Question 1

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 2

Which of the following would lead to lower inflation in the long run?

Accepted Answer

A)  An increase in business confidence 
B)  An increase in government spending 
C)  An increase in oil prices 
D)  A decrease in imports 
E)  A decrease in consumer confidence 
A)  An increase in business confidence 
B)  An increase in government spending 
C)  An increase in oil prices 
D)  A decrease in imports 
E)  A decrease in consumer confidence

Question 3

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 4

Compared to the baseline, the long-run effect of a monetary policy change to reduce the rate of inflation is for there to be

Accepted Answer

A)  an increase in investment and net exports along with a decrease in consumption. 
B)  an increase in consumption, a decrease in investment, and no change in net exports. 
C)  an increase in consumption and net exports and a decrease in investment. 
D)  no change in consumption, investment, and net exports. 
E)  no change in consumption and investment, but a decrease in net exports. 
A)  an increase in investment and net exports along with a decrease in consumption. 
B)  an increase in consumption, a decrease in investment, and no change in net exports. 
C)  an increase in consumption and net exports and a decrease in investment. 
D)  no change in consumption, investment, and net exports. 
E)  no change in consumption and investment, but a decrease in net exports.

Question 5

Exhibit 25-3 $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Inflation } \
\text { (percent) }
\end{array} & \begin{array} { c } 
\text { Real GDP } \
\text { (billions of } \
\text { dollars) }
\end{array} \
\hline 4.5 & 6,700 \
\hline 3.5 & 6,800 \
\hline 2.5 & 6,900 \
\hline 1.5 & 7,000 \
\hline 5 & 7,100 \
\hline
\end{array}$$
-Answer the questions below:
 (A) Is there a urique rate of inflation that carresponts to lang-run equalibrum? Exgalan. What determines the rate of inflation when the econory is at lang-run equilibrium?
(B) Suppose the central bark is interested in stimulating Jrowth in the ecanamy. Shauld it ain far a higher or lower target infletian rate? Will higher frowth be achieved in the shart run and the long run?

Accepted Answer

(A) Na. The target rate of infletion is

Question 6

In the short run, when government purchases decrease, real GDP falls by more than the change in government purchases because

Accepted Answer

A)  prices increase. 
B)  taxes increase. 
C)  consumption decreases. 
D)  investment decreases. 
E)  taxes decrease. 
A)  prices increase. 
B)  taxes increase. 
C)  consumption decreases. 
D)  investment decreases. 
E)  taxes decrease.

Question 7

Suppose real and potential GDP are initially equal. If government purchases change, which of the following best explains what will happen first?

Accepted Answer

A)  Potential GDP will change by the same amount as aggregate expenditure. 
B)  The AD curve will shift. 
C)  Both the AD curve and the IA line will shift. 
D)  The IA line will shift. 
E)  There will be movement along the AD curve. 
A)  Potential GDP will change by the same amount as aggregate expenditure. 
B)  The AD curve will shift. 
C)  Both the AD curve and the IA line will shift. 
D)  The IA line will shift. 
E)  There will be movement along the AD curve.

Question 8

When the Fed changes monetary policy to reduce the rate of inflation, which of the following should occur in the medium run?

Accepted Answer

A)  The AD curve should shift to the right. 
B)  The IA line should shift down. 
C)  The AD curve should shift to the left. 
D)  The IA line should shift up. 
E)  The aggregate expenditure line should shift down. 
A)  The AD curve should shift to the right. 
B)  The IA line should shift down. 
C)  The AD curve should shift to the left. 
D)  The IA line should shift up. 
E)  The aggregate expenditure line should shift down.

Question 9

When government purchases decline, the Fed can prevent a change in inflation or real GDP by increasing the target rate of inflation.

Accepted Answer

A) True 
 B)False

Question 10

The long-run effect of a decrease in government purchases is represented by a rightward shift of the aggregate demand curve as interest rates decline and spending increases.

Accepted Answer

A) True 
 B)False

Question 11

Between 1979 and 1985 the rate of inflation

Accepted Answer

A)  fell from over 20 percent to around 2 percent. 
B)  rose from around 2 percent to over 20 percent. 
C)  remained constant. 
D)  fell from over 10 percent to around 4 percent. 
E)  rose from around 4 percent to over 10 percent. 
A)  fell from over 20 percent to around 2 percent. 
B)  rose from around 2 percent to over 20 percent. 
C)  remained constant. 
D)  fell from over 10 percent to around 4 percent. 
E)  rose from around 4 percent to over 10 percent.

Question 12

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 13

The short-run effect of a change in autonomous expenditures is shown by the AD curve moving along the IA line.

Accepted Answer

A) True 
 B)False

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

The long-run effect of a decrease in government purchases can be described as the period of time when

Accepted Answer

A)  the inflation adjustment line intersects the aggregate demand curve at the level of potential GDP. 
B)  firms are adjusting their prices and inflation is increasing to its new level. 
C)  real GDP is below potential GDP. 
D)  there is no spending balance. 
E)  firms are adjusting their prices and inflation is decreasing to its new level. 
A)  the inflation adjustment line intersects the aggregate demand curve at the level of potential GDP. 
B)  firms are adjusting their prices and inflation is increasing to its new level. 
C)  real GDP is below potential GDP. 
D)  there is no spending balance. 
E)  firms are adjusting their prices and inflation is decreasing to its new level.

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

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 19

In the economic fluctuations model, the so-called long run normally refers to the time it takes for the economy to return to full employment or, in other words, for real GDP to be back to potential GDP.

Accepted Answer

A) True 
 B)False

Question 20

During the early 1980s the Federal Reserve increased the target rate of inflation.

Accepted Answer

A) True 
 B)False

If the Fed thinks inflation is too high, it will

Which of the following would lead to lower inflation in the long run?

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

Compared to the baseline, the long-run effect of a monetary policy change to reduce the rate of inflation is for there to be

In the short run, when government purchases decrease, real GDP falls by more than the change in government purchases because

Suppose real and potential GDP are initially equal. If government purchases change, which of the following best explains what will happen first?

When the Fed changes monetary policy to reduce the rate of inflation, which of the following should occur in the medium run?

When government purchases decline, the Fed can prevent a change in inflation or real GDP by increasing the target rate of inflation.

The long-run effect of a decrease in government purchases is represented by a rightward shift of the aggregate demand curve as interest rates decline and spending increases.

Between 1979 and 1985 the rate of inflation

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

The short-run effect of a change in autonomous expenditures is shown by the AD curve moving along the IA line.

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

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

The long-run effect of a decrease in government purchases can be described as the period of time when

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

The period from 1979 to 1987 is an example of

In the economic fluctuations model, the so-called long run normally refers to the time it takes for the economy to return to full employment or, in other words, for real GDP to be back to potential GDP.

During the early 1980s the Federal Reserve increased the target rate of inflation.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

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

Capital and Financial Markets

Economic Growth Around the World

International Trade

International Finance

Filters

Exam 13: Using the Economic Fluctuations Model

If the Fed thinks inflation is too high, it will

Which of the following would lead to lower inflation in the long run?

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

Compared to the baseline, the long-run effect of a monetary policy change to reduce the rate of inflation is for there to be

In the short run, when government purchases decrease, real GDP falls by more than the change in government purchases because

Suppose real and potential GDP are initially equal. If government purchases change, which of the following best explains what will happen first?

When the Fed changes monetary policy to reduce the rate of inflation, which of the following should occur in the medium run?

When government purchases decline, the Fed can prevent a change in inflation or real GDP by increasing the target rate of inflation.

The long-run effect of a decrease in government purchases is represented by a rightward shift of the aggregate demand curve as interest rates decline and spending increases.

Between 1979 and 1985 the rate of inflation

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

The short-run effect of a change in autonomous expenditures is shown by the AD curve moving along the IA line.

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

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

The long-run effect of a decrease in government purchases can be described as the period of time when

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

The period from 1979 to 1987 is an example of

In the economic fluctuations model, the so-called long run normally refers to the time it takes for the economy to return to full employment or, in other words, for real GDP to be back to potential GDP.

During the early 1980s the Federal Reserve increased the target rate of inflation.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

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

Capital and Financial Markets

Economic Growth Around the World

International Trade

International Finance

Filters