Question 1

Which of the following is not held constant along a dynamic aggregate demand curve?

Accepted Answer

A) the inflation target 
B) the natural rate of output 
C) the demand shock 
D) the money supply 
A) the inflation target 
B) the natural rate of output 
C) the demand shock 
D) the money supply D

Question 2

The ex ante real interest rate that prevails at time t equals:

Accepted Answer

A) it - Etπt. 
B) it - Etπt + 1. 
C) it - πt. 
D) it - πt + 1. 
A) it - Etπt. 
B) it - Etπt + 1. 
C) it - πt. 
D) it - πt + 1. B

Question 3

The dynamic aggregate demand curve is downward sloping because as inflation falls, the central bank reduces the nominal interest rate by more than the fall in the inflation rate, which _____ the real interest rate and _____ the quantity of goods and services demanded.

Accepted Answer

A) decreases; decreases 
B) decreases; increases 
C) increases; increases 
D) increases; decreases 
A) decreases; decreases 
B) decreases; increases 
C) increases; increases 
D) increases; decreases B

Question 4

According to the monetary policy rule, the central bank sets the nominal interest rate so that the real interest rate increases when inflation _____ its target or output _____ its natural level.

Accepted Answer

A) rises above; rises above 
B) rises above; falls below 
C) falls below; falls below 
D) falls below; rises above 
A) rises above; rises above 
B) rises above; falls below 
C) falls below; falls below 
D) falls below; rises above

Question 5

Use the model of dynamic aggregate demand and aggregate supply to graphically illustrate the impact of a permanent increase in the central bank's inflation target when the economy is initially at long-run equilibrium. Explain the time path of output and inflation in words.

Accepted Answer

​ @#IMG-DLM& Output will initially increase above

Question 6

Which of the following would be represented by a positive value of the random supply shock, υt?

Accepted Answer

A) an irrational wave of optimism among investors 
B) an increase in government spending 
C) widespread drought leading to large increases in food prices 
D) an increase in the central bank's inflation target 
A) an irrational wave of optimism among investors 
B) an increase in government spending 
C) widespread drought leading to large increases in food prices 
D) an increase in the central bank's inflation target

Question 7

In the dynamic model of aggregate demand and aggregate supply, changes in the natural level of output change:

Accepted Answer

A) the DAD curve, but not the DAS curve. 
B) the DAS curve. but not the DAD curve. 
C) both the DAD curve and the DAS curve. 
D) neither the DAD nor the DAS curve. 
A) the DAD curve, but not the DAS curve. 
B) the DAS curve. but not the DAD curve. 
C) both the DAD curve and the DAS curve. 
D) neither the DAD nor the DAS curve.

Question 8

Of the five endogenous variables in the dynamic model of aggregate demand and aggregate supply, which two real variables do not depend on monetary policy in long-run equilibrium?

Accepted Answer

A) Yt and πt 
B) it and rt 
C) Etπt + 1 and πt 
D) Yt and rt 
A) Yt and πt 
B) it and rt 
C) Etπt + 1 and πt 
D) Yt and rt

Question 9

The nominal interest rate, it, is the nominal rate of return between periods:

Accepted Answer

A) t - 1 and t. 
B) t and t + 1. 
C) t - 1 and t + 1. 
D) t and t + 2. 
A) t - 1 and t. 
B) t and t + 1. 
C) t - 1 and t + 1. 
D) t and t + 2.

Question 10

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the periods after a multiperiod positive demand shock occurs, the DAS shifts upward because:

Accepted Answer

A) the central bank increases the target rate of inflation in response to higher rates of inflation. 
B) the deviation of output from the natural level of output increases as result of higher rates of inflation. 
C) higher rates of inflation generate positive supply shocks. 
D) expectations of inflation increase as a result of higher inflation in previous periods. 
A) the central bank increases the target rate of inflation in response to higher rates of inflation. 
B) the deviation of output from the natural level of output increases as result of higher rates of inflation. 
C) higher rates of inflation generate positive supply shocks. 
D) expectations of inflation increase as a result of higher inflation in previous periods.

Question 11

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the first period of a four-period positive demand shock, the DAS curve _____, and the DAD curve _____.

Accepted Answer

A) shifts upward; shifts rightward 
B) does not shift; shifts rightward 
C) does not shift; does not shift 
D) shifts downward; shifts leftward 
A) shifts upward; shifts rightward 
B) does not shift; shifts rightward 
C) does not shift; does not shift 
D) shifts downward; shifts leftward

Question 12

In the dynamic model, the demand for goods and services will _____ as the natural rate of output increases and _____ as the real interest rate increases.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase 
A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase

Question 13

Starting from long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, a one-period positive supply shock causes output to:

Accepted Answer

A) remain above the natural level for only one period. 
B) remain above the natural level for more than one period. 
C) remain below the natural level for only one period. 
D) remain below the natural level for more than one period. 
A) remain above the natural level for only one period. 
B) remain above the natural level for more than one period. 
C) remain below the natural level for only one period. 
D) remain below the natural level for more than one period.

Question 14

Graphs that illustrate the time paths of endogenous variables when a shock hits the economy are called:

Accepted Answer

A) monetary policy paths. 
B) dynamic shock figures. 
C) impulse response functions. 
D) endogenous growth models. 
A) monetary policy paths. 
B) dynamic shock figures. 
C) impulse response functions. 
D) endogenous growth models.

Question 15

Use the model of dynamic aggregate demand and aggregate supply to graphically illustrate the impact on output and inflation of an exceptional weather pattern that results in a one-period glut of food worldwide that reduces food prices (a one-period negative supply shock) when the economy is initially at long-run equilibrium. Explain the time path of output and inflation in words.

Accepted Answer

​ @#IMG-DLM& Output increases from the natural lev

Question 16

To reduce the demand for goods and services, the central bank will _____ its target inflation rate and _____ nominal and real interest rates.

Accepted Answer

A) reduce; decrease 
B) reduce; increase 
C) raise; decrease 
D) raise; increase 
A) reduce; decrease 
B) reduce; increase 
C) raise; decrease 
D) raise; increase

Question 17

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the first period of a multi-period positive demand shock, output _____, and inflation _____.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases 
A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases

Question 18

Starting from long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, output immediately decreases as a result of a one-period positive supply shock because:

Accepted Answer

A) the central bank raises the nominal and real interest rates in response to the increase in inflation. 
B) the higher prices generate a negative demand shock that reduces output. 
C) the natural level of output falls in response to the increase in inflation. 
D) the central bank increases the target rate of inflation in response to the increase in inflation. 
A) the central bank raises the nominal and real interest rates in response to the increase in inflation. 
B) the higher prices generate a negative demand shock that reduces output. 
C) the natural level of output falls in response to the increase in inflation. 
D) the central bank increases the target rate of inflation in response to the increase in inflation.

Question 19

At long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, the nominal interest rate it equals all of the following except:

Accepted Answer

A) ρ + πt. 
B) rt + πt. 
C) ρ + Etπt + 1. 
D) ρ + rt. 
A) ρ + πt. 
B) rt + πt. 
C) ρ + Etπt + 1. 
D) ρ + rt.

Question 20

Which of the following would be represented by a negative value of the random demand shock, εt?

Accepted Answer

A) an irrational wave of optimism among investors 
B) a decrease in government spending 
C) an aggressive increase in oil prices by a cartel 
D) a decrease in the central bank's inflation target 
A) an irrational wave of optimism among investors 
B) a decrease in government spending 
C) an aggressive increase in oil prices by a cartel 
D) a decrease in the central bank's inflation target

Which of the following is not held constant along a dynamic aggregate demand curve?

The ex ante real interest rate that prevails at time t equals:

The dynamic aggregate demand curve is downward sloping because as inflation falls, the central bank reduces the nominal interest rate by more than the fall in the inflation rate, which _ the real interest rate and _ the quantity of goods and services demanded.

According to the monetary policy rule, the central bank sets the nominal interest rate so that the real interest rate increases when inflation _ its target or output _ its natural level.

Use the model of dynamic aggregate demand and aggregate supply to graphically illustrate the impact of a permanent increase in the central bank's inflation target when the economy is initially at long-run equilibrium. Explain the time path of output and inflation in words.

Which of the following would be represented by a positive value of the random supply shock, υ_t?

In the dynamic model of aggregate demand and aggregate supply, changes in the natural level of output change:

Of the five endogenous variables in the dynamic model of aggregate demand and aggregate supply, which two real variables do not depend on monetary policy in long-run equilibrium?

The nominal interest rate, i_t, is the nominal rate of return between periods:

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the periods after a multiperiod positive demand shock occurs, the DAS shifts upward because:

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the first period of a four-period positive demand shock, the DAS curve _, and the DAD curve _.

In the dynamic model, the demand for goods and services will _ as the natural rate of output increases and _ as the real interest rate increases.

Starting from long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, a one-period positive supply shock causes output to:

Graphs that illustrate the time paths of endogenous variables when a shock hits the economy are called:

To reduce the demand for goods and services, the central bank will _ its target inflation rate and _ nominal and real interest rates.

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the first period of a multi-period positive demand shock, output _, and inflation _.

Starting from long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, output immediately decreases as a result of a one-period positive supply shock because:

At long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, the nominal interest rate i_t equals all of the following except:

Which of the following would be represented by a negative value of the random demand shock, ε_t?

The Science of Macroeconomics

The Data of Microeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Islm Model

Aggregate Demand Ii: Applying the Islm Model

The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

The Microfoundations of Consumption and Investment

Filters

Exam 15: A Dynamic Model of Economic Fluctuations

Which of the following is not held constant along a dynamic aggregate demand curve?

The ex ante real interest rate that prevails at time t equals:

The dynamic aggregate demand curve is downward sloping because as inflation falls, the central bank reduces the nominal interest rate by more than the fall in the inflation rate, which _____ the real interest rate and _____ the quantity of goods and services demanded.

According to the monetary policy rule, the central bank sets the nominal interest rate so that the real interest rate increases when inflation _____ its target or output _____ its natural level.

Use the model of dynamic aggregate demand and aggregate supply to graphically illustrate the impact of a permanent increase in the central bank's inflation target when the economy is initially at long-run equilibrium. Explain the time path of output and inflation in words.

Which of the following would be represented by a positive value of the random supply shock, υt?

In the dynamic model of aggregate demand and aggregate supply, changes in the natural level of output change:

Of the five endogenous variables in the dynamic model of aggregate demand and aggregate supply, which two real variables do not depend on monetary policy in long-run equilibrium?

The nominal interest rate, it, is the nominal rate of return between periods:

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the periods after a multiperiod positive demand shock occurs, the DAS shifts upward because:

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the first period of a four-period positive demand shock, the DAS curve _____, and the DAD curve _____.

In the dynamic model, the demand for goods and services will _____ as the natural rate of output increases and _____ as the real interest rate increases.

Starting from long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, a one-period positive supply shock causes output to:

Graphs that illustrate the time paths of endogenous variables when a shock hits the economy are called:

To reduce the demand for goods and services, the central bank will _____ its target inflation rate and _____ nominal and real interest rates.

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the first period of a multi-period positive demand shock, output _____, and inflation _____.

Starting from long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, output immediately decreases as a result of a one-period positive supply shock because:

At long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, the nominal interest rate it equals all of the following except:

Which of the following would be represented by a negative value of the random demand shock, εt?

The Science of Macroeconomics

The Data of Microeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Islm Model

Aggregate Demand Ii: Applying the Islm Model

The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

The Microfoundations of Consumption and Investment

Filters

The dynamic aggregate demand curve is downward sloping because as inflation falls, the central bank reduces the nominal interest rate by more than the fall in the inflation rate, which _ the real interest rate and _ the quantity of goods and services demanded.

According to the monetary policy rule, the central bank sets the nominal interest rate so that the real interest rate increases when inflation _ its target or output _ its natural level.

Which of the following would be represented by a positive value of the random supply shock, υ_t?

The nominal interest rate, i_t, is the nominal rate of return between periods:

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the first period of a four-period positive demand shock, the DAS curve _, and the DAD curve _.

In the dynamic model, the demand for goods and services will _ as the natural rate of output increases and _ as the real interest rate increases.

To reduce the demand for goods and services, the central bank will _ its target inflation rate and _ nominal and real interest rates.

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the first period of a multi-period positive demand shock, output _, and inflation _.

At long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, the nominal interest rate i_t equals all of the following except:

Which of the following would be represented by a negative value of the random demand shock, ε_t?