Question 1

Under the adaptive expectations hypothesis, how will a shift to a more expansionary monetary policy affect the economy?

Accepted Answer

A) In the short run, the real rate of output will be unaffected, but in the long run, it will increase. 
B) In the short run, the real rate of output will increase, but in the long run, it will be unchanged. 
C) There will be a permanent increase in the real rate of output, but the inflation rate will also be a little higher. 
D) In the short run, the impact on the real rate of output is uncertain, but in the long run, output will increase. 
A) In the short run, the real rate of output will be unaffected, but in the long run, it will increase. 
B) In the short run, the real rate of output will increase, but in the long run, it will be unchanged. 
C) There will be a permanent increase in the real rate of output, but the inflation rate will also be a little higher. 
D) In the short run, the impact on the real rate of output is uncertain, but in the long run, output will increase.

Question 2

Under the rational expectations hypothesis, which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Accepted Answer

A) higher prices and no change in real output 
B) higher prices and expansion in real output 
C) no change in prices but an expansion in real output 
D) no change in either prices or real output 
A) higher prices and no change in real output 
B) higher prices and expansion in real output 
C) no change in prices but an expansion in real output 
D) no change in either prices or real output

Question 3

Most economists believe that

Accepted Answer

A) a monetary policy that achieves price stability will reduce uncertainty and provide the framework for strong economic growth. 
B) demand stimulus policies will reduce the long-term average rate of unemployment. 
C) expansionary monetary policy, if persistently followed, will reduce nominal interest rates. 
D) inflation is primarily the result of large budget deficits and other elements of expansionary fiscal policy. 
A) a monetary policy that achieves price stability will reduce uncertainty and provide the framework for strong economic growth. 
B) demand stimulus policies will reduce the long-term average rate of unemployment. 
C) expansionary monetary policy, if persistently followed, will reduce nominal interest rates. 
D) inflation is primarily the result of large budget deficits and other elements of expansionary fiscal policy.

Question 4

Compared to the 1910-1960 period, during the past 50 years the severity of macroeconomic fluctuations has

Accepted Answer

A) increased. 
B) decreased. 
C) changed little. 
D) increased, but the general level of prices has been more stable. 
A) increased. 
B) decreased. 
C) changed little. 
D) increased, but the general level of prices has been more stable.

Question 5

An unanticipated shift to a more expansionary monetary policy that permanently increases the rate of inflation from 2 to 6 percent will

Accepted Answer

A) reduce unemployment in the short run, but unemployment will return to the natural rate in the long run. 
B) reduce unemployment in the short run, but unemployment will exceed the natural rate in the long run. 
C) increase unemployment in the short run, but unemployment will return to the natural rate in the long run. 
D) exert an unpredictable impact on unemployment in the short run, but unemployment will return to the natural rate in the long run. 
A) reduce unemployment in the short run, but unemployment will return to the natural rate in the long run. 
B) reduce unemployment in the short run, but unemployment will exceed the natural rate in the long run. 
C) increase unemployment in the short run, but unemployment will return to the natural rate in the long run. 
D) exert an unpredictable impact on unemployment in the short run, but unemployment will return to the natural rate in the long run.

Question 6

The variables in the index of leading indicators are included in the index because

Accepted Answer

A) they are good indicators of the current rate of inflation. 
B) they generally lag behind turns in the business cycle. 
C) of their tendency to lead (or predict) turns in the business cycle. 
D) they are good indicators of the current state of the economy. 
A) they are good indicators of the current rate of inflation. 
B) they generally lag behind turns in the business cycle. 
C) of their tendency to lead (or predict) turns in the business cycle. 
D) they are good indicators of the current state of the economy.

Question 7

Which of the following occurred during and following the 2008-2009 recession?

Accepted Answer

A) Unemployment benefits were extended from their normal 26 weeks to up to 99 weeks. 
B) The Federal Reserve more than doubled the size of the monetary base. 
C) The federal budget deficit expanded to approximately 10 percent of GDP. 
D) All of the above are true. 
A) Unemployment benefits were extended from their normal 26 weeks to up to 99 weeks. 
B) The Federal Reserve more than doubled the size of the monetary base. 
C) The federal budget deficit expanded to approximately 10 percent of GDP. 
D) All of the above are true.

Question 8

Under the adaptive expectations hypothesis, which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Accepted Answer

A) higher prices and no change in real output 
B) higher prices and expansion in real output 
C) no change in prices but an expansion in real output 
D) no change in either prices or real output 
A) higher prices and no change in real output 
B) higher prices and expansion in real output 
C) no change in prices but an expansion in real output 
D) no change in either prices or real output

Question 9

Suppose the annual rate of inflation has been 3 percent and the annual growth rate of the money supply has been 5 percent during the last few years. In the last twelve months, however, the monetary authorities have increased the money supply at a 12 percent annual rate. The expected inflation rate for the next period will be:

Accepted Answer

A) lower than 3 percent under both the adaptive and rational expectations hypotheses. 
B) 3 percent under the adaptive expectations hypothesis. 
C) 3 percent under the rational expectations hypothesis. 
D) higher than 3 percent under both the adaptive and rational expectations hypotheses. 
A) lower than 3 percent under both the adaptive and rational expectations hypotheses. 
B) 3 percent under the adaptive expectations hypothesis. 
C) 3 percent under the rational expectations hypothesis. 
D) higher than 3 percent under both the adaptive and rational expectations hypotheses.

Question 10

Which group is most likely to argue that an increase in government spending will be more effective than a reduction in taxes as a tool to promote recovery?

Accepted Answer

A) monetarists 
B) Keynesian economists 
C) supply-side economists 
D) new classical economists 
E) All of the above; there is a consensus on this issue. 
A) monetarists 
B) Keynesian economists 
C) supply-side economists 
D) new classical economists 
E) All of the above; there is a consensus on this issue.

Question 11

According to the rational expectations theory, expansionary monetary policy will

Accepted Answer

A) reduce inflation. 
B) lead to inflation and the higher rate of inflation will be quickly anticipated. 
C) reduce unemployment because people will generally underestimate the inflationary side effects of the monetary expansion. 
D) accelerate inflation in the short run, but in the long run the primary effect will be an increase in employment. 
A) reduce inflation. 
B) lead to inflation and the higher rate of inflation will be quickly anticipated. 
C) reduce unemployment because people will generally underestimate the inflationary side effects of the monetary expansion. 
D) accelerate inflation in the short run, but in the long run the primary effect will be an increase in employment.

Question 12

The modern view of the Phillips curve indicates that in the long run there

Accepted Answer

A) is no trade-off between inflation and unemployment. 
B) is a definite trade-off between unemployment and inflation. 
C) will be a trade-off if the rational expectations hypothesis is correct. 
D) may be a long-run trade-off between unemployment and inflation, but there is no such trade-off in the short run. 
A) is no trade-off between inflation and unemployment. 
B) is a definite trade-off between unemployment and inflation. 
C) will be a trade-off if the rational expectations hypothesis is correct. 
D) may be a long-run trade-off between unemployment and inflation, but there is no such trade-off in the short run.

Question 13

Under the rational expectations hypothesis, which of the following is the most likely short-run effect of a move to a more expansionary monetary policy?

Accepted Answer

A) higher prices and no change in real output 
B) higher prices and expansion in real output 
C) no change in prices but an expansion in real output 
D) no change in either prices or real output 
A) higher prices and no change in real output 
B) higher prices and expansion in real output 
C) no change in prices but an expansion in real output 
D) no change in either prices or real output

Question 14

The proponents of rational expectations believe that

Accepted Answer

A) there will be a substantial time lag before people anticipate the eventual effects of a shift to a more expansionary macro-policy. 
B) macro-policies that stimulate demand and place upward pressure on the general level of prices will temporarily increase output and employment. 
C) the inflationary side effects of expansionary policies will be anticipated quickly, and therefore, even their short-run effects on real output and employment will be minimal. 
D) discretionary changes in macro-policy can be made in a manner that will reduce the economic ups and downs of a market economy. 
A) there will be a substantial time lag before people anticipate the eventual effects of a shift to a more expansionary macro-policy. 
B) macro-policies that stimulate demand and place upward pressure on the general level of prices will temporarily increase output and employment. 
C) the inflationary side effects of expansionary policies will be anticipated quickly, and therefore, even their short-run effects on real output and employment will be minimal. 
D) discretionary changes in macro-policy can be made in a manner that will reduce the economic ups and downs of a market economy.

Question 15

The variables in the index of leading indicators are included in the index because

Accepted Answer

A) they turn down prior to a deflation and turn up prior to an inflation. 
B) they generally lag behind turns in the business cycle. 
C) they turn down prior to a recession and turn up before the beginning of a business expansion. 
D) they provide a comprehensive measure of the current state of the economy. 
A) they turn down prior to a deflation and turn up prior to an inflation. 
B) they generally lag behind turns in the business cycle. 
C) they turn down prior to a recession and turn up before the beginning of a business expansion. 
D) they provide a comprehensive measure of the current state of the economy.

Question 16

The integration of expectations into macroeconomic analysis indicates that

Accepted Answer

A) fiscal policy is more potent than monetary policy. 
B) monetary policy is more potent than fiscal policy. 
C) once people come to expect a given rate of inflation, the inflation will neither stimulate real output nor reduce unemployment. 
D) higher rates of inflation will lead to lower rates of unemployment in the long run but not in the short run. 
A) fiscal policy is more potent than monetary policy. 
B) monetary policy is more potent than fiscal policy. 
C) once people come to expect a given rate of inflation, the inflation will neither stimulate real output nor reduce unemployment. 
D) higher rates of inflation will lead to lower rates of unemployment in the long run but not in the short run.

Question 17

Which of the following is most important for the achievement of long-term prosperity and strong economic growth?

Accepted Answer

A) expansionary monetary policy 
B) expansionary fiscal policy 
C) price stability 
D) a balanced federal budget 
A) expansionary monetary policy 
B) expansionary fiscal policy 
C) price stability 
D) a balanced federal budget

Question 18

Which one of the following reduces the likelihood that real-world fiscal policy will promote economic stability?

Accepted Answer

A) Policy planners do not know whether a tax cut is expansionary or restrictive. 
B) Policy makers need to know what economic conditions will be like 6 to 18 months into the future, and this is extremely difficult to forecast accurately. 
C) Policy planners are reluctant to implement expansionary fiscal policy even during a serious recession. 
D) Public choice theory suggests that elected political officials will generally favor restrictive fiscal policy. 
A) Policy planners do not know whether a tax cut is expansionary or restrictive. 
B) Policy makers need to know what economic conditions will be like 6 to 18 months into the future, and this is extremely difficult to forecast accurately. 
C) Policy planners are reluctant to implement expansionary fiscal policy even during a serious recession. 
D) Public choice theory suggests that elected political officials will generally favor restrictive fiscal policy.

Question 19

Which of the following contributed to the weak recovery from the 2008-2009 recession?

Accepted Answer

A) Government stimulus spending that was largely temporary and often directed toward unproductive activities. 
B) The restrictive monetary policy followed by the Fed. 
C) The tax increases instituted by a Congress intent on balancing the budget. 
D) The failure of the Fed to provide the banking system with sufficient reserves for the extension of new loans. 
A) Government stimulus spending that was largely temporary and often directed toward unproductive activities. 
B) The restrictive monetary policy followed by the Fed. 
C) The tax increases instituted by a Congress intent on balancing the budget. 
D) The failure of the Fed to provide the banking system with sufficient reserves for the extension of new loans.

Question 20

Which of the following is an implication of the modern view of the Phillips curve?

Accepted Answer

A) Higher rates of inflation always lead to lower rates of unemployment. 
B) Higher rates of inflation always lead to higher rates of unemployment. 
C) If actual inflation exceeds the inflation rate anticipated by decision makers, unemployment will temporarily fall below the natural rate. 
D) If actual inflation exceeds the inflation rate anticipated by decision makers, unemployment will temporarily rise above the natural rate. 
A) Higher rates of inflation always lead to lower rates of unemployment. 
B) Higher rates of inflation always lead to higher rates of unemployment. 
C) If actual inflation exceeds the inflation rate anticipated by decision makers, unemployment will temporarily fall below the natural rate. 
D) If actual inflation exceeds the inflation rate anticipated by decision makers, unemployment will temporarily rise above the natural rate.

Under the adaptive expectations hypothesis, how will a shift to a more expansionary monetary policy affect the economy?

Under the rational expectations hypothesis, which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Most economists believe that

Compared to the 1910-1960 period, during the past 50 years the severity of macroeconomic fluctuations has

An unanticipated shift to a more expansionary monetary policy that permanently increases the rate of inflation from 2 to 6 percent will

The variables in the index of leading indicators are included in the index because

Which of the following occurred during and following the 2008-2009 recession?

Under the adaptive expectations hypothesis, which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Which group is most likely to argue that an increase in government spending will be more effective than a reduction in taxes as a tool to promote recovery?

According to the rational expectations theory, expansionary monetary policy will

The modern view of the Phillips curve indicates that in the long run there

Under the rational expectations hypothesis, which of the following is the most likely short-run effect of a move to a more expansionary monetary policy?

The proponents of rational expectations believe that

The variables in the index of leading indicators are included in the index because

The integration of expectations into macroeconomic analysis indicates that

Which of the following is most important for the achievement of long-term prosperity and strong economic growth?

Which one of the following reduces the likelihood that real-world fiscal policy will promote economic stability?

Which of the following contributed to the weak recovery from the 2008-2009 recession?

Which of the following is an implication of the modern view of the Phillips curve?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 15: Stabilization Policy, Output, and Employment

Under the adaptive expectations hypothesis, how will a shift to a more expansionary monetary policy affect the economy?

Under the rational expectations hypothesis, which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Most economists believe that

Compared to the 1910-1960 period, during the past 50 years the severity of macroeconomic fluctuations has

An unanticipated shift to a more expansionary monetary policy that permanently increases the rate of inflation from 2 to 6 percent will

The variables in the index of leading indicators are included in the index because

Which of the following occurred during and following the 2008-2009 recession?

Under the adaptive expectations hypothesis, which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Which group is most likely to argue that an increase in government spending will be more effective than a reduction in taxes as a tool to promote recovery?

According to the rational expectations theory, expansionary monetary policy will

The modern view of the Phillips curve indicates that in the long run there

Under the rational expectations hypothesis, which of the following is the most likely short-run effect of a move to a more expansionary monetary policy?

The proponents of rational expectations believe that

The variables in the index of leading indicators are included in the index because

The integration of expectations into macroeconomic analysis indicates that

Which of the following is most important for the achievement of long-term prosperity and strong economic growth?

Which one of the following reduces the likelihood that real-world fiscal policy will promote economic stability?

Which of the following contributed to the weak recovery from the 2008-2009 recession?

Which of the following is an implication of the modern view of the Phillips curve?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters