Question 1

According to real business cycle theory, changes in real GDP are caused by

Accepted Answer

A)  increases in aggregate demand. 
B)  political changes. 
C)  changes in the consumption level. 
D)  changes in government spending. 
E)  changes in technology. 
A)  increases in aggregate demand. 
B)  political changes. 
C)  changes in the consumption level. 
D)  changes in government spending. 
E)  changes in technology.

Question 2

The inflationary experience of the United States during the 1970s can be interpreted as a time when the Fed increased the target rate of inflation.

Accepted Answer

A) True 
 B)False

Question 3

The long-run effect of an increase in oil prices is a

Accepted Answer

A)  fall in potential GDP. 
B)  lengthy recession until circumstances change and the aggregate demand curve shifts to the right. 
C)  permanent increase in inflation. 
D)  lengthy recession until the Fed changes monetary policy and the aggregate demand curve shifts to the right. 
E)  downward movement of the inflation adjustment line until the rate of inflation returns to the baseline rate. 
A)  fall in potential GDP. 
B)  lengthy recession until circumstances change and the aggregate demand curve shifts to the right. 
C)  permanent increase in inflation. 
D)  lengthy recession until the Fed changes monetary policy and the aggregate demand curve shifts to the right. 
E)  downward movement of the inflation adjustment line until the rate of inflation returns to the baseline rate.

Question 4

What is the difference between a temporary growth slowdown and a recession?

Accepted Answer

During a temporary growth slow

Question 5

The leftward shift of the AD curve during 2007 occurred partly because of

Accepted Answer

A)  higher net exports. 
B)  a balanced federal government budget. 
C)  an increase in consumer confidence. 
D)  a stock market crash. 
E)  the Fed lowering interest rates. 
A)  higher net exports. 
B)  a balanced federal government budget. 
C)  an increase in consumer confidence. 
D)  a stock market crash. 
E)  the Fed lowering interest rates.

Question 6

The economic fluctuations model is used by economists to determine the path the economy takes after a shift in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 7

An increase in government purchases

Accepted Answer

A)  has a positive effect on real GDP in the long run. 
B)  has a negative effect on real GDP in the long run. 
C)  results in a lower rate of inflation in the long run. 
D)  results in lower interest rates in the long run. 
E)  results in a higher rate of inflation in the long run. 
A)  has a positive effect on real GDP in the long run. 
B)  has a negative effect on real GDP in the long run. 
C)  results in a lower rate of inflation in the long run. 
D)  results in lower interest rates in the long run. 
E)  results in a higher rate of inflation in the long run.

Question 8

Which of the following is another term for the recovery period?

Accepted Answer

A)  Medium run 
B)  Recession 
C)  Short run 
D)  Boom 
E)  Long run 
A)  Medium run 
B)  Recession 
C)  Short run 
D)  Boom 
E)  Long run

Question 9

If government purchases decline, during the medium run consumption will be below its baseline level while net exports and investment will be above their baseline levels.

Accepted Answer

A) True 
 B)False

Question 10

The long-run effect of a change in government spending will not cause real GDP to differ from its baseline value. However, in the long run, the values of the individual components of aggregate expenditure will differ from their baseline values. Why is this the case?

Accepted Answer

The change in government purch

Question 11

The medium-run effect of a monetary policy that seeks to lower the rate of inflation is best depicted by

Accepted Answer

A)  the AD curve shifting to the right. 
B)  an upward movement of the IA line. 
C)  an upward movement along the AD curve. 
D)  a downward movement along the AD curve. 
E)  the AD curve shifting to the left. 
A)  the AD curve shifting to the right. 
B)  an upward movement of the IA line. 
C)  an upward movement along the AD curve. 
D)  a downward movement along the AD curve. 
E)  the AD curve shifting to the left.

Question 12

Exhibit 25-2  
-According to Exhibit 25-2, which of the following best describes the path followed by the U.S. economy during recent economic fluctuations?

Accepted Answer

A)  FCBAD 
B)  FCGBA 
C)  CBADE 
D)  CGBED 
E)  CGBEF 
A)  FCBAD 
B)  FCGBA 
C)  CBADE 
D)  CGBED 
E)  CGBEF

Question 13

The IA line does not shift in the short run because

Accepted Answer

A)  real and potential GDP are not equal. 
B)  potential GDP does not change. 
C)  of expectations and staggered wage and price adjustment. 
D)  real GDP does not change. 
E)  there is no spending balance. 
A)  real and potential GDP are not equal. 
B)  potential GDP does not change. 
C)  of expectations and staggered wage and price adjustment. 
D)  real GDP does not change. 
E)  there is no spending balance.

Question 14

The head of the Federal Reserve from 1979 through 1987 was

Accepted Answer

A)  Alan Greenspan. 
B)  Ben Bernanke. 
C)  Paul Volcker. 
D)  Robert Lucas. 
E)  Milton Friedman. 
A)  Alan Greenspan. 
B)  Ben Bernanke. 
C)  Paul Volcker. 
D)  Robert Lucas. 
E)  Milton Friedman.

Question 15

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

Accepted Answer

A)  A large shift in the AD curve 
B)  A large shift in the aggregate expenditure line 
C)  A shift in potential GDP 
D)  A large change in a key commodity price 
E)  A shift in the monetary policy rule line 
A)  A large shift in the AD curve 
B)  A large shift in the aggregate expenditure line 
C)  A shift in potential GDP 
D)  A large change in a key commodity price 
E)  A shift in the monetary policy rule line

Question 16

The United States economy never recovered from the recession brought about by the Volcker disinflation.

Accepted Answer

A) True 
 B)False

Question 17

The housing bubble and bust was partly caused by the Fed's policy of keeping low interest rates.

Accepted Answer

A) True 
 B)False

Question 18

According to the economic fluctuations model, what would happen if real GDP went above potential GDP?

Accepted Answer

This situation is sometimes known as an

Question 19

Explain what effect a monetary policy designed to bring about disinflation would have on the economy. Be sure to discuss what happens in the short run, the medium run, and the long run.

Accepted Answer

The short-run effect is for the monetary

Question 20

If government spending decreases, the long-run income effect on net exports and consumption will be the same as in the baseline case.

Accepted Answer

A) True 
 B)False

According to real business cycle theory, changes in real GDP are caused by

The inflationary experience of the United States during the 1970s can be interpreted as a time when the Fed increased the target rate of inflation.

The long-run effect of an increase in oil prices is a

What is the difference between a temporary growth slowdown and a recession?

The leftward shift of the AD curve during 2007 occurred partly because of

The economic fluctuations model is used by economists to determine the path the economy takes after a shift in aggregate demand.

An increase in government purchases

Which of the following is another term for the recovery period?

If government purchases decline, during the medium run consumption will be below its baseline level while net exports and investment will be above their baseline levels.

The long-run effect of a change in government spending will not cause real GDP to differ from its baseline value. However, in the long run, the values of the individual components of aggregate expenditure will differ from their baseline values. Why is this the case?

The medium-run effect of a monetary policy that seeks to lower the rate of inflation is best depicted by

Exhibit 25-2 -According to Exhibit 25-2, which of the following best describes the path followed by the U.S. economy during recent economic fluctuations?

The IA line does not shift in the short run because

The head of the Federal Reserve from 1979 through 1987 was

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

The United States economy never recovered from the recession brought about by the Volcker disinflation.

The housing bubble and bust was partly caused by the Fed's policy of keeping low interest rates.

According to the economic fluctuations model, what would happen if real GDP went above potential GDP?

Explain what effect a monetary policy designed to bring about disinflation would have on the economy. Be sure to discuss what happens in the short run, the medium run, and the long run.

If government spending decreases, the long-run income effect on net exports and consumption will be the same as 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

According to real business cycle theory, changes in real GDP are caused by

The inflationary experience of the United States during the 1970s can be interpreted as a time when the Fed increased the target rate of inflation.

The long-run effect of an increase in oil prices is a

What is the difference between a temporary growth slowdown and a recession?

The leftward shift of the AD curve during 2007 occurred partly because of

The economic fluctuations model is used by economists to determine the path the economy takes after a shift in aggregate demand.

An increase in government purchases

Which of the following is another term for the recovery period?

If government purchases decline, during the medium run consumption will be below its baseline level while net exports and investment will be above their baseline levels.

The long-run effect of a change in government spending will not cause real GDP to differ from its baseline value. However, in the long run, the values of the individual components of aggregate expenditure will differ from their baseline values. Why is this the case?

The medium-run effect of a monetary policy that seeks to lower the rate of inflation is best depicted by

Exhibit 25-2 -According to Exhibit 25-2, which of the following best describes the path followed by the U.S. economy during recent economic fluctuations?

The IA line does not shift in the short run because

The head of the Federal Reserve from 1979 through 1987 was

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

The United States economy never recovered from the recession brought about by the Volcker disinflation.

The housing bubble and bust was partly caused by the Fed's policy of keeping low interest rates.

According to the economic fluctuations model, what would happen if real GDP went above potential GDP?

Explain what effect a monetary policy designed to bring about disinflation would have on the economy. Be sure to discuss what happens in the short run, the medium run, and the long run.

If government spending decreases, the long-run income effect on net exports and consumption will be the same as 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