Question 1

Real business cycle theories emphasize price shocks.

Accepted Answer

A) True 
 B)False

Question 2

What is the difference between deflation and disinflation?

Accepted Answer

A)  Deflation is used in microeconomics, whereas disinflation is used in macroeconomics. 
B)  Deflation refers to changes in expected inflation, while disinflation refers to changes in the actual rate of inflation. 
C)  Deflation refers to a decrease in the overall price level, or negative inflation, while disinflation simply refers to a decrease in the inflation rate. 
D)  There is no difference between these two concepts; they are synonyms. 
A)  Deflation is used in microeconomics, whereas disinflation is used in macroeconomics. 
B)  Deflation refers to changes in expected inflation, while disinflation refers to changes in the actual rate of inflation. 
C)  Deflation refers to a decrease in the overall price level, or negative inflation, while disinflation simply refers to a decrease in the inflation rate. 
D)  There is no difference between these two concepts; they are synonyms.

Question 3

Disinflation most likely occurs when

Accepted Answer

A)  output grows at an increasing rate over time.. 
B)  output grows at a decreasing rate over time. 
C)  output growth becomes negative. 
D)  the overall price level declines over time. 
E)  the overall price level is negative. 
A)  output grows at an increasing rate over time.. 
B)  output grows at a decreasing rate over time. 
C)  output growth becomes negative. 
D)  the overall price level declines over time. 
E)  the overall price level is negative.

Question 4

Exhibit 25-1  
-Suppose the economy is initially at point A in Exhibit 25-1. If government purchases increase, which point best depicts where the economy will be in the medium run as a result of the change in spending?

Accepted Answer

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

Question 5

The long-run income effect (the effect of real GDP changes on spending) of decreased government purchases is that consumption

Accepted Answer

A)  is higher. 
B)  is the same, investment is higher, and net exports are lower. 
C)  and net exports are the same. 
D)  and net exports are lower. 
E)  is higher, and investment is higher. 
A)  is higher. 
B)  is the same, investment is higher, and net exports are lower. 
C)  and net exports are the same. 
D)  and net exports are lower. 
E)  is higher, and investment is higher.

Question 6

The long-run effects of an increase in government purchases are that interest rates will ____, inflation will ____, and real GDP will ____.

Accepted Answer

A)  decrease; decrease; remain unchanged 
B)  increase; increase; remain unchanged 
C)  remain unchanged; increase; remain unchanged 
D)  increas 
E)  decreas 
A)  decrease; decrease; remain unchanged 
B)  increase; increase; remain unchanged 
C)  remain unchanged; increase; remain unchanged 
D)  increas 
E)  decreas

Question 7

Suppose government purchases have decreased and the economy has reached a new long-run equilibrium. Which of the following best describes the new equilibrium?

Accepted Answer

A)  Nothing has changed because real GDP is again equal to potential GDP. 
B)  Consumers are better off because taxes are lower. 
C)  The economy is growing more rapidly because investment is higher. 
D)  The economy is better off because consumption is higher. 
E)  The economy is growing more slowly because consumption is higher. 
A)  Nothing has changed because real GDP is again equal to potential GDP. 
B)  Consumers are better off because taxes are lower. 
C)  The economy is growing more rapidly because investment is higher. 
D)  The economy is better off because consumption is higher. 
E)  The economy is growing more slowly because consumption is higher.

Question 8

Explain how two shifts in the aggregate demand curve help explain economic fluctuations in the United States from early 2000s through early 2009.

Accepted Answer

The rapid increase in housing prices dur

Question 9

If ever real GDP is above potential real GDP, the inflation adjustment line (IA) must

Accepted Answer

A)  remain the same, as this represents a movement along the IA line. 
B)  shift upward. 
C)  shift downward. 
D)  That could never happen. 
E)  None of these 
A)  remain the same, as this represents a movement along the IA line. 
B)  shift upward. 
C)  shift downward. 
D)  That could never happen. 
E)  None of these

Question 10

Economic fluctuations in the United States during the 2007-09 period are best explained by shifts of the inflation adjustment line.

Accepted Answer

A) True 
 B)False

Question 11

In a diagram that includes both the IA line and the AD curve, the price adjustment resulting from an increase in spending is shown by

Accepted Answer

A)  the AD curve shifting to the left. 
B)  the AD curve shifting to the right. 
C)  the IA line shifting down. 
D)  the IA line shifting up. 
E)  the movement along the IA line. 
A)  the AD curve shifting to the left. 
B)  the AD curve shifting to the right. 
C)  the IA line shifting down. 
D)  the IA line shifting up. 
E)  the movement along the IA line.

Question 12

Discuss why the Fed may in some cases need to cause a small recession to reduce inflation in the economy. Hint: Think about how firms set their prices.

Accepted Answer

Firms make pricing decisions based on th

Question 13

If ever real GDP is above potential real GDP, the inflation adjustment line (IA) must shift downward.

Accepted Answer

A) True 
 B)False

Question 14

Discuss the difference in the short-run and long-run effects of a decrease in government purchases and a monetary policy change designed to lower inflation. Comment specifically on the four components of aggregate demand, interest rates, and inflation.

Accepted Answer

If government purchases decrease, the AD

Question 15

Reinflation causes

Accepted Answer

A)  a temporary boom. 
B)  a price shock. 
C)  an increase in potential GDP. 
D)  a growth slowdown. 
E)  a temporary recession. 
A)  a temporary boom. 
B)  a price shock. 
C)  an increase in potential GDP. 
D)  a growth slowdown. 
E)  a temporary recession.

Question 16

Disinflation refers to a situation in which the overall price level falls.

Accepted Answer

A) True 
 B)False

Question 17

A price shock causes movement along the monetary policy rule line.

Accepted Answer

A) True 
 B)False

Question 18

In the late 1960s and 1970s inflation decreased around the world.

Accepted Answer

A) True 
 B)False

Question 19

A single factor caused the 2008-09 recession.

Accepted Answer

A) True 
 B)False

Question 20

What is the difference between a price shock and a supply shock?

Accepted Answer

A price shock arises from a sh

Real business cycle theories emphasize price shocks.

What is the difference between deflation and disinflation?

Disinflation most likely occurs when

Exhibit 25-1 -Suppose the economy is initially at point A in Exhibit 25-1. If government purchases increase, which point best depicts where the economy will be in the medium run as a result of the change in spending?

The long-run income effect (the effect of real GDP changes on spending) of decreased government purchases is that consumption

The long-run effects of an increase in government purchases are that interest rates will , inflation will , and real GDP will .

Suppose government purchases have decreased and the economy has reached a new long-run equilibrium. Which of the following best describes the new equilibrium?

Explain how two shifts in the aggregate demand curve help explain economic fluctuations in the United States from early 2000s through early 2009.

If ever real GDP is above potential real GDP, the inflation adjustment line (IA) must

Economic fluctuations in the United States during the 2007-09 period are best explained by shifts of the inflation adjustment line.

In a diagram that includes both the IA line and the AD curve, the price adjustment resulting from an increase in spending is shown by

Discuss why the Fed may in some cases need to cause a small recession to reduce inflation in the economy. Hint: Think about how firms set their prices.

If ever real GDP is above potential real GDP, the inflation adjustment line (IA) must shift downward.

Discuss the difference in the short-run and long-run effects of a decrease in government purchases and a monetary policy change designed to lower inflation. Comment specifically on the four components of aggregate demand, interest rates, and inflation.

Reinflation causes

Disinflation refers to a situation in which the overall price level falls.

A price shock causes movement along the monetary policy rule line.

In the late 1960s and 1970s inflation decreased around the world.

A single factor caused the 2008-09 recession.

What is the difference between a price shock and a supply shock?

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

Real business cycle theories emphasize price shocks.

What is the difference between deflation and disinflation?

Disinflation most likely occurs when

Exhibit 25-1 -Suppose the economy is initially at point A in Exhibit 25-1. If government purchases increase, which point best depicts where the economy will be in the medium run as a result of the change in spending?

The long-run income effect (the effect of real GDP changes on spending) of decreased government purchases is that consumption

The long-run effects of an increase in government purchases are that interest rates will ____, inflation will ____, and real GDP will ____.

Suppose government purchases have decreased and the economy has reached a new long-run equilibrium. Which of the following best describes the new equilibrium?

Explain how two shifts in the aggregate demand curve help explain economic fluctuations in the United States from early 2000s through early 2009.

If ever real GDP is above potential real GDP, the inflation adjustment line (IA) must

Economic fluctuations in the United States during the 2007-09 period are best explained by shifts of the inflation adjustment line.

In a diagram that includes both the IA line and the AD curve, the price adjustment resulting from an increase in spending is shown by

Discuss why the Fed may in some cases need to cause a small recession to reduce inflation in the economy. Hint: Think about how firms set their prices.

If ever real GDP is above potential real GDP, the inflation adjustment line (IA) must shift downward.

Discuss the difference in the short-run and long-run effects of a decrease in government purchases and a monetary policy change designed to lower inflation. Comment specifically on the four components of aggregate demand, interest rates, and inflation.

Reinflation causes

Disinflation refers to a situation in which the overall price level falls.

A price shock causes movement along the monetary policy rule line.

In the late 1960s and 1970s inflation decreased around the world.

A single factor caused the 2008-09 recession.

What is the difference between a price shock and a supply shock?

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

The long-run effects of an increase in government purchases are that interest rates will , inflation will , and real GDP will .