployment rate exists at points 1,4, and 5,it follows that

Real business cycle theory emphasizes that an adverse supply shock will shift the LRAS curve leftward and cause a decline in Real GDP.

The difference between new classical theory and new Keynesian theory is that

In their 1960 article,Paul Samuelson and Robert Solow found

The real business cycle theory focuses on the impact that changes in long-run aggregate supply will have on the business cycle.

Under new Keynesian theory,a correctly anticipated decrease in aggregate demand will lead to __________ in Real GDP and __________ in the price level.

The Friedman natural rate theory holds that there is an inverse relationship between inflation and unemployment in the long run,but not in the short run.

The Phillips curve that Samuelson and Solow fitted to their data was

According to a new Keynesian theorist,a correctly anticipated increase in aggregate demand will

According to the original Phillips curve,the cost of reducing the unemployment rate in the short run is a

One of the arguments supporting new classical theory is the policy ineffectiveness proposition (PIP).

New classical economists believe that there is

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

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Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

One implication of the policy ineffectiveness proposition (PIP)is that expansionary policy is not effective at raising .

Under new Keynesian theory,a correctly anticipated decrease in aggregate demand will lead to in Real GDP and in the price level.