Question 1

A correctly anticipated increase in the quantity of money

Accepted Answer

A) increases the price level and increases real GDP. 
B) increases the price level with no change in real GDP. 
C) does not change the price level but increases real GDP. 
D) does not change the price level or real GDP. 
E) does not change the price level but decreases real GDP. 
A) increases the price level and increases real GDP. 
B) increases the price level with no change in real GDP. 
C) does not change the price level but increases real GDP. 
D) does not change the price level or real GDP. 
E) does not change the price level but decreases real GDP.

Question 2

Use the figure below to answer the following questions.
   Figure 12.2.3
-Refer to Figure 12.2.3.Assume that the figure illustrates an economy initially in equilibrium at the intersection of the SAS0 curve and the AD0 curve.If the aggregate demand curve is correctly expected to shift to AD1, new equilibrium real GDP is _______ and the new equilibrium price level is _______.

Accepted Answer

A) $500 billion; 150 
B) $620 billion; 125 
C) $380 billion; 125 
D) $500 billion; 100 
E) $500 billion; 125 
A) $500 billion; 150 
B) $620 billion; 125 
C) $380 billion; 125 
D) $500 billion; 100 
E) $500 billion; 125

Question 3

Stagflation is the result of

Accepted Answer

A) an increase in short- run aggregate supply. 
B) a decrease in short- run aggregate supply. 
C) a decrease in aggregate demand. 
D) a decrease in short- run aggregate supply combined with a simultaneous increase in aggregate supply. 
E) an increase in aggregate demand. 
A) an increase in short- run aggregate supply. 
B) a decrease in short- run aggregate supply. 
C) a decrease in aggregate demand. 
D) a decrease in short- run aggregate supply combined with a simultaneous increase in aggregate supply. 
E) an increase in aggregate demand.

Question 4

Stagflation can result from

Accepted Answer

A) a rightward shift of the short- run aggregate supply curve. 
B) a rightward shift of the long- run aggregate supply curve. 
C) a rightward shift of the demand curve. 
D) a leftward shift of the short- run aggregate supply curve. 
E) a leftward shift of the demand curve. 
A) a rightward shift of the short- run aggregate supply curve. 
B) a rightward shift of the long- run aggregate supply curve. 
C) a rightward shift of the demand curve. 
D) a leftward shift of the short- run aggregate supply curve. 
E) a leftward shift of the demand curve.

Question 5

A correctly anticipated increase in the quantity of money, in an economy with an unchanging long- run aggregate supply, will result in

Accepted Answer

A) no change in the price level and no change in real GDP. 
B) a rise in the price level and a decrease in real GDP. 
C) no change in the price level and an increase in real GDP. 
D) a rise in the price level and an increase in real GDP. 
E) a proportional rise in the price level and no change in real GDP. 
A) no change in the price level and no change in real GDP. 
B) a rise in the price level and a decrease in real GDP. 
C) no change in the price level and an increase in real GDP. 
D) a rise in the price level and an increase in real GDP. 
E) a proportional rise in the price level and no change in real GDP.

Question 6

When the price level is rising and, simultaneously, real GDP is decreasing,

Accepted Answer

A) potential GDP is decreasing. 
B) the natural unemployment rate is rising. 
C) stagflation is occurring. 
D) the economy is experiencing an expansionary gap. 
E) the natural unemployment rate is falling. 
A) potential GDP is decreasing. 
B) the natural unemployment rate is rising. 
C) stagflation is occurring. 
D) the economy is experiencing an expansionary gap. 
E) the natural unemployment rate is falling.

Question 7

Choose the statement that is incorrect.

Accepted Answer

A) The price level falls if aggregate supply increases at a persistently slower rate than aggregate demand. 
B) Deflation can end if the central bank ensures that the quantity of money grows at the target inflation rate plus the growth rate of potential GDP minus the growth rate of the velocity of circulation. 
C) A one- time fall in the price level is not deflation. 
D) An economy experiences deflation when it has a persistently falling price level. 
E) During a period of deflation, the inflation rate is negative. 
A) The price level falls if aggregate supply increases at a persistently slower rate than aggregate demand. 
B) Deflation can end if the central bank ensures that the quantity of money grows at the target inflation rate plus the growth rate of potential GDP minus the growth rate of the velocity of circulation. 
C) A one- time fall in the price level is not deflation. 
D) An economy experiences deflation when it has a persistently falling price level. 
E) During a period of deflation, the inflation rate is negative.

Question 8

Use the figure below to answer the following questions.
   Figure 12.4.1
-Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.What is the natural unemployment rate?

Accepted Answer

A) 6 percent 
B) 7 percent 
C) 4 percent 
D) 9 percent 
E) cannot be determined without more information 
A) 6 percent 
B) 7 percent 
C) 4 percent 
D) 9 percent 
E) cannot be determined without more information

Question 9

Use the figure below to answer the following questions.
   Figure 12.4.1
-Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.If the current inflation rate is 3 percent a year, what is the current unemployment rate?

Accepted Answer

A) 9 percent 
B) 6 percent 
C) 3 percent 
D) 4 percent 
E) cannot be determined without more information 
A) 9 percent 
B) 6 percent 
C) 3 percent 
D) 4 percent 
E) cannot be determined without more information

Question 10

Which of the following are business cycle theories that regard fluctuations in aggregate demand as the factor tha business cycles? I.Keynesian cycle theory
II.real business cycle theory
III.monetarist cycle theory

Accepted Answer

A) I, II and III 
B) I and III 
C) I only 
D) I and II 
E) II and III 
A) I, II and III 
B) I and III 
C) I only 
D) I and II 
E) II and III

Question 11

Use the figure below to answer the following question.
   Figure 12.2.5
-Refer to Figure 12.2.5.Which one of the graphs in the figure represents an economy experiencing stagflation?

Accepted Answer

A) a only 
B) b only 
C) c only 
D) d only 
E) Both a and c 
A) a only 
B) b only 
C) c only 
D) d only 
E) Both a and c

Question 12

Use the figure below to answer the following questions.
   Figure 12.2.6
-Refer to Figure 12.2.6.Starting at point A, the initial effect of a cost- push inflation is a move to point _______.As a cost- push inflation spiral proceeds, it follows the path _______.

Accepted Answer

A) C; E, H, I 
B) B; D, G, I 
C) E; I 
D) C; B, H, G, I 
E) B; E, G, I 
A) C; E, H, I 
B) B; D, G, I 
C) E; I 
D) C; B, H, G, I 
E) B; E, G, I

Question 13

The new classical theory argues that the primary factor leading to business cycles is

Accepted Answer

A) unexpected fluctuations in short- run aggregate supply. 
B) expected fluctuations in aggregate demand. 
C) unexpected fluctuations in long- run aggregate supply. 
D) unexpected fluctuations in aggregate demand. 
E) expected fluctuations in short- run aggregate supply. 
A) unexpected fluctuations in short- run aggregate supply. 
B) expected fluctuations in aggregate demand. 
C) unexpected fluctuations in long- run aggregate supply. 
D) unexpected fluctuations in aggregate demand. 
E) expected fluctuations in short- run aggregate supply.

Question 14

Choose the statement that is incorrect.

Accepted Answer

A) A one- time fall in the price level occurs either because aggregate demand decreases or because short- run aggregate supply increases. 
B) In a deflation, the inflation rate is positive but decreasing in consequent years. 
C) A one- time fall in the price level occurs when there is an increase in capital that increases potential GDP. 
D) In a deflation, the price level persistently falls. 
E) A one- time fall in the price level is not a deflation. 
A) A one- time fall in the price level occurs either because aggregate demand decreases or because short- run aggregate supply increases. 
B) In a deflation, the inflation rate is positive but decreasing in consequent years. 
C) A one- time fall in the price level occurs when there is an increase in capital that increases potential GDP. 
D) In a deflation, the price level persistently falls. 
E) A one- time fall in the price level is not a deflation.

Question 15

According to the real business cycle theory, what effects follow from a change in productivity? I.Investment demand changes.
II.The demand for labour changes.
III.Government expenditure changes.

Accepted Answer

A) I 
B) I and II 
C) I and III 
D) II and III 
E) I, II and III 
A) I 
B) I and II 
C) I and III 
D) II and III 
E) I, II and III

Question 16

Use the figure below to answer the following questions.
   Figure 12.2.2
-Refer to Figure 12.2.2.If the short- run aggregate supply curve does not shift, and remains at SAS0, then the expected inflation rate is

Accepted Answer

A) 15 percent. 
B) zero. 
C) 10 percent. 
D) - 10 percent. 
E) 5 percent. 
A) 15 percent. 
B) zero. 
C) 10 percent. 
D) - 10 percent. 
E) 5 percent.

Question 17

The economy starts out at a full- employment equilibrium.Some events then occur that generate a demand- pull inflation.All of the following events except an increase in _______ might start a demand- pull inflation.

Accepted Answer

A) government expenditure 
B) transfer payments 
C) the quantity of money 
D) exports 
E) the money wage rate 
A) government expenditure 
B) transfer payments 
C) the quantity of money 
D) exports 
E) the money wage rate

Question 18

The short- run Phillips curve shows the relationship between _______, holding constant the expected inflation rate and the natural unemployment rate.

Accepted Answer

A) the inflation rate and the growth of the money wage rate. 
B) the inflation rate and the unemployment rate 
C) the inflation rate and the economic growth rate 
D) growth and potential GDP. 
E) unemployment and the economic growth rate 
A) the inflation rate and the growth of the money wage rate. 
B) the inflation rate and the unemployment rate 
C) the inflation rate and the economic growth rate 
D) growth and potential GDP. 
E) unemployment and the economic growth rate

Question 19

Use the table below to answer the following questions.
Table 12.4.1  
-Refer to Table 12.4.1.The table gives points on a short- run Phillips curve.If the expected inflation rate is 10 percent, and the inflation rate unexpectedly rises to 12 percent and stays there for some period of time, the expected inflation rate becomes _______ percent a year and the natural unemployment rate is _______ percent.

Accepted Answer

A) 10; 6 
B) 10; 4 
C) 12; 4 
D) 12; 5 
E) 12; 6 
A) 10; 6 
B) 10; 4 
C) 12; 4 
D) 12; 5 
E) 12; 6

Question 20

Use the figure below to answer the following questions.
   Figure 12.2.2
-Refer to Figure 12.2.2.If SAS shifts from SAS0 to SAS1, then

Accepted Answer

A) inflation will be 10 percent. 
B) unemployment will fall. 
C) potential GDP will decrease 
D) deflation occurs. 
E) inflation is expected to be 10 percent. 
A) inflation will be 10 percent. 
B) unemployment will fall. 
C) potential GDP will decrease 
D) deflation occurs. 
E) inflation is expected to be 10 percent.

A correctly anticipated increase in the quantity of money

Stagflation is the result of

Stagflation can result from

A correctly anticipated increase in the quantity of money, in an economy with an unchanging long- run aggregate supply, will result in

When the price level is rising and, simultaneously, real GDP is decreasing,

Choose the statement that is incorrect.

Use the figure below to answer the following questions. Figure 12.4.1 -Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.What is the natural unemployment rate?

Use the figure below to answer the following questions. Figure 12.4.1 -Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.If the current inflation rate is 3 percent a year, what is the current unemployment rate?

Which of the following are business cycle theories that regard fluctuations in aggregate demand as the factor tha business cycles? I.Keynesian cycle theory II.real business cycle theory III.monetarist cycle theory

Use the figure below to answer the following question. Figure 12.2.5 -Refer to Figure 12.2.5.Which one of the graphs in the figure represents an economy experiencing stagflation?

Use the figure below to answer the following questions. Figure 12.2.6 -Refer to Figure 12.2.6.Starting at point A, the initial effect of a cost- push inflation is a move to point _.As a cost- push inflation spiral proceeds, it follows the path _.

The new classical theory argues that the primary factor leading to business cycles is

Choose the statement that is incorrect.

According to the real business cycle theory, what effects follow from a change in productivity? I.Investment demand changes. II.The demand for labour changes. III.Government expenditure changes.

Use the figure below to answer the following questions. Figure 12.2.2 -Refer to Figure 12.2.2.If the short- run aggregate supply curve does not shift, and remains at SAS₀, then the expected inflation rate is

The economy starts out at a full- employment equilibrium.Some events then occur that generate a demand- pull inflation.All of the following events except an increase in _______ might start a demand- pull inflation.

The short- run Phillips curve shows the relationship between _______, holding constant the expected inflation rate and the natural unemployment rate.

Use the figure below to answer the following questions. Figure 12.2.2 -Refer to Figure 12.2.2.If SAS shifts from SAS₀to SAS₁, then

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 12: The Business Cycle, Inflation, and Deflation

A correctly anticipated increase in the quantity of money

Stagflation is the result of

Stagflation can result from

A correctly anticipated increase in the quantity of money, in an economy with an unchanging long- run aggregate supply, will result in

When the price level is rising and, simultaneously, real GDP is decreasing,

Choose the statement that is incorrect.

Use the figure below to answer the following questions. Figure 12.4.1 -Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.What is the natural unemployment rate?

Use the figure below to answer the following questions. Figure 12.4.1 -Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.If the current inflation rate is 3 percent a year, what is the current unemployment rate?

Which of the following are business cycle theories that regard fluctuations in aggregate demand as the factor tha business cycles? I.Keynesian cycle theory II.real business cycle theory III.monetarist cycle theory

Use the figure below to answer the following question. Figure 12.2.5 -Refer to Figure 12.2.5.Which one of the graphs in the figure represents an economy experiencing stagflation?

Use the figure below to answer the following questions. Figure 12.2.6 -Refer to Figure 12.2.6.Starting at point A, the initial effect of a cost- push inflation is a move to point _______.As a cost- push inflation spiral proceeds, it follows the path _______.

The new classical theory argues that the primary factor leading to business cycles is

Choose the statement that is incorrect.

According to the real business cycle theory, what effects follow from a change in productivity? I.Investment demand changes. II.The demand for labour changes. III.Government expenditure changes.

Use the figure below to answer the following questions. Figure 12.2.2 -Refer to Figure 12.2.2.If the short- run aggregate supply curve does not shift, and remains at SAS0, then the expected inflation rate is

The economy starts out at a full- employment equilibrium.Some events then occur that generate a demand- pull inflation.All of the following events except an increase in _______ might start a demand- pull inflation.

The short- run Phillips curve shows the relationship between _______, holding constant the expected inflation rate and the natural unemployment rate.

Use the figure below to answer the following questions. Figure 12.2.2 -Refer to Figure 12.2.2.If SAS shifts from SAS0 to SAS1, then

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Use the figure below to answer the following questions. Figure 12.2.6 -Refer to Figure 12.2.6.Starting at point A, the initial effect of a cost- push inflation is a move to point _.As a cost- push inflation spiral proceeds, it follows the path _.

Use the figure below to answer the following questions. Figure 12.2.2 -Refer to Figure 12.2.2.If the short- run aggregate supply curve does not shift, and remains at SAS₀, then the expected inflation rate is

Use the figure below to answer the following questions. Figure 12.2.2 -Refer to Figure 12.2.2.If SAS shifts from SAS₀to SAS₁, then