Question 1

Compared with the recovery from the recession of 1981-82, the recovery from the recession of 2008-09 was characterized by

Accepted Answer

A) more rapid growth of real GDP. 
B) a more rapid decline in the rate of unemployment. 
C) larger increases in both government spending and budget deficits as a share of GDP. 
D) higher interest rates and a more restrictive monetary policy. 
A) more rapid growth of real GDP. 
B) a more rapid decline in the rate of unemployment. 
C) larger increases in both government spending and budget deficits as a share of GDP. 
D) higher interest rates and a more restrictive monetary policy.

Question 2

Computer forecasting models are most accurate at predicting the economy when

Accepted Answer

A) inflation is accelerating. 
B) there is a turn in the business cycle. 
C) economic conditions are relatively stable. 
D) supply shocks impact the economy. 
A) inflation is accelerating. 
B) there is a turn in the business cycle. 
C) economic conditions are relatively stable. 
D) supply shocks impact the economy.

Question 3

Which of the following would suggest that monetary policy is restrictive?

Accepted Answer

A) falling commodity prices 
B) depreciation of the foreign exchange value of the dollar 
C) a rising M1 money supply 
D) an increase in the rate of inflation 
A) falling commodity prices 
B) depreciation of the foreign exchange value of the dollar 
C) a rising M1 money supply 
D) an increase in the rate of inflation

Question 4

Prior to World War II,

Accepted Answer

A) the growth of real GDP was more stable than has been the case since the war. 
B) the growth of real GDP was less stable than has been the case since the war. 
C) unemployment seldom exceeded 4 percent of the labor force. 
D) double-digit swings in real GDP during a single year were unheard of. 
A) the growth of real GDP was more stable than has been the case since the war. 
B) the growth of real GDP was less stable than has been the case since the war. 
C) unemployment seldom exceeded 4 percent of the labor force. 
D) double-digit swings in real GDP during a single year were unheard of.

Question 5

According to the modern expectational Phillips curve, unemployment will temporarily rise above the natural rate of unemployment when

Accepted Answer

A) any inflation is present. 
B) inflation turns out to be lower than what people expected. 
C) inflation turns out to be higher than what people expected. 
D) inflation turns out to be equal to what people expected. 
A) any inflation is present. 
B) inflation turns out to be lower than what people expected. 
C) inflation turns out to be higher than what people expected. 
D) inflation turns out to be equal to what people expected.

Question 6

The two most severe recessions of the post-World War II era occurred in 1981-1982 and 2008-2009. The policy responses to the two recessions were

Accepted Answer

A) very similar; expansionary fiscal policy promoted a strong recovery in both cases 
B) very similar, but the recovery was nonetheless weak in both cases 
C) dramatically different; tax rates were cut and monetary policy was restrictive during the earlier recession, while government spending was increased sharply and monetary policy highly expansionary during the more recent recession 
D) dramatically different; tax rates were increased and monetary policy was highly expansionary during the earlier recession, while tax rates were cut and monetary policy was restrictive during the more recent recession 
A) very similar; expansionary fiscal policy promoted a strong recovery in both cases 
B) very similar, but the recovery was nonetheless weak in both cases 
C) dramatically different; tax rates were cut and monetary policy was restrictive during the earlier recession, while government spending was increased sharply and monetary policy highly expansionary during the more recent recession 
D) dramatically different; tax rates were increased and monetary policy was highly expansionary during the earlier recession, while tax rates were cut and monetary policy was restrictive during the more recent recession

Question 7

The interval between the recognition of a need for a policy change and when the policy change is instituted is called the:

Accepted Answer

A) recognition lag. 
B) impact lag. 
C) policy lag. 
D) administrative lag. 
A) recognition lag. 
B) impact lag. 
C) policy lag. 
D) administrative lag.

Question 8

Suppose the inflation rate of a country falls from 8 percent during 2002-2004 to 6 percent in 2005-2007, under the adaptive expectations hypothesis what will the expected rate of inflation at the beginning of 2008?

Accepted Answer

A) 2 percent 
B) 4 percent 
C) 6 percent 
D) 8 percent 
A) 2 percent 
B) 4 percent 
C) 6 percent 
D) 8 percent

Question 9

Which of the following best reflects the nonactivist view of stabilization policy?

Accepted Answer

A) Monetary and fiscal policies exert little impact on the economy. 
B) Discretionary policy changes often make matters worse. 
C) Fiscal policy should be used to help stabilize the economy; monetary policy should not. 
D) Expansionary monetary policy is the primary source of rapid economic growth. 
A) Monetary and fiscal policies exert little impact on the economy. 
B) Discretionary policy changes often make matters worse. 
C) Fiscal policy should be used to help stabilize the economy; monetary policy should not. 
D) Expansionary monetary policy is the primary source of rapid economic growth.

Question 10

The proponents of adaptive expectations believe that

Accepted Answer

A) there will be a substantial time lag before people anticipate the 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) discretionary changes in macro-policy can be made in a manner that will reduce the economic ups and downs of a market economy. 
D) all of the above are true. 
A) there will be a substantial time lag before people anticipate the 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) discretionary changes in macro-policy can be made in a manner that will reduce the economic ups and downs of a market economy. 
D) all of the above are true.

Question 11

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

Accepted Answer

A) a higher general level of prices but little or no change in real output 
B) a higher general level of prices and an expansion in real output 
C) no change in the general level of prices and a reduction in real output 
D) no change in either the general level of prices or real output 
A) a higher general level of prices but little or no change in real output 
B) a higher general level of prices and an expansion in real output 
C) no change in the general level of prices and a reduction in real output 
D) no change in either the general level of prices or real output

Question 12

During the 1960s, most economists believed that expansionary macro-policy

Accepted Answer

A) that caused inflation would permanently reduce unemployment. 
B) that caused inflation would permanently increase unemployment. 
C) could not be utilized to reduce unemployment. 
D) did not affect inflation. 
A) that caused inflation would permanently reduce unemployment. 
B) that caused inflation would permanently increase unemployment. 
C) could not be utilized to reduce unemployment. 
D) did not affect inflation.

Question 13

When the effects of a more expansionary macroeconomic policy are quickly and accurately anticipated, the policy will

Accepted Answer

A) increase inflation without reducing unemployment. 
B) increase unemployment while exerting little impact on inflation. 
C) decrease unemployment while exerting little impact on inflation. 
D) fail to exert a significant impact on either unemployment or inflation. 
A) increase inflation without reducing unemployment. 
B) increase unemployment while exerting little impact on inflation. 
C) decrease unemployment while exerting little impact on inflation. 
D) fail to exert a significant impact on either unemployment or inflation.

Question 14

Under which of the following conditions will the actual rate of unemployment tend to rise above the natural rate of unemployment?

Accepted Answer

A) Prices are stable and have been for the last four years. 
B) Inflation is 3 percent and was widely anticipated more than a year ago. 
C) Expansionary monetary policies lead to an unexpected increase in inflation from 3 percent to 7 percent. 
D) Restrictive monetary policies lead to an unexpected reduction in inflation from 6 percent to 2 percent. 
A) Prices are stable and have been for the last four years. 
B) Inflation is 3 percent and was widely anticipated more than a year ago. 
C) Expansionary monetary policies lead to an unexpected increase in inflation from 3 percent to 7 percent. 
D) Restrictive monetary policies lead to an unexpected reduction in inflation from 6 percent to 2 percent.

Question 15

Modern Phillips curve analysis indicates that if people

Accepted Answer

A) underestimate inflation, actual unemployment will be below the natural rate. 
B) overestimate inflation, actual unemployment will be below the natural rate. 
C) accurately estimate inflation, actual unemployment will be less than the natural rate. 
D) accurately estimate inflation, actual unemployment will be below the natural rate. 
A) underestimate inflation, actual unemployment will be below the natural rate. 
B) overestimate inflation, actual unemployment will be below the natural rate. 
C) accurately estimate inflation, actual unemployment will be less than the natural rate. 
D) accurately estimate inflation, actual unemployment will be below the natural rate.

Question 16

The policy response to the recession of 2008-2009 provided an experiment on the potency of Keynesian fiscal policy. In what respect was this true?

Accepted Answer

A) The money supply increased rapidly and the short-term interest rates were pushed to near zero just as the Keynesian model of fiscal policy recommends. 
B) Government spending increased sharply and the budget deficits were large just as the Keynesian model of fiscal policy recommends. 
C) The money supply increased rapidly and the budget was shifted toward a surplus just as the Keynesian model recommends. 
D) The federal budget was balanced just as the Keynesian model indicates would be prudent policy during a recession. 
A) The money supply increased rapidly and the short-term interest rates were pushed to near zero just as the Keynesian model of fiscal policy recommends. 
B) Government spending increased sharply and the budget deficits were large just as the Keynesian model of fiscal policy recommends. 
C) The money supply increased rapidly and the budget was shifted toward a surplus just as the Keynesian model recommends. 
D) The federal budget was balanced just as the Keynesian model indicates would be prudent policy during a recession.

Question 17

The adaptive expectations hypothesis implies that people

Accepted Answer

A) adjust their expectations quickly to policy changes. 
B) expect the next period to be pretty much like the recent past. 
C) will always be correct in their forecast for the next period. 
D) change their expectations about the future if policy changes. 
A) adjust their expectations quickly to policy changes. 
B) expect the next period to be pretty much like the recent past. 
C) will always be correct in their forecast for the next period. 
D) change their expectations about the future if policy changes.

Question 18

Incorporation of expectations into economic decision making and the economic experience of recent decades indicate that in the long run

Accepted Answer

A) inflation relates directly to unemployment. 
B) inflation is inversely related to unemployment. 
C) there is no trade-off between inflation and unemployment. 
D) high unemployment is a primary cause of inflation. 
A) inflation relates directly to unemployment. 
B) inflation is inversely related to unemployment. 
C) there is no trade-off between inflation and unemployment. 
D) high unemployment is a primary cause of inflation.

Question 19

Which of the following reduced the demand stimulus effects of monetary policy during the years following the 2008-2009 recession?

Accepted Answer

A) Failure of the Fed to provide sufficient reserves to the banking system for the extension of new loans. 
B) A substantial reduction in the velocity of money resulting from the historically low interest rates. 
C) The Fed's high interest rate policy that reduced private investment. 
D) Inability of the Fed to gain approval from Congress to purchase assets other than bonds issued by the federal government. 
A) Failure of the Fed to provide sufficient reserves to the banking system for the extension of new loans. 
B) A substantial reduction in the velocity of money resulting from the historically low interest rates. 
C) The Fed's high interest rate policy that reduced private investment. 
D) Inability of the Fed to gain approval from Congress to purchase assets other than bonds issued by the federal government.

Question 20

The view that individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy) is called

Accepted Answer

A) the adaptive expectations hypothesis. 
B) the permanent income hypothesis. 
C) the rational expectations hypothesis. 
D) the Phillips curve. 
A) the adaptive expectations hypothesis. 
B) the permanent income hypothesis. 
C) the rational expectations hypothesis. 
D) the Phillips curve.

Compared with the recovery from the recession of 1981-82, the recovery from the recession of 2008-09 was characterized by

Computer forecasting models are most accurate at predicting the economy when

Which of the following would suggest that monetary policy is restrictive?

Prior to World War II,

According to the modern expectational Phillips curve, unemployment will temporarily rise above the natural rate of unemployment when

The two most severe recessions of the post-World War II era occurred in 1981-1982 and 2008-2009. The policy responses to the two recessions were

The interval between the recognition of a need for a policy change and when the policy change is instituted is called the:

Suppose the inflation rate of a country falls from 8 percent during 2002-2004 to 6 percent in 2005-2007, under the adaptive expectations hypothesis what will the expected rate of inflation at the beginning of 2008?

Which of the following best reflects the nonactivist view of stabilization policy?

The proponents of adaptive expectations believe that

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

During the 1960s, most economists believed that expansionary macro-policy

When the effects of a more expansionary macroeconomic policy are quickly and accurately anticipated, the policy will

Under which of the following conditions will the actual rate of unemployment tend to rise above the natural rate of unemployment?

Modern Phillips curve analysis indicates that if people

The policy response to the recession of 2008-2009 provided an experiment on the potency of Keynesian fiscal policy. In what respect was this true?

The adaptive expectations hypothesis implies that people

Incorporation of expectations into economic decision making and the economic experience of recent decades indicate that in the long run

Which of the following reduced the demand stimulus effects of monetary policy during the years following the 2008-2009 recession?

The view that individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy) is called

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

Compared with the recovery from the recession of 1981-82, the recovery from the recession of 2008-09 was characterized by

Computer forecasting models are most accurate at predicting the economy when

Which of the following would suggest that monetary policy is restrictive?

Prior to World War II,

According to the modern expectational Phillips curve, unemployment will temporarily rise above the natural rate of unemployment when

The two most severe recessions of the post-World War II era occurred in 1981-1982 and 2008-2009. The policy responses to the two recessions were

The interval between the recognition of a need for a policy change and when the policy change is instituted is called the:

Suppose the inflation rate of a country falls from 8 percent during 2002-2004 to 6 percent in 2005-2007, under the adaptive expectations hypothesis what will the expected rate of inflation at the beginning of 2008?

Which of the following best reflects the nonactivist view of stabilization policy?

The proponents of adaptive expectations believe that

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

During the 1960s, most economists believed that expansionary macro-policy

When the effects of a more expansionary macroeconomic policy are quickly and accurately anticipated, the policy will

Under which of the following conditions will the actual rate of unemployment tend to rise above the natural rate of unemployment?

Modern Phillips curve analysis indicates that if people

The policy response to the recession of 2008-2009 provided an experiment on the potency of Keynesian fiscal policy. In what respect was this true?

The adaptive expectations hypothesis implies that people

Incorporation of expectations into economic decision making and the economic experience of recent decades indicate that in the long run

Which of the following reduced the demand stimulus effects of monetary policy during the years following the 2008-2009 recession?

The view that individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy) is called

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