Question 1

In which of the following cases is the output gap zero?

Accepted Answer

A)  When consumer con?dence declines due to bad economic performance. 
B)  When the economy operates on its production possibility frontier. 
C)  When unemployment increases due to an increase in real wages. 
D)  When in?ation in the economy is equal to its target level. 
A)  When consumer con?dence declines due to bad economic performance. 
B)  When the economy operates on its production possibility frontier. 
C)  When unemployment increases due to an increase in real wages. 
D)  When in?ation in the economy is equal to its target level.

Question 2

A short-run supply shock, like an increase in oil prices, will lead to:

Accepted Answer

A)  an increase in employment. 
B)  an increase in actual GDP. 
C)  a higher rate of inﬂation. 
D)  a movement along the short-run aggregate supply curve. 
A)  an increase in employment. 
B)  an increase in actual GDP. 
C)  a higher rate of inﬂation. 
D)  a movement along the short-run aggregate supply curve.

Question 3

Which of the following is likely to occur if the government of an economy tries to reduce its structural deﬁcit?

Accepted Answer

A)  An increase in government spending. 
B)  A cut in taxes. 
C)  A fall in company proﬁts. 
D)  A rise in cyclical deﬁcit. 
A)  An increase in government spending. 
B)  A cut in taxes. 
C)  A fall in company proﬁts. 
D)  A rise in cyclical deﬁcit.

Question 4

If a central bank persistently fails to deliver the target inﬂation rate, then long-term inﬂationary expectations are likely to be different from the target rate.

Accepted Answer

A) True 
 B)False

Question 5

Consider an economy that is both in long-run and short-run equilibrium. Which of the following is likely to cause a positive output gap?

Accepted Answer

A)  An increase in production costs due to an increase in oil prices. 
B)  A substantial increase in interest rates. 
C)  Implementation of new technology that increases productivity of existing workers. 
D)  Introduction of higher income tax rates. 
A)  An increase in production costs due to an increase in oil prices. 
B)  A substantial increase in interest rates. 
C)  Implementation of new technology that increases productivity of existing workers. 
D)  Introduction of higher income tax rates.

Question 6

When real wages are falling, the cost incentive to hire or ﬁre workers is zero and unemployment remains constant.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is true regarding the implications of real business cycles?

Accepted Answer

A)  It can dampen the impact of austerity measures taken to reduce structural deﬁcit. 
B)  It renders ﬁscal policy totally ineffective. 
C)  It invalidates the negative association between inﬂation and aggregate demand. 
D)  It proves that the long-run aggregate supply curve is in fact ﬁxed for an economy, and 
A)  It can dampen the impact of austerity measures taken to reduce structural deﬁcit. 
B)  It renders ﬁscal policy totally ineffective. 
C)  It invalidates the negative association between inﬂation and aggregate demand. 
D)  It proves that the long-run aggregate supply curve is in fact ﬁxed for an economy, and

Question 8

Which of the following correctly illustrates the quantity theory of money?

Accepted Answer

A)  velocity of money × price level = money supply × real GDP 
B)  money supply × velocity of money = real GDP × price level 
C)  (money supply - velocity of money) = (price level - real GDP) 
D)  money supply/velocity of money = price level/real GDP 
A)  velocity of money × price level = money supply × real GDP 
B)  money supply × velocity of money = real GDP × price level 
C)  (money supply - velocity of money) = (price level - real GDP) 
D)  money supply/velocity of money = price level/real GDP

Question 9

Which of the following can cause a real business cycle effect?

Accepted Answer

A)  A new technology reducing the costs of economic transactions. 
B)  A rise in productivity brought about by more workers engaging in university education. 
C)  An outﬂow of migrant workers. 
D)  An increase in production caused by increasing employment. 
A)  A new technology reducing the costs of economic transactions. 
B)  A rise in productivity brought about by more workers engaging in university education. 
C)  An outﬂow of migrant workers. 
D)  An increase in production caused by increasing employment.

Question 10

Which of the following is true of de?ation?

Accepted Answer

A)  De?ation is likely to bene?t the economy because prices have fallen, making goods more affordable. 
B)  De?ation raises the real value of debt, making previously incurred debts less affordable. 
C)  De?ation refers to a sustained increase in the general price level. 
D)  A long period of de?ation is consistent with a high level of employment in the economy. 
A)  De?ation is likely to bene?t the economy because prices have fallen, making goods more affordable. 
B)  De?ation raises the real value of debt, making previously incurred debts less affordable. 
C)  De?ation refers to a sustained increase in the general price level. 
D)  A long period of de?ation is consistent with a high level of employment in the economy.

Question 11

A shock to supply will decrease actual GDP in the short run.

Accepted Answer

A) True 
 B)False

Question 12

In the event of a supply shock, a central bank that prioritizes stable inﬂation over GDP, will:

Accepted Answer

A)  try to boost aggregate demand. 
B)  increase interest rates. 
C)  not take any action because the supply shock is temporary. 
D)  increase money supply. 
A)  try to boost aggregate demand. 
B)  increase interest rates. 
C)  not take any action because the supply shock is temporary. 
D)  increase money supply.

Question 13

The Taylor rule helps business managers to estimate the interest rate path.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is most likely to occur if the central bank of a country decides to boost aggregate demand in response to a temporary supply shock?

Accepted Answer

A)  The economy will experience deﬂation. 
B)  The level of output in the economy will fall further. 
C)  The aggregate demand curve will shift to the left. 
D)  The level of inﬂation in the economy will increase further. 
A)  The economy will experience deﬂation. 
B)  The level of output in the economy will fall further. 
C)  The aggregate demand curve will shift to the left. 
D)  The level of inﬂation in the economy will increase further.

Question 15

Explain why the long-run aggregate supply curve looks different from the short-run aggregate supply curve.

Accepted Answer

In the long run, real wages ar

Question 16

_____ hold the view that an economy may not move out of a recession and sticky prices and wages could instead move the economy to a depression.

Accepted Answer

A)  Gradual monetarists 
B)  New classical economists 
C)  Moderate Keynesian economists 
D)  Extreme Keynesian economists 
A)  Gradual monetarists 
B)  New classical economists 
C)  Moderate Keynesian economists 
D)  Extreme Keynesian economists

Question 17

What is an output gap in an economy?

Accepted Answer

A positive output gap occurs when the ac

Question 18

Explain the impact of de?ation on economies that are trying to move towards long-run equilibrium.

Accepted Answer

De?ation raises the real value of debt.

Question 19

Which of the following statements is true about inﬂationary expectations?

Accepted Answer

A)  Near-term inﬂationary expectations are less volatile than long-term inﬂationary expectations. 
B)  Near-term inﬂationary expectations are much more volatile than long-term inﬂationary 
C)  Inﬂation targets are a weak tool for controlling inﬂationary expectations. 
D)  The central bank's ability to keep inﬂation at target levels plays an insigniﬁcant role in 
A)  Near-term inﬂationary expectations are less volatile than long-term inﬂationary expectations. 
B)  Near-term inﬂationary expectations are much more volatile than long-term inﬂationary 
C)  Inﬂation targets are a weak tool for controlling inﬂationary expectations. 
D)  The central bank's ability to keep inﬂation at target levels plays an insigniﬁcant role in

Question 20

A real business cycle is associated with _____.

Accepted Answer

A)  a shift of the short-run aggregate supply curve 
B)  a change in aggregate demand 
C)  a shift of the long-run aggregate supply curve 
D)  a change in real income 
A)  a shift of the short-run aggregate supply curve 
B)  a change in aggregate demand 
C)  a shift of the long-run aggregate supply curve 
D)  a change in real income

In which of the following cases is the output gap zero?

A short-run supply shock, like an increase in oil prices, will lead to:

Which of the following is likely to occur if the government of an economy tries to reduce its structural deﬁcit?

If a central bank persistently fails to deliver the target inﬂation rate, then long-term inﬂationary expectations are likely to be different from the target rate.

Consider an economy that is both in long-run and short-run equilibrium. Which of the following is likely to cause a positive output gap?

When real wages are falling, the cost incentive to hire or ﬁre workers is zero and unemployment remains constant.

Which of the following is true regarding the implications of real business cycles?

Which of the following correctly illustrates the quantity theory of money?

Which of the following can cause a real business cycle effect?

Which of the following is true of de?ation?

A shock to supply will decrease actual GDP in the short run.

In the event of a supply shock, a central bank that prioritizes stable inﬂation over GDP, will:

The Taylor rule helps business managers to estimate the interest rate path.

Which of the following is most likely to occur if the central bank of a country decides to boost aggregate demand in response to a temporary supply shock?

Explain why the long-run aggregate supply curve looks different from the short-run aggregate supply curve.

_____ hold the view that an economy may not move out of a recession and sticky prices and wages could instead move the economy to a depression.

What is an output gap in an economy?

Explain the impact of de?ation on economies that are trying to move towards long-run equilibrium.

Which of the following statements is true about inﬂationary expectations?

A real business cycle is associated with _____.

Economics for Business

Consumers in the Marketplace

Firms in the Marketplace

Markets in Action

Market Structure and Firm Performance

Strategic Rivalry

Growth Strategies

Governing Business

Introduction to the Macroeconomy

Measuring Macroeconomic Variables and Policy Issues

Expenditure and Fiscal Policy

Money, Banking and Interest

Supply-Side Policies and Economic Growth

Exchange Rates and the Balance of Payments

Globalization

Filters

Exam 13: Inflation, Output and Economic Policy

In which of the following cases is the output gap zero?

A short-run supply shock, like an increase in oil prices, will lead to:

Which of the following is likely to occur if the government of an economy tries to reduce its structural deﬁcit?

If a central bank persistently fails to deliver the target inﬂation rate, then long-term inﬂationary expectations are likely to be different from the target rate.

Consider an economy that is both in long-run and short-run equilibrium. Which of the following is likely to cause a positive output gap?

When real wages are falling, the cost incentive to hire or ﬁre workers is zero and unemployment remains constant.

Which of the following is true regarding the implications of real business cycles?

Which of the following correctly illustrates the quantity theory of money?

Which of the following can cause a real business cycle effect?

Which of the following is true of de?ation?

A shock to supply will decrease actual GDP in the short run.

In the event of a supply shock, a central bank that prioritizes stable inﬂation over GDP, will:

The Taylor rule helps business managers to estimate the interest rate path.

Which of the following is most likely to occur if the central bank of a country decides to boost aggregate demand in response to a temporary supply shock?

Explain why the long-run aggregate supply curve looks different from the short-run aggregate supply curve.

_____ hold the view that an economy may not move out of a recession and sticky prices and wages could instead move the economy to a depression.

What is an output gap in an economy?

Explain the impact of de?ation on economies that are trying to move towards long-run equilibrium.

Which of the following statements is true about inﬂationary expectations?

A real business cycle is associated with _____.

Economics for Business

Consumers in the Marketplace

Firms in the Marketplace

Markets in Action

Market Structure and Firm Performance

Strategic Rivalry

Growth Strategies

Governing Business

Introduction to the Macroeconomy

Measuring Macroeconomic Variables and Policy Issues

Expenditure and Fiscal Policy

Money, Banking and Interest

Supply-Side Policies and Economic Growth

Exchange Rates and the Balance of Payments

Globalization

Filters