Question 1

Price shocks are always accompanied by a shift in potential GDP.

Accepted Answer

A) True 
 B)False

Question 2

The long-run effect of a decline in exports is

Accepted Answer

A)  an ambiguous change in net exports and a decline in both investment and consumption. 
B)  for there to be no change in any of the aggregate expenditure categories. 
C)  for net exports to decline, with no change in investment or consumption. 
D)  an ambiguous change in net exports and an increase in both consumption and investment. 
E)  an increase in net exports, consumption, and investment. 
A)  an ambiguous change in net exports and a decline in both investment and consumption. 
B)  for there to be no change in any of the aggregate expenditure categories. 
C)  for net exports to decline, with no change in investment or consumption. 
D)  an ambiguous change in net exports and an increase in both consumption and investment. 
E)  an increase in net exports, consumption, and investment.

Question 3

Which of the following would be a direct result of real GDP being above potential GDP?

Accepted Answer

A)  Firms would raise their prices and there would be a subsequent rise in inflation. 
B)  Firms would lower their prices and there would be a subsequent decrease in inflation. 
C)  Government spending would decline. 
D)  None of the above would be a result. 
E)  Real GDP can never be above potential GDP. 
A)  Firms would raise their prices and there would be a subsequent rise in inflation. 
B)  Firms would lower their prices and there would be a subsequent decrease in inflation. 
C)  Government spending would decline. 
D)  None of the above would be a result. 
E)  Real GDP can never be above potential GDP.

Question 4

The short-run effect of an increase in government purchases is

Accepted Answer

A)  a rightward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. 
B)  a leftward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. 
C)  a rightward shift of the aggregate demand curve and a downward shift of the inflation adjustment line. 
D)  a rightward shift of the aggregate demand curve and movement along the inflation adjustment line. 
E)  a leftward shift of the aggregate demand curve and movement along the inflation adjustment line. 
A)  a rightward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. 
B)  a leftward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. 
C)  a rightward shift of the aggregate demand curve and a downward shift of the inflation adjustment line. 
D)  a rightward shift of the aggregate demand curve and movement along the inflation adjustment line. 
E)  a leftward shift of the aggregate demand curve and movement along the inflation adjustment line.

Question 5

The long run is usually

Accepted Answer

A)  ten years or more. 
B)  two to three years. 
C)  one to two years. 
D)  four to five years or more. 
E)  one year. 
A)  ten years or more. 
B)  two to three years. 
C)  one to two years. 
D)  four to five years or more. 
E)  one year.

Question 6

Suppose the economy is initially at point A in the diagram below, and oil prices suddenly fall. Which point best depicts where the economy will end up in the short run?
a.
C
b.
E
c.
D
d.
A
e.
F

Accepted Answer

@#IMG-DLM& a.
C
b.
E

Question 7

Which of the following best depicts the short-run effect of a price shock due to a large increase in oil prices?

Accepted Answer

A)  The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the right. 
B)  The IA line shifts up, causing interest rates to rise, which causes a leftward movement along the AD curve. 
C)  The AD curve shifts to the left, causing interest rates to rise, which causes the IA line to shift down. 
D)  The IA line shifts down, causing interest rates to rise, which causes a leftward movement along the AD curve. 
E)  The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the left. 
A)  The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the right. 
B)  The IA line shifts up, causing interest rates to rise, which causes a leftward movement along the AD curve. 
C)  The AD curve shifts to the left, causing interest rates to rise, which causes the IA line to shift down. 
D)  The IA line shifts down, causing interest rates to rise, which causes a leftward movement along the AD curve. 
E)  The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the left.

Question 8

What is the name commonly given to the situation in which inflation is up and real GDP is down?

Accepted Answer

A)  Stagflation 
B)  Reinflation 
C)  Disinflation 
D)  Backward recession 
E)  None of these 
A)  Stagflation 
B)  Reinflation 
C)  Disinflation 
D)  Backward recession 
E)  None of these

Question 9

Monetary policy designed to reduce the rate of inflation in the early 1980s resulted in a recession.

Accepted Answer

A) True 
 B)False

Question 10

The long-run effect of a change in expenditures occurs when

Accepted Answer

A)  a spending balance is achieved. 
B)  the recovery period begins. 
C)  interest rates begin to adjust. 
D)  real GDP is nearly back to equaling potential GDP. 
E)  the AD line intersects the IA line. 
A)  a spending balance is achieved. 
B)  the recovery period begins. 
C)  interest rates begin to adjust. 
D)  real GDP is nearly back to equaling potential GDP. 
E)  the AD line intersects the IA line.

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

A)  A decrease in consumer confidence 
B)  An increase in imports 
C)  An increase in taxes 
D)  An increase in government spending 
E)  An increase in the savings rate 
A)  A decrease in consumer confidence 
B)  An increase in imports 
C)  An increase in taxes 
D)  An increase in government spending 
E)  An increase in the savings rate

Question 13

An increase in the target inflation rate by the central bank is referred to as

Accepted Answer

A)  disinflation. 
B)  deflation. 
C)  reinflation. 
D)  accommodation. 
E)  stagflation. 
A)  disinflation. 
B)  deflation. 
C)  reinflation. 
D)  accommodation. 
E)  stagflation.

Question 14

Suppose the economy is initially at point A in the diagram below, and there is a sudden increase in oil prices that the central bank believes is only temporary. Which point best depicts where the economy will end up in the short run?
a.
A
b.
B
c.
C
d.
D
e.
E

Accepted Answer

@#IMG-DLM& a.
A
b.
B

Question 15

If exports increase, investment and consumption will be lower in the long run.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that, at any given level of income, people decide to import more.
 (A) Using the agpegate demand curve and the intlation adjustment line, describe how this affects real GDP, cansumption, investment net exgarts, interest rates, and inflation in the shart run, the medium run, and the long run. Provide an economic exglanation of your results. Assume the econamy is initially at the paint of lang-run equilibriun.
(B) Naw, suppose the central bark wants to revert to the inflation rate thet prevaled priar to the increase in impart spenfing. How can it acheve its abjective? Describe the short-run, medium-run, and long-run effects of its policy on real GDP and inflation.

Accepted Answer

(A) Irtially the economy is at point @#LAT-DLM& in

Question 17

Assume that real and potential GDP are initially equal. If government purchases permanently increase, we would expect that in the short run

Accepted Answer

A)  consumption and investment will be higher than baseline, and net exports will be lower. 
B)  consumption will be higher than baseline, and net exports and investment will be the same. 
C)  consumption, investment, and net exports will be higher than baseline. 
D)  consumption and net exports will be higher than baseline, and investment will be the same. 
E)  consumption will be higher than baseline, net exports will be lower, and investment will be the same. 
A)  consumption and investment will be higher than baseline, and net exports will be lower. 
B)  consumption will be higher than baseline, and net exports and investment will be the same. 
C)  consumption, investment, and net exports will be higher than baseline. 
D)  consumption and net exports will be higher than baseline, and investment will be the same. 
E)  consumption will be higher than baseline, net exports will be lower, and investment will be the same.

Price shocks are always accompanied by a shift in potential GDP.

The long-run effect of a decline in exports is

Which of the following would be a direct result of real GDP being above potential GDP?

The short-run effect of an increase in government purchases is

The long run is usually

Suppose the economy is initially at point A in the diagram below, and oil prices suddenly fall. Which point best depicts where the economy will end up in the short run? a. C b. E c. D d. A e. F

Which of the following best depicts the short-run effect of a price shock due to a large increase in oil prices?

What is the name commonly given to the situation in which inflation is up and real GDP is down?

Monetary policy designed to reduce the rate of inflation in the early 1980s resulted in a recession.

The long-run effect of a change in expenditures occurs when

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

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

An increase in the target inflation rate by the central bank is referred to as

Suppose the economy is initially at point A in the diagram below, and there is a sudden increase in oil prices that the central bank believes is only temporary. Which point best depicts where the economy will end up in the short run? a. A b. B c. C d. D e. E

If exports increase, investment and consumption will be lower in the long run.

Assume that real and potential GDP are initially equal. If government purchases permanently increase, we would expect that in the short run

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

Price shocks are always accompanied by a shift in potential GDP.

The long-run effect of a decline in exports is

Which of the following would be a direct result of real GDP being above potential GDP?

The short-run effect of an increase in government purchases is

The long run is usually

Suppose the economy is initially at point A in the diagram below, and oil prices suddenly fall. Which point best depicts where the economy will end up in the short run? a. C b. E c. D d. A e. F

Which of the following best depicts the short-run effect of a price shock due to a large increase in oil prices?

What is the name commonly given to the situation in which inflation is up and real GDP is down?

Monetary policy designed to reduce the rate of inflation in the early 1980s resulted in a recession.

The long-run effect of a change in expenditures occurs when

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

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

An increase in the target inflation rate by the central bank is referred to as

Suppose the economy is initially at point A in the diagram below, and there is a sudden increase in oil prices that the central bank believes is only temporary. Which point best depicts where the economy will end up in the short run? a. A b. B c. C d. D e. E

If exports increase, investment and consumption will be lower in the long run.

Assume that real and potential GDP are initially equal. If government purchases permanently increase, we would expect that in the short run

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