Question 1

One can understand the debt obligations stemming from health care and Social Security by looking at current deficit statistics.

Accepted Answer

A) True 
 B)False

Question 2

The rational expectations theory describes the assumption that people are _____, and the adaptive expectations theory describes the assumption that people are _____.

Accepted Answer

A)  forward-looking; backward-looking 
B)  backward-looking; forward-looking 
C)  rational; irrational 
D)  profit maximizers; loss minimizers 
A)  forward-looking; backward-looking 
B)  backward-looking; forward-looking 
C)  rational; irrational 
D)  profit maximizers; loss minimizers

Question 3

A financial instrument backed by a collection of mortgages is called a(n)

Accepted Answer

A)  adjustable-rate mortgage. 
B)  collateralized debt obligation. 
C)  credit default swap. 
D)  collateralized mortgage obligation. 
A)  adjustable-rate mortgage. 
B)  collateralized debt obligation. 
C)  credit default swap. 
D)  collateralized mortgage obligation.

Question 4

The Phillips curve will shift when

Accepted Answer

A)  the expected inflation rate changes. 
B)  rational expectations change. 
C)  the price level falls. 
D)  the unemployment rate falls. 
A)  the expected inflation rate changes. 
B)  rational expectations change. 
C)  the price level falls. 
D)  the unemployment rate falls.

Question 5

Some argue that the financial crisis of 2007-2009 was caused by a poor understanding of risks in the economy. One reason for that thinking is that

Accepted Answer

A)  credit card companies did not disclose who defaulted on their loans. 
B)  banks' secrecy laws prevented them from reporting which homeowners were behind in their mortgage payments. 
C)  mortgage brokers did not use the Internet to check on default rates. 
D)  some bond rating agencies' ratings did not disclose the true extent of the riskiness of mortgage-backed assets. 
A)  credit card companies did not disclose who defaulted on their loans. 
B)  banks' secrecy laws prevented them from reporting which homeowners were behind in their mortgage payments. 
C)  mortgage brokers did not use the Internet to check on default rates. 
D)  some bond rating agencies' ratings did not disclose the true extent of the riskiness of mortgage-backed assets.

Question 6

Increases in productivity contributed to the jobless recovery after the 2007-2009 recession.

Accepted Answer

A) True 
 B)False

Question 7

Unanticipated inflation results in

Accepted Answer

A)  increasing real wages. 
B)  decreasing nominal wages. 
C)  decreasing real wages. 
D)  increasing nominal and real wages. 
A)  increasing real wages. 
B)  decreasing nominal wages. 
C)  decreasing real wages. 
D)  increasing nominal and real wages.

Question 8

Imperfect information and efficiency wages together suggest that policy changes can have a short-term impact.

Accepted Answer

A) True 
 B)False

Question 9

Monetized debt occurs when debt is reduced by a fall in the money supply.

Accepted Answer

A) True 
 B)False

Question 10

The long-run Phillips curve

Accepted Answer

A)  is downward sloping, indicating a tradeoff between unemployment and inflation. 
B)  shifts to the right when the expected inflation rate increases. 
C)  shows no tradeoff between inflation and unemployment; that is, any inflation rate in the long run can be consistent with the natural rate of unemployment. 
D)  is upward sloping, showing that higher rates of unemployment are associated with higher rates of inflation. 
A)  is downward sloping, indicating a tradeoff between unemployment and inflation. 
B)  shifts to the right when the expected inflation rate increases. 
C)  shows no tradeoff between inflation and unemployment; that is, any inflation rate in the long run can be consistent with the natural rate of unemployment. 
D)  is upward sloping, showing that higher rates of unemployment are associated with higher rates of inflation.

Question 11

The short-run Phillips curve holds _____ constant.

Accepted Answer

A)  wages 
B)  taxes 
C)  income 
D)  inflationary expectations 
A)  wages 
B)  taxes 
C)  income 
D)  inflationary expectations

Question 12

Predictions based on rational expectations are always correct.

Accepted Answer

A) True 
 B)False

Question 13

Johnny claims that inflation next year will be 5% because the inflation rate in the past two years has been 5%. Which theorist would be vindicated by this behavior?

Accepted Answer

A)  Milton Friedman 
B)  Robert Lucas 
C)  John Maynard Keynes 
D)  Thorstein Veblen 
A)  Milton Friedman 
B)  Robert Lucas 
C)  John Maynard Keynes 
D)  Thorstein Veblen

Question 14

Deflation is a problem because it requires more purchasing power to pay off debt.

Accepted Answer

A) True 
 B)False

Question 15

When asking for wage increases, workers

Accepted Answer

A)  are influenced by inflationary expectations. 
B)  are not influenced by possible future price increases. 
C)  are influenced only by their productivity increases. 
D)  always get what they ask for. 
A)  are influenced by inflationary expectations. 
B)  are not influenced by possible future price increases. 
C)  are influenced only by their productivity increases. 
D)  always get what they ask for.

Question 16

Any action that reduces the public's perception of the rate of future inflation will shift the Phillips curve to the left.

Accepted Answer

A) True 
 B)False

Question 17

The 2007-2009 recession was _____ the previous two recessions, in 1990 and 2001.

Accepted Answer

A)  deeper than 
B)  less deep than 
C)  about the same as 
D)  a continuation of 
A)  deeper than 
B)  less deep than 
C)  about the same as 
D)  a continuation of

Question 18

Which statement is NOT an effective criticism of rational expectations?

Accepted Answer

A)  Studies have shown that macroeconomic policies do have an impact on the economy. 
B)  Labor markets are beset with imperfect information. 
C)  Labor markets exhibit short-term wage stickiness. 
D)  Errors about future expectations are randomly distributed. 
A)  Studies have shown that macroeconomic policies do have an impact on the economy. 
B)  Labor markets are beset with imperfect information. 
C)  Labor markets exhibit short-term wage stickiness. 
D)  Errors about future expectations are randomly distributed.

Question 19

Banks were not worried about making mortgage loans to subprime borrowers because they thought that having the house as collateral protected them from losing money if the borrower defaulted.

Accepted Answer

A) True 
 B)False

Question 20

If rational expectations theory is correct, then any increase in aggregate demand caused by announced expansionary policies

Accepted Answer

A)  leads to a short-run increase in real output but no long-run increase. 
B)  causes the inflation rate to fall. 
C)  is offset by rising inflationary expectations, causing the short-run aggregate supply curve to immediately shift to the left. 
D)  is offset by rising inflationary expectations, causing the short-run aggregate supply curve to slowly shift to the left. 
A)  leads to a short-run increase in real output but no long-run increase. 
B)  causes the inflation rate to fall. 
C)  is offset by rising inflationary expectations, causing the short-run aggregate supply curve to immediately shift to the left. 
D)  is offset by rising inflationary expectations, causing the short-run aggregate supply curve to slowly shift to the left.

One can understand the debt obligations stemming from health care and Social Security by looking at current deficit statistics.

The rational expectations theory describes the assumption that people are _, and the adaptive expectations theory describes the assumption that people are _.

A financial instrument backed by a collection of mortgages is called a(n)

The Phillips curve will shift when

Some argue that the financial crisis of 2007-2009 was caused by a poor understanding of risks in the economy. One reason for that thinking is that

Increases in productivity contributed to the jobless recovery after the 2007-2009 recession.

Unanticipated inflation results in

Imperfect information and efficiency wages together suggest that policy changes can have a short-term impact.

Monetized debt occurs when debt is reduced by a fall in the money supply.

The long-run Phillips curve

The short-run Phillips curve holds _____ constant.

Predictions based on rational expectations are always correct.

Johnny claims that inflation next year will be 5% because the inflation rate in the past two years has been 5%. Which theorist would be vindicated by this behavior?

Deflation is a problem because it requires more purchasing power to pay off debt.

When asking for wage increases, workers

Any action that reduces the public's perception of the rate of future inflation will shift the Phillips curve to the left.

The 2007-2009 recession was _____ the previous two recessions, in 1990 and 2001.

Which statement is NOT an effective criticism of rational expectations?

Banks were not worried about making mortgage loans to subprime borrowers because they thought that having the house as collateral protected them from losing money if the borrower defaulted.

If rational expectations theory is correct, then any increase in aggregate demand caused by announced expansionary policies

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

International Trade

Open Economy Macroeconomics

Filters

Exam 14: Macroeconomic Policy: Challenges in a Global Economy

One can understand the debt obligations stemming from health care and Social Security by looking at current deficit statistics.

The rational expectations theory describes the assumption that people are _____, and the adaptive expectations theory describes the assumption that people are _____.

A financial instrument backed by a collection of mortgages is called a(n)

The Phillips curve will shift when

Some argue that the financial crisis of 2007-2009 was caused by a poor understanding of risks in the economy. One reason for that thinking is that

Increases in productivity contributed to the jobless recovery after the 2007-2009 recession.

Unanticipated inflation results in

Imperfect information and efficiency wages together suggest that policy changes can have a short-term impact.

Monetized debt occurs when debt is reduced by a fall in the money supply.

The long-run Phillips curve

The short-run Phillips curve holds _____ constant.

Predictions based on rational expectations are always correct.

Johnny claims that inflation next year will be 5% because the inflation rate in the past two years has been 5%. Which theorist would be vindicated by this behavior?

Deflation is a problem because it requires more purchasing power to pay off debt.

When asking for wage increases, workers

Any action that reduces the public's perception of the rate of future inflation will shift the Phillips curve to the left.

The 2007-2009 recession was _____ the previous two recessions, in 1990 and 2001.

Which statement is NOT an effective criticism of rational expectations?

Banks were not worried about making mortgage loans to subprime borrowers because they thought that having the house as collateral protected them from losing money if the borrower defaulted.

If rational expectations theory is correct, then any increase in aggregate demand caused by announced expansionary policies

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

International Trade

Open Economy Macroeconomics

Filters

The rational expectations theory describes the assumption that people are _, and the adaptive expectations theory describes the assumption that people are _.