Question 1

Rational expectations analysis leads to the conclusion that policy changes will be effective in the short run.

Accepted Answer

A) True 
 B)False

Question 2

In the long run, any demand-side policy that attempts to reduce unemployment below its natural rate will

Accepted Answer

A)  cause inflation. 
B)  be successful. 
C)  increase the natural rate. 
D)  lower GDP. 
A)  cause inflation. 
B)  be successful. 
C)  increase the natural rate. 
D)  lower GDP.

Question 3

Accelerating inflation causes nominal wages to rise, shifting the short-run aggregate supply curve to the _____ and the Phillips curve to the _____.

Accepted Answer

A)  right; right 
B)  left; right 
C)  right; left 
D)  left; left 
A)  right; right 
B)  left; right 
C)  right; left 
D)  left; left

Question 4

Essentially, the way to reduce inflationary expectations using demand-side policies is to cause an economic slowdown.

Accepted Answer

A) True 
 B)False

Question 5

The unemployment rate during the 2007-2009 recession was not as high as the unemployment rates in the previous two recessions.

Accepted Answer

A) True 
 B)False

Question 6

When inflationary expectations are added to the Phillips curve, the nonaccelerating inflation rate of unemployment is defined as the unemployment rate at which the

Accepted Answer

A)  inflation rate is always zero. 
B)  actual inflation rate exceeds the expected inflation rate. 
C)  actual inflation rate is less than the expected inflation rate. 
D)  actual inflation rate equals the expected inflation rate. 
A)  inflation rate is always zero. 
B)  actual inflation rate exceeds the expected inflation rate. 
C)  actual inflation rate is less than the expected inflation rate. 
D)  actual inflation rate equals the expected inflation rate.

Question 7

Subprime mortgages are home loans to high-quality borrowers at rates 0.25% below the prime rate.

Accepted Answer

A) True 
 B)False

Question 8

Suppose the economy is currently in long-run equilibrium, with unemployment equal to the natural rate, and that people form expectations rationally. If the Federal Reserve announces that it is going to increase the money supply, then the economy will

Accepted Answer

A)  permanently move to a higher level of output and a higher price level. 
B)  move to a higher price level but remain at potential GDP. 
C)  permanently move to a lower level of output and a lower price level. 
D)  move to a higher GDP level but remain at a constant price level. 
A)  permanently move to a higher level of output and a higher price level. 
B)  move to a higher price level but remain at potential GDP. 
C)  permanently move to a lower level of output and a lower price level. 
D)  move to a higher GDP level but remain at a constant price level.

Question 9

The long-run Phillips curve is the counterpart to the

Accepted Answer

A)  short-run aggregate supply curve. 
B)  aggregate demand curve. 
C)  long-run aggregate supply curve. 
D)  budget deficit. 
A)  short-run aggregate supply curve. 
B)  aggregate demand curve. 
C)  long-run aggregate supply curve. 
D)  budget deficit.

Question 10

Which of these is NOT a factor that explains jobless recoveries?

Accepted Answer

A)  rising productivity 
B)  the increased use of temporary and part-time workers 
C)  lax labor laws 
D)  an increase in outsourcing 
A)  rising productivity 
B)  the increased use of temporary and part-time workers 
C)  lax labor laws 
D)  an increase in outsourcing

Question 11

Deflation can be a problem because it

Accepted Answer

A)  leads to higher wages. 
B)  makes it more difficult to pay off debt. 
C)  can easily become hyperinflation. 
D)  increases interest rates. 
A)  leads to higher wages. 
B)  makes it more difficult to pay off debt. 
C)  can easily become hyperinflation. 
D)  increases interest rates.

Question 12

It is hard to see the long-term debt obligations stemming from health care and Social Security because

Accepted Answer

A)  we do not know how many people will qualify for these payments. 
B)  these expenses were budgeted and paid out during the year in which the recipients contributed their taxes. 
C)  these expenses are budgeted and paid out during the year in which the costs are incurred. 
D)  these expenses never show up in the budget. 
A)  we do not know how many people will qualify for these payments. 
B)  these expenses were budgeted and paid out during the year in which the recipients contributed their taxes. 
C)  these expenses are budgeted and paid out during the year in which the costs are incurred. 
D)  these expenses never show up in the budget.

Question 13

According to the equation for the Phillips curve, if wages increase by 3% and productivity increases by 5%, then inflation will be

Accepted Answer

A)  -8%. 
B)  -2%. 
C)  2%. 
D)  8%. 
A)  -8%. 
B)  -2%. 
C)  2%. 
D)  8%.

Question 14

One cannot understand the debt obligations stemming from health care and Social Security by looking at current deficit statistics.

Accepted Answer

A) True 
 B)False

Question 15

Robert Lucas argued that the theory of rational expectations suggests that tax cuts will work if used temporarily.

Accepted Answer

A) True 
 B)False

Question 16

(Figure: Understanding Phillips Curves Shifts 2) What would cause an outward shift from Phillips curve PC1 to Phillips curve PC0?

Accepted Answer

A)  a decrease in the expected inflation rate 
B)  an increase in the expected inflation rate 
C)  a decrease in the natural rate of unemployment 
D)  an increase in the natural rate of unemployment 
A)  a decrease in the expected inflation rate 
B)  an increase in the expected inflation rate 
C)  a decrease in the natural rate of unemployment 
D)  an increase in the natural rate of unemployment

Question 17

Even though recent legislation has slowed the rise in health care costs, the overall cost of Medicare remains unsustainable in the long term.

Accepted Answer

A) True 
 B)False

Question 18

Increased outsourcing by U.S. companies has contributed to the jobless recovery after the 2007-2009 recession.

Accepted Answer

A) True 
 B)False

Question 19

If wages rise by 3% and productivity rises by 2%, then prices can be expected to rise by 5%.

Accepted Answer

A) True 
 B)False

Question 20

Which company did the Federal Reserve and the Treasury allow to fail to send a message to the financial markets about the costs of risky behavior?

Accepted Answer

A)  AIG 
B)  Chrysler 
C)  Ford 
D)  Lehman Brothers 
A)  AIG 
B)  Chrysler 
C)  Ford 
D)  Lehman Brothers

Rational expectations analysis leads to the conclusion that policy changes will be effective in the short run.

In the long run, any demand-side policy that attempts to reduce unemployment below its natural rate will

Accelerating inflation causes nominal wages to rise, shifting the short-run aggregate supply curve to the _ and the Phillips curve to the _.

Essentially, the way to reduce inflationary expectations using demand-side policies is to cause an economic slowdown.

The unemployment rate during the 2007-2009 recession was not as high as the unemployment rates in the previous two recessions.

When inflationary expectations are added to the Phillips curve, the nonaccelerating inflation rate of unemployment is defined as the unemployment rate at which the

Subprime mortgages are home loans to high-quality borrowers at rates 0.25% below the prime rate.

Suppose the economy is currently in long-run equilibrium, with unemployment equal to the natural rate, and that people form expectations rationally. If the Federal Reserve announces that it is going to increase the money supply, then the economy will

The long-run Phillips curve is the counterpart to the

Which of these is NOT a factor that explains jobless recoveries?

Deflation can be a problem because it

It is hard to see the long-term debt obligations stemming from health care and Social Security because

According to the equation for the Phillips curve, if wages increase by 3% and productivity increases by 5%, then inflation will be

One cannot understand the debt obligations stemming from health care and Social Security by looking at current deficit statistics.

Robert Lucas argued that the theory of rational expectations suggests that tax cuts will work if used temporarily.

(Figure: Understanding Phillips Curves Shifts 2) What would cause an outward shift from Phillips curve PC₁ to Phillips curve PC₀?

Even though recent legislation has slowed the rise in health care costs, the overall cost of Medicare remains unsustainable in the long term.

Increased outsourcing by U.S. companies has contributed to the jobless recovery after the 2007-2009 recession.

If wages rise by 3% and productivity rises by 2%, then prices can be expected to rise by 5%.

Which company did the Federal Reserve and the Treasury allow to fail to send a message to the financial markets about the costs of risky behavior?

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

Rational expectations analysis leads to the conclusion that policy changes will be effective in the short run.

In the long run, any demand-side policy that attempts to reduce unemployment below its natural rate will

Accelerating inflation causes nominal wages to rise, shifting the short-run aggregate supply curve to the _____ and the Phillips curve to the _____.

Essentially, the way to reduce inflationary expectations using demand-side policies is to cause an economic slowdown.

The unemployment rate during the 2007-2009 recession was not as high as the unemployment rates in the previous two recessions.

When inflationary expectations are added to the Phillips curve, the nonaccelerating inflation rate of unemployment is defined as the unemployment rate at which the

Subprime mortgages are home loans to high-quality borrowers at rates 0.25% below the prime rate.

Suppose the economy is currently in long-run equilibrium, with unemployment equal to the natural rate, and that people form expectations rationally. If the Federal Reserve announces that it is going to increase the money supply, then the economy will

The long-run Phillips curve is the counterpart to the

Which of these is NOT a factor that explains jobless recoveries?

Deflation can be a problem because it

It is hard to see the long-term debt obligations stemming from health care and Social Security because

According to the equation for the Phillips curve, if wages increase by 3% and productivity increases by 5%, then inflation will be

One cannot understand the debt obligations stemming from health care and Social Security by looking at current deficit statistics.

Robert Lucas argued that the theory of rational expectations suggests that tax cuts will work if used temporarily.

(Figure: Understanding Phillips Curves Shifts 2) What would cause an outward shift from Phillips curve PC1 to Phillips curve PC0?

Even though recent legislation has slowed the rise in health care costs, the overall cost of Medicare remains unsustainable in the long term.

Increased outsourcing by U.S. companies has contributed to the jobless recovery after the 2007-2009 recession.

If wages rise by 3% and productivity rises by 2%, then prices can be expected to rise by 5%.

Which company did the Federal Reserve and the Treasury allow to fail to send a message to the financial markets about the costs of risky behavior?

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

Accelerating inflation causes nominal wages to rise, shifting the short-run aggregate supply curve to the _ and the Phillips curve to the _.

(Figure: Understanding Phillips Curves Shifts 2) What would cause an outward shift from Phillips curve PC₁ to Phillips curve PC₀?