Question 1

Under the adaptive expectations theory, expansionary monetary and fiscal policies designed to reduce the unemployment rate will be

Accepted Answer

A) ineffective in the long run. 
B) ineffective in the short run. 
C) noninflationary. 
D) all of the above. 
A) ineffective in the long run. 
B) ineffective in the short run. 
C) noninflationary. 
D) all of the above.

Question 2

If the index of leading indicators and other forecasting devices suggested that the economy is moving into an inflationary boom, activists' economic policy would call for

Accepted Answer

A) a decrease in money supply growth and a tax increase. 
B) an increase in money supply growth and a shift toward a budget deficit. 
C) an increase in money supply growth and a tax decrease. 
D) a continuation of the policies already in place. 
A) a decrease in money supply growth and a tax increase. 
B) an increase in money supply growth and a shift toward a budget deficit. 
C) an increase in money supply growth and a tax decrease. 
D) a continuation of the policies already in place.

Question 3

Computer forecasting models have

Accepted Answer

A) been able to forecast changes in the growth rate of real GDP with considerable accuracy. 
B) had only limited success predicting turns in key economic variables such as real GDP. 
C) been able to accurately forecast the future direction of inflation but not real GDP. 
D) been able to accurately forecast the future direction of real GDP but not inflation. 
A) been able to forecast changes in the growth rate of real GDP with considerable accuracy. 
B) had only limited success predicting turns in key economic variables such as real GDP. 
C) been able to accurately forecast the future direction of inflation but not real GDP. 
D) been able to accurately forecast the future direction of real GDP but not inflation.

Question 4

Since the 1960s, macroeconomists have become more aware

Accepted Answer

A) that increases in government expenditures are more effective than tax reductions as a source of economic stimulus. 
B) that persistent inflation will reduce the unemployment rate. 
C) of both the potential and the limitations of fiscal and monetary policy as stabilization tools. 
D) of the fact that fiscal policy is more potent than monetary policy. 
A) that increases in government expenditures are more effective than tax reductions as a source of economic stimulus. 
B) that persistent inflation will reduce the unemployment rate. 
C) of both the potential and the limitations of fiscal and monetary policy as stabilization tools. 
D) of the fact that fiscal policy is more potent than monetary policy.

Question 5

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

Accepted Answer

A) constant policy changes that generated uncertainty and undermined private investment 
B) the restrictive monetary policy followed by the Fed 
C) the tax increases instituted by a Congress intent on balancing the budget 
D) the inability of the federal government to borrow because of the sharply higher interest rates 
A) constant policy changes that generated uncertainty and undermined private investment 
B) the restrictive monetary policy followed by the Fed 
C) the tax increases instituted by a Congress intent on balancing the budget 
D) the inability of the federal government to borrow because of the sharply higher interest rates

Question 6

Figure 15-3  
-As shown in Figure 15-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause

Accepted Answer

A) labor to adjust nominal wages sluggishly. 
B) the aggregate supply curve to shift from SRAS1 to SRAS2 
C) the price level to eventually rise from 100 to 110. 
D) All of the above. 
A) labor to adjust nominal wages sluggishly. 
B) the aggregate supply curve to shift from SRAS1 to SRAS2 
C) the price level to eventually rise from 100 to 110. 
D) All of the above.

Question 7

Explain the three lags that make it difficult to time changes in discretionary policy properly.

Accepted Answer

The recognition lag is the period betwee

Question 8

According to the adaptive expectations hypothesis,

Accepted Answer

A) inflation will cause the long-run unemployment rate to decline. 
B) the economic record during the current period strongly influences decision-maker expectations about the future. 
C) decision makers will consider the expected impact of policy changes when forming their expectations about the future rate of inflation. 
D) future inflation will adapt to conform with the expectations of decision makers. 
A) inflation will cause the long-run unemployment rate to decline. 
B) the economic record during the current period strongly influences decision-maker expectations about the future. 
C) decision makers will consider the expected impact of policy changes when forming their expectations about the future rate of inflation. 
D) future inflation will adapt to conform with the expectations of decision makers.

Question 9

According to the modern view of the Phillips curve, expansionary macroeconomic policy that leads to inflation will reduce unemployment

Accepted Answer

A) only if people underestimate the inflationary side effects of the policy. 
B) only if people overestimate the inflationary side effects of the policy. 
C) if people accurately anticipate the inflationary side effects of the policy. 
D) only if monetary policy provides the macroeconomic stimulus. 
A) only if people underestimate the inflationary side effects of the policy. 
B) only if people overestimate the inflationary side effects of the policy. 
C) if people accurately anticipate the inflationary side effects of the policy. 
D) only if monetary policy provides the macroeconomic stimulus.

Question 10

In terms of the Phillips curve, the experience of the 1970s indicates that macro-policy

Accepted Answer

A) can permanently reduce unemployment if we are willing to tolerate higher inflation. 
B) can reduce unemployment in the long run if we are willing to tolerate higher inflation. 
C) may be able to reduce unemployment but cannot retard inflation. 
D) may be able to reduce unemployment in the short run, but there is little evidence that expansionary policies can reduce unemployment permanently. 
A) can permanently reduce unemployment if we are willing to tolerate higher inflation. 
B) can reduce unemployment in the long run if we are willing to tolerate higher inflation. 
C) may be able to reduce unemployment but cannot retard inflation. 
D) may be able to reduce unemployment in the short run, but there is little evidence that expansionary policies can reduce unemployment permanently.

Question 11

Figure 15-3  
-As shown in Figure 15-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the economy to move

Accepted Answer

A) directly from E1 to E3 and then remain at E3. 
B) directly from E1 to E2 and then remain at E2. 
C) from E1 to E2 initially and then eventually move back to E1. 
D) from E1 to E2 initially and then eventually move to E3. 
A) directly from E1 to E3 and then remain at E3. 
B) directly from E1 to E2 and then remain at E2. 
C) from E1 to E2 initially and then eventually move back to E1. 
D) from E1 to E2 initially and then eventually move to E3.

Question 12

Which of the following is an area of substantial agreement among macroeconomists?

Accepted Answer

A) Expansionary policies that lead to inflation can keep the actual rate of unemployment below the natural rate. 
B) It is relatively easy to time shifts in monetary policy in a manner that will promote economic stability. 
C) Price stability is a proper goal of monetary policy. 
D) It is relatively easy to time shifts in fiscal policy in a manner that will promote economic stability. 
A) Expansionary policies that lead to inflation can keep the actual rate of unemployment below the natural rate. 
B) It is relatively easy to time shifts in monetary policy in a manner that will promote economic stability. 
C) Price stability is a proper goal of monetary policy. 
D) It is relatively easy to time shifts in fiscal policy in a manner that will promote economic stability.

Question 13

The U.S. experience during the 1980s and 1990s illustrates that

Accepted Answer

A) fiscal policy is substantially more potent than monetary policy. 
B) a balanced budget is essential for the achievement of price stability. 
C) a monetary policy that keeps the inflation rate low and steady will help promote economic stability. 
D) there is a trade-off between inflation and unemployment-the unemployment rate can be reduced if we are willing to tolerate higher rates of inflation. 
A) fiscal policy is substantially more potent than monetary policy. 
B) a balanced budget is essential for the achievement of price stability. 
C) a monetary policy that keeps the inflation rate low and steady will help promote economic stability. 
D) there is a trade-off between inflation and unemployment-the unemployment rate can be reduced if we are willing to tolerate higher rates of inflation.

Question 14

Compared to the severe recession of 1981-1982, the growth of real GDP during the first two years of recovery from the 2008-2009 recession was

Accepted Answer

A) much more rapid and the unemployment rate fell by a smaller amount after the more recent recession. 
B) slower and the unemployment rate fell by a smaller amount after the more recent recession. 
C) more rapid but the unemployment rate fell by a smaller amount after the more recent recession. 
D) similar and the decline in the rate of unemployment was almost identical during the recovery from each of these recessions. 
A) much more rapid and the unemployment rate fell by a smaller amount after the more recent recession. 
B) slower and the unemployment rate fell by a smaller amount after the more recent recession. 
C) more rapid but the unemployment rate fell by a smaller amount after the more recent recession. 
D) similar and the decline in the rate of unemployment was almost identical during the recovery from each of these recessions.

Question 15

Which of the following reduced the effectiveness of the Fed's low interest rate policy during the aftermath of the 2008-2009 recession?

Accepted Answer

A) The heavy indebtedness of households. 
B) The reduction in the earnings derived from savings accounts, certificates of deposits, and other forms of savings used by many Americans. 
C) The increased fear of inflation fueled by the Fed's expansionary monetary policy. 
D) All of the above. 
A) The heavy indebtedness of households. 
B) The reduction in the earnings derived from savings accounts, certificates of deposits, and other forms of savings used by many Americans. 
C) The increased fear of inflation fueled by the Fed's expansionary monetary policy. 
D) All of the above.

Question 16

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

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; in the long run, it will remain unchanged. 
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; in the long run, it will remain unchanged.

Question 17

Activists and nonactivists both believe that

Accepted Answer

A) the self-corrective mechanism of a market economy works quite well. 
B) macro-policy should seek to minimize economic fluctuations, keep the inflation rate low, and establish an environment consistent with strong economic growth. 
C) discretionary monetary and fiscal policy can be used successfully to speed the adjustment process and reduce the swings of the business cycle. 
D) policies that stimulate aggregate demand can reduce the long-term rate of unemployment. 
A) the self-corrective mechanism of a market economy works quite well. 
B) macro-policy should seek to minimize economic fluctuations, keep the inflation rate low, and establish an environment consistent with strong economic growth. 
C) discretionary monetary and fiscal policy can be used successfully to speed the adjustment process and reduce the swings of the business cycle. 
D) policies that stimulate aggregate demand can reduce the long-term rate of unemployment.

Question 18

Starting from an initial long-run equilibrium, under the rational expectations hypothesis, an anticipated shift to a more expansionary policy will increase

Accepted Answer

A) prices but not real output in the short run. 
B) real output but not prices in the short run. 
C) real output in the long run but not in the short run. 
D) real output in both the long run and the short run. 
A) prices but not real output in the short run. 
B) real output but not prices in the short run. 
C) real output in the long run but not in the short run. 
D) real output in both the long run and the short run.

Question 19

Use the table below to choose the correct answer.   According to the adaptive expectations hypothesis, at the beginning of period 3, decision makers would expect inflation during period 3 to be

Accepted Answer

A) 2 percent. 
B) 5 percent. 
C) 7 percent. 
D) 8 percent. 
A) 2 percent. 
B) 5 percent. 
C) 7 percent. 
D) 8 percent.

Question 20

When there is an abrupt increase in the rate of inflation,

Accepted Answer

A) the actual rate of inflation will tend to fall below the natural rate. 
B) the actual rate of inflation will tend to rise above the natural rate. 
C) the actual and natural rate of inflation will generally be equal. 
D) the natural rate of unemployment will tend to rise. 
A) the actual rate of inflation will tend to fall below the natural rate. 
B) the actual rate of inflation will tend to rise above the natural rate. 
C) the actual and natural rate of inflation will generally be equal. 
D) the natural rate of unemployment will tend to rise.

Under the adaptive expectations theory, expansionary monetary and fiscal policies designed to reduce the unemployment rate will be

If the index of leading indicators and other forecasting devices suggested that the economy is moving into an inflationary boom, activists' economic policy would call for

Computer forecasting models have

Since the 1960s, macroeconomists have become more aware

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

Figure 15-3 -As shown in Figure 15-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause

Explain the three lags that make it difficult to time changes in discretionary policy properly.

According to the adaptive expectations hypothesis,

According to the modern view of the Phillips curve, expansionary macroeconomic policy that leads to inflation will reduce unemployment

In terms of the Phillips curve, the experience of the 1970s indicates that macro-policy

Figure 15-3 -As shown in Figure 15-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the economy to move

Which of the following is an area of substantial agreement among macroeconomists?

The U.S. experience during the 1980s and 1990s illustrates that

Compared to the severe recession of 1981-1982, the growth of real GDP during the first two years of recovery from the 2008-2009 recession was

Which of the following reduced the effectiveness of the Fed's low interest rate policy during the aftermath of the 2008-2009 recession?

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

Activists and nonactivists both believe that

Starting from an initial long-run equilibrium, under the rational expectations hypothesis, an anticipated shift to a more expansionary policy will increase

Use the table below to choose the correct answer. According to the adaptive expectations hypothesis, at the beginning of period 3, decision makers would expect inflation during period 3 to be

When there is an abrupt increase in the rate of inflation,

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 theory, expansionary monetary and fiscal policies designed to reduce the unemployment rate will be

If the index of leading indicators and other forecasting devices suggested that the economy is moving into an inflationary boom, activists' economic policy would call for

Computer forecasting models have

Since the 1960s, macroeconomists have become more aware

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

Figure 15-3 -As shown in Figure 15-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause

Explain the three lags that make it difficult to time changes in discretionary policy properly.

According to the adaptive expectations hypothesis,

According to the modern view of the Phillips curve, expansionary macroeconomic policy that leads to inflation will reduce unemployment

In terms of the Phillips curve, the experience of the 1970s indicates that macro-policy

Figure 15-3 -As shown in Figure 15-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the economy to move

Which of the following is an area of substantial agreement among macroeconomists?

The U.S. experience during the 1980s and 1990s illustrates that

Compared to the severe recession of 1981-1982, the growth of real GDP during the first two years of recovery from the 2008-2009 recession was

Which of the following reduced the effectiveness of the Fed's low interest rate policy during the aftermath of the 2008-2009 recession?

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

Activists and nonactivists both believe that

Starting from an initial long-run equilibrium, under the rational expectations hypothesis, an anticipated shift to a more expansionary policy will increase

Use the table below to choose the correct answer. According to the adaptive expectations hypothesis, at the beginning of period 3, decision makers would expect inflation during period 3 to be

When there is an abrupt increase in the rate of inflation,

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

Figure 15-3 -As shown in Figure 15-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause

Figure 15-3 -As shown in Figure 15-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the economy to move