Question 1

Stagflation is the

Accepted Answer

A)  theory that people's expectations of future inflation are based on their most recent experiences. 
B)  theory that people form expectations on the basis of all available information. 
C)  combination of high unemployment rates and high inflation. 
D)  combination of low unemployment rates and low inflation. 
E)  combination of high unemployment rates and low inflation. 
A)  theory that people's expectations of future inflation are based on their most recent experiences. 
B)  theory that people form expectations on the basis of all available information. 
C)  combination of high unemployment rates and high inflation. 
D)  combination of low unemployment rates and low inflation. 
E)  combination of high unemployment rates and low inflation.

Question 2

What happens if aggregate demand decreases simultaneously with an increase in short-run aggregate supply, due to anticipated contractionary monetary policy?

Accepted Answer

A)  The price level remains constant, and real gross domestic product GDP) decreases. 
B)  The price level increases, and real gross domestic product GDP) increases. 
C)  The price level increases, and real gross domestic product GDP) decreases. 
D)  The price level decreases, and real gross domestic product GDP) remains constant. 
E)  The price level increases, and real gross domestic product GDP) remains constant. 
A)  The price level remains constant, and real gross domestic product GDP) decreases. 
B)  The price level increases, and real gross domestic product GDP) increases. 
C)  The price level increases, and real gross domestic product GDP) decreases. 
D)  The price level decreases, and real gross domestic product GDP) remains constant. 
E)  The price level increases, and real gross domestic product GDP) remains constant.

Question 3

Why did the findings of the traditional short-run Phillips curve imply such a powerful tool for monetary policy?

Accepted Answer

The main finding behind the traditional

Question 4

Which of the following statements regarding the relationship between input prices and output prices is true?

Accepted Answer

A)  Input prices adjust slower than output prices. 
B)  Output prices adjust slower than input prices. 
C)  Input prices and output prices adjust at the same rate. 
D)  Input prices adjust before output prices. 
E)  Input prices and output prices adjust at random times. 
A)  Input prices adjust slower than output prices. 
B)  Output prices adjust slower than input prices. 
C)  Input prices and output prices adjust at the same rate. 
D)  Input prices adjust before output prices. 
E)  Input prices and output prices adjust at random times.

Question 5

________ policy  is when a central bank acts to increase the money supply in an effort to stimulate the economy.

Accepted Answer

A)  Expansionary monetary 
B)  Expansionary fiscal 
C)  Contractionary monetary 
D)  Contractionary fiscal 
E)  Countercyclical monetary 
A)  Expansionary monetary 
B)  Expansionary fiscal 
C)  Contractionary monetary 
D)  Contractionary fiscal 
E)  Countercyclical monetary

Question 6

The short-run Phillips curve is built on the assumption that

Accepted Answer

A)  prices are completely flexible. 
B)  inflation expectations never adjust. 
C)  the unemployment rate and inflation rate are not related. 
D)  inflation expectations adjust over time. 
E)  the natural rate of unemployment does not exist. 
A)  prices are completely flexible. 
B)  inflation expectations never adjust. 
C)  the unemployment rate and inflation rate are not related. 
D)  inflation expectations adjust over time. 
E)  the natural rate of unemployment does not exist.

Question 7

The traditional short-run Phillips curve is

Accepted Answer

A)  upward sloping. 
B)  downward sloping. 
C)  horizontal. 
D)  vertical. 
E)  U-shaped. 
A)  upward sloping. 
B)  downward sloping. 
C)  horizontal. 
D)  vertical. 
E)  U-shaped.

Question 8

Monetary policy has real effects only when

Accepted Answer

A)  all prices are flexible. 
B)  inflation is expected. 
C)  some prices are sticky. 
D)  the economy is at full-employment output. 
E)  conducted by Congress. 
A)  all prices are flexible. 
B)  inflation is expected. 
C)  some prices are sticky. 
D)  the economy is at full-employment output. 
E)  conducted by Congress.

Question 9

To avoid the negative effects of unexpected inflation, workers have an incentive to

Accepted Answer

A)  lock in their current wages for years. 
B)  stay unemployed during years of inflation. 
C)  never negotiate wage contracts. 
D)  change jobs regularly. 
E)  expect a certain level of inflation and to negotiate their contracts accordingly. 
A)  lock in their current wages for years. 
B)  stay unemployed during years of inflation. 
C)  never negotiate wage contracts. 
D)  change jobs regularly. 
E)  expect a certain level of inflation and to negotiate their contracts accordingly.

Question 10

As the prices of goods and services decrease, the value of money

Accepted Answer

A)  stays the same. 
B)  increases. 
C)  decreases. 
D)  increases initially and then decreases. 
E)  decreases initially and then increases. 
A)  stays the same. 
B)  increases. 
C)  decreases. 
D)  increases initially and then decreases. 
E)  decreases initially and then increases.

Question 11

As expected inflation decreases, the short-run Phillips curve

Accepted Answer

A)  shifts to the left. 
B)  becomes flatter. 
C)  becomes steeper. 
D)  stays the same. 
E)  shifts to the right. 
A)  shifts to the left. 
B)  becomes flatter. 
C)  becomes steeper. 
D)  stays the same. 
E)  shifts to the right.

Question 12

The long-run Phillips curve is

Accepted Answer

A)  upward sloping. 
B)  downward sloping. 
C)  horizontal. 
D)  vertical. 
E)  U-shaped. 
A)  upward sloping. 
B)  downward sloping. 
C)  horizontal. 
D)  vertical. 
E)  U-shaped.

Question 13

Because you are an economics student, your parents are always asking you about the macroeconomy. Over the past few months, they have seen the economy expanding at a very fast pace, and they are worried about inflation. Your parents ask you, "What type of monetary policy do you expect the Federal Reserve to conduct if it expected high levels of inflation on the horizon?" Explain your answer.

Accepted Answer

If high inflation was expected, the Fede

Question 14

Refer to the following figure to answer the next questions.
  
-According to the figure, contractionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium ________ to equilibrium ________ in the short run.

Accepted Answer

A)  A; C 
B)  A; B 
C)  A; D 
D)  C; B 
E)  C; D 
A)  A; C 
B)  A; B 
C)  A; D 
D)  C; B 
E)  C; D

Question 15

According to adaptive expectations theory, when inflation accelerates,

Accepted Answer

A)  people underestimate inflation. 
B)  people overestimate inflation. 
C)  people correctly estimate inflation. 
D)  people change to rational expectations. 
E)  unemployment must increase. 
A)  people underestimate inflation. 
B)  people overestimate inflation. 
C)  people correctly estimate inflation. 
D)  people change to rational expectations. 
E)  unemployment must increase.

Question 16

You have just been chosen as an economist on the Board of Governors for the Federal Reserve. After years of constant growth, the U.S. economy begins to fall into a recession. What type of monetary policy do you suggest to the board, and why?

Accepted Answer

Expansionary monetary policy should be s

Question 17

According to rational expectations theory, if the last three years of inflation were 0 percent, 2 percent, and 4 percent, respectively, one would expect inflation the following year to be ________ percent.

Accepted Answer

A)  4 
B)  6 
C)  2 
D)  0 
E)  3 
A)  4 
B)  6 
C)  2 
D)  0 
E)  3

Question 18

Central banks can use monetary policy to

Accepted Answer

A)  turn prices from inflexible to flexible. 
B)  force private banks to lend out reserves. 
C)  make it easier for people and businesses to borrow. 
D)  print money. 
E)  steer the economy out of overexpansion. 
A)  turn prices from inflexible to flexible. 
B)  force private banks to lend out reserves. 
C)  make it easier for people and businesses to borrow. 
D)  print money. 
E)  steer the economy out of overexpansion.

Question 19

As expected inflation increases, the short-run Phillips curve

Accepted Answer

A)  shifts to the left. 
B)  becomes flatter. 
C)  becomes steeper. 
D)  stays the same. 
E)  shifts to the right. 
A)  shifts to the left. 
B)  becomes flatter. 
C)  becomes steeper. 
D)  stays the same. 
E)  shifts to the right.

Question 20

Changes in the quantity of money lead to real changes in the economy. If this is the case, why would the central bank ever stop increasing the money supply?

Accepted Answer

A)  Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive up the value of money. 
B)  The government has rules in place on the maximum amount the money supply can be increased in a given fiscal year. 
C)  Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive down the value of money. 
D)  Increasing the money supply is not a politically popular action and may lead to leaders of the central bank not getting reelected. 
E)  The short-run benefits are outweighed by the short-run costs of increases in the money supply. 
A)  Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive up the value of money. 
B)  The government has rules in place on the maximum amount the money supply can be increased in a given fiscal year. 
C)  Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive down the value of money. 
D)  Increasing the money supply is not a politically popular action and may lead to leaders of the central bank not getting reelected. 
E)  The short-run benefits are outweighed by the short-run costs of increases in the money supply.

Stagflation is the

What happens if aggregate demand decreases simultaneously with an increase in short-run aggregate supply, due to anticipated contractionary monetary policy?

Why did the findings of the traditional short-run Phillips curve imply such a powerful tool for monetary policy?

Which of the following statements regarding the relationship between input prices and output prices is true?

________ policy is when a central bank acts to increase the money supply in an effort to stimulate the economy.

The short-run Phillips curve is built on the assumption that

The traditional short-run Phillips curve is

Monetary policy has real effects only when

To avoid the negative effects of unexpected inflation, workers have an incentive to

As the prices of goods and services decrease, the value of money

As expected inflation decreases, the short-run Phillips curve

The long-run Phillips curve is

Refer to the following figure to answer the next questions. -According to the figure, contractionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium to equilibrium in the short run.

According to adaptive expectations theory, when inflation accelerates,

You have just been chosen as an economist on the Board of Governors for the Federal Reserve. After years of constant growth, the U.S. economy begins to fall into a recession. What type of monetary policy do you suggest to the board, and why?

According to rational expectations theory, if the last three years of inflation were 0 percent, 2 percent, and 4 percent, respectively, one would expect inflation the following year to be ________ percent.

Central banks can use monetary policy to

As expected inflation increases, the short-run Phillips curve

Changes in the quantity of money lead to real changes in the economy. If this is the case, why would the central bank ever stop increasing the money supply?

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Market Outcomes and Tax Incidence

Price Controls

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings, Interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

International Trade

International Finance

Filters

Exam 18: Monetary Policy Learning Objectives

Stagflation is the

What happens if aggregate demand decreases simultaneously with an increase in short-run aggregate supply, due to anticipated contractionary monetary policy?

Why did the findings of the traditional short-run Phillips curve imply such a powerful tool for monetary policy?

Which of the following statements regarding the relationship between input prices and output prices is true?

________ policy is when a central bank acts to increase the money supply in an effort to stimulate the economy.

The short-run Phillips curve is built on the assumption that

The traditional short-run Phillips curve is

Monetary policy has real effects only when

To avoid the negative effects of unexpected inflation, workers have an incentive to

As the prices of goods and services decrease, the value of money

As expected inflation decreases, the short-run Phillips curve

The long-run Phillips curve is

Refer to the following figure to answer the next questions. -According to the figure, contractionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium ________ to equilibrium ________ in the short run.

According to adaptive expectations theory, when inflation accelerates,

You have just been chosen as an economist on the Board of Governors for the Federal Reserve. After years of constant growth, the U.S. economy begins to fall into a recession. What type of monetary policy do you suggest to the board, and why?

According to rational expectations theory, if the last three years of inflation were 0 percent, 2 percent, and 4 percent, respectively, one would expect inflation the following year to be ________ percent.

Central banks can use monetary policy to

As expected inflation increases, the short-run Phillips curve

Changes in the quantity of money lead to real changes in the economy. If this is the case, why would the central bank ever stop increasing the money supply?

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Market Outcomes and Tax Incidence

Price Controls

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings, Interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

International Trade

International Finance

Filters

Refer to the following figure to answer the next questions. -According to the figure, contractionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium to equilibrium in the short run.