Question 1

If real GDP is below potential GDP,

Accepted Answer

A)  long-run equilibrium will be achieved once the aggregate demand curve shifts to the right. 
B)  the economy is in a short-run equilibrium. 
C)  long-run equilibrium will be achieved once inflation has stopped declining. 
D)  the economy is in a medium-run equilibrium. 
E)  long-run equilibrium will be achieved once prices have stopped declining. 
A)  long-run equilibrium will be achieved once the aggregate demand curve shifts to the right. 
B)  the economy is in a short-run equilibrium. 
C)  long-run equilibrium will be achieved once inflation has stopped declining. 
D)  the economy is in a medium-run equilibrium. 
E)  long-run equilibrium will be achieved once prices have stopped declining.

Question 2

Exhibit 25-2  
-According to Exhibit 25-2, which point best represents where the U.S. economy was in 2009?

Accepted Answer

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

Question 3

Stagflation refers to the situation in which inflation is up and real GDP is down.

Accepted Answer

A) True 
 B)False

Question 4

When the Volcker disinflation began,

Accepted Answer

A)  the rate of inflation rose to over 20 percent. 
B)  the rate of inflation fell to 1 percent. 
C)  the federal funds rate had risen above 20 percent. 
D)  the federal funds rate fell to 2 percent. 
E)  the rate of inflation became negative. 
A)  the rate of inflation rose to over 20 percent. 
B)  the rate of inflation fell to 1 percent. 
C)  the federal funds rate had risen above 20 percent. 
D)  the federal funds rate fell to 2 percent. 
E)  the rate of inflation became negative.

Question 5

The short run is usually

Accepted Answer

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

Question 6

A price shock is

Accepted Answer

A)  a shift in the aggregate demand curve. 
B)  the same as a demand shock. 
C)  a change in potential GDP. 
D)  the same as a supply shock. 
E)  a shift in the inflation adjustment line. 
A)  a shift in the aggregate demand curve. 
B)  the same as a demand shock. 
C)  a change in potential GDP. 
D)  the same as a supply shock. 
E)  a shift in the inflation adjustment line.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Among the factors that might have led to the outbreak of the 2007-09 recession, which most likely caused a shift of the IA line instead of the AD curve?

Accepted Answer

A)  Sharp increases in commodity prices. 
B)  Credit crunch. 
C)  Financial crisis. 
D)  Collapse of the housing bubble. 
E)  Stock market collapse. 
A)  Sharp increases in commodity prices. 
B)  Credit crunch. 
C)  Financial crisis. 
D)  Collapse of the housing bubble. 
E)  Stock market collapse.

Question 9

Draw an aggregate demand inflation adjustment diagram that illustrates the path of inflation and the percentage deviation of real GDP from potential for the U.S. economy from 2007 to 2009.

Accepted Answer

The spending boom caused by rising housi

Question 10

When government purchases decrease, the short-run effect can be described as the period of time when

Accepted Answer

A)  there is no spending balance. 
B)  inflation is constant. 
C)  real GDP and inflation are adjusting to their new long-run levels. 
D)  real GDP is below potential GDP. 
E)  the inflation adjustment line has not reached the new intersection of aggregate demand at the level of potential GDP. 
A)  there is no spending balance. 
B)  inflation is constant. 
C)  real GDP and inflation are adjusting to their new long-run levels. 
D)  real GDP is below potential GDP. 
E)  the inflation adjustment line has not reached the new intersection of aggregate demand at the level of potential GDP.

Question 11

Which of the following was not a factor that led to the recession that began at the end of 2007?

Accepted Answer

A)  Commodity price inflation. 
B)  Increased government expenditure due to a war. 
C)  Financial crisis. 
D)  Collapse of the housing bubble. 
E)  Stock market collapse. 
A)  Commodity price inflation. 
B)  Increased government expenditure due to a war. 
C)  Financial crisis. 
D)  Collapse of the housing bubble. 
E)  Stock market collapse.

Question 12

Suppose the relationship between real GDP and inflation is depicted as shown in the table below. Assume that real and potential GDP are equal to each other at $5,400 billion. Suppose government purchases decline by $100 billion and the slope of the aggregate expenditure line is 0.5. $$\begin{array} { | c | c | c | c | c | c | } 
\hline \text { Inflation } & 9 & 7 & 5 & 3 & 1 \
\hline \text { Real GDP } & 5,200 & 5,300 & 5,400 & 5,500 & 5,600 \
\hline
\end{array}$$ (A) Esplan how the $A D$ curve is affected by this change. In the shart run, what will real GDP and the rate of inflation be?
(B) Using the $A D$ and $L A$ curves, show what will heppen in the mediun run Be sure to grive an economic exalanation far what is happening
(C) Using the $A D$ and $L A$ curves, show what will happen in the lang run.

Accepted Answer

(A) The @#LAT-DLM& curve will shift to the left. F

Question 13

What is meant by the term stagflation?

Accepted Answer

Stagflation is the word used to describe

Question 14

A supply shock is exactly the opposite of a price shock.

Accepted Answer

A) True 
 B)False

Question 15

Explain why the rate of inflation does not change in the long run as a result of a price shock.

Accepted Answer

This is because the AD curve d

Question 16

Which of the following descriptions best depicts the short-run effect of a leftward shift of the monetary policy line?

Accepted Answer

A)  An increase in the rate of interest and a decline in both the rate of inflation and real GDP 
B)  A decline in both the rate of inflation and the rate of interest, along with an increase in real GDP 
C)  An increase in the rate of interest, no change in the rate of inflation, and a decline in real GDP 
D)  A decline in real GDP and no change in either the rate of inflation or the rate of interest 
E)  A decline in the rate of inflation, the rate of interest, and real GDP 
A)  An increase in the rate of interest and a decline in both the rate of inflation and real GDP 
B)  A decline in both the rate of inflation and the rate of interest, along with an increase in real GDP 
C)  An increase in the rate of interest, no change in the rate of inflation, and a decline in real GDP 
D)  A decline in real GDP and no change in either the rate of inflation or the rate of interest 
E)  A decline in the rate of inflation, the rate of interest, and real GDP

Question 17

A price shock is the same as a demand shock.

Accepted Answer

A) True 
 B)False

Question 18

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 medium run,

Accepted Answer

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

Question 19

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 20

The long-run effect of increased government purchases is that the sum of consumption, investment, and net exports will be lower than it would be in the baseline case.

Accepted Answer

A) True 
 B)False

If real GDP is below potential GDP,

Exhibit 25-2 -According to Exhibit 25-2, which point best represents where the U.S. economy was in 2009?

Stagflation refers to the situation in which inflation is up and real GDP is down.

When the Volcker disinflation began,

The short run is usually

A price shock is

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

Among the factors that might have led to the outbreak of the 2007-09 recession, which most likely caused a shift of the IA line instead of the AD curve?

Draw an aggregate demand inflation adjustment diagram that illustrates the path of inflation and the percentage deviation of real GDP from potential for the U.S. economy from 2007 to 2009.

When government purchases decrease, the short-run effect can be described as the period of time when

Which of the following was not a factor that led to the recession that began at the end of 2007?

What is meant by the term stagflation?

A supply shock is exactly the opposite of a price shock.

Explain why the rate of inflation does not change in the long run as a result of a price shock.

Which of the following descriptions best depicts the short-run effect of a leftward shift of the monetary policy line?

A price shock is the same as a demand shock.

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 medium run,

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

The long-run effect of increased government purchases is that the sum of consumption, investment, and net exports will be lower than it would be in the baseline case.

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 real GDP is below potential GDP,

Exhibit 25-2 -According to Exhibit 25-2, which point best represents where the U.S. economy was in 2009?

Stagflation refers to the situation in which inflation is up and real GDP is down.

When the Volcker disinflation began,

The short run is usually

A price shock is

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

Among the factors that might have led to the outbreak of the 2007-09 recession, which most likely caused a shift of the IA line instead of the AD curve?

Draw an aggregate demand inflation adjustment diagram that illustrates the path of inflation and the percentage deviation of real GDP from potential for the U.S. economy from 2007 to 2009.

When government purchases decrease, the short-run effect can be described as the period of time when

Which of the following was not a factor that led to the recession that began at the end of 2007?

What is meant by the term stagflation?

A supply shock is exactly the opposite of a price shock.

Explain why the rate of inflation does not change in the long run as a result of a price shock.

Which of the following descriptions best depicts the short-run effect of a leftward shift of the monetary policy line?

A price shock is the same as a demand shock.

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 medium run,

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

The long-run effect of increased government purchases is that the sum of consumption, investment, and net exports will be lower than it would be in the baseline case.

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