Question 1

Under the natural rate hypothesis, expansionary monetary and fiscal policies can at best produce a:

Accepted Answer

A)  permanent change in the unemployment rate. 
B)  short-run change in the unemployment rate. 
C)  permanent change in the inflation rate. 
D)  short-run change in the long-run Phillips curve. 
A)  permanent change in the unemployment rate. 
B)  short-run change in the unemployment rate. 
C)  permanent change in the inflation rate. 
D)  short-run change in the long-run Phillips curve.

Question 2

According to rational expectations theory, predictable expansionary monetary and fiscal policies to reduce the unemployment rate are:

Accepted Answer

A)  desirable because the result is to lower inflation. 
B)  harmful because the only result is higher inflation. 
C)  ineffective on the price level. 
D)  successful in reducing unemployment in the long run. 
A)  desirable because the result is to lower inflation. 
B)  harmful because the only result is higher inflation. 
C)  ineffective on the price level. 
D)  successful in reducing unemployment in the long run.

Question 3

What is the difference between the Keynesian and rational expectations theories concerning the success of stabilization policy?

Accepted Answer

The Keynesians believe that government c

Question 4

Exhibit 17-2 Aggregate demand and aggregate supply curves
 
As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause:

Accepted Answer

A)  labor to adjust nominal wages immediately. 
B)  the aggregate supply curve to shift from SRAS1 to SRAS2 
C)  the price level to eventually fall from 110 to 100. 
D)  real GDP to rise from $6 trillion to $6.5 trillion permanently. 
A)  labor to adjust nominal wages immediately. 
B)  the aggregate supply curve to shift from SRAS1 to SRAS2 
C)  the price level to eventually fall from 110 to 100. 
D)  real GDP to rise from $6 trillion to $6.5 trillion permanently.

Question 5

If the government accelerates money supply growth and enlarges the budget deficit to stimulate aggregate demand, the rational expectations hypothesis indicates that decision makers will:

Accepted Answer

A)  ignore the policy until it exerts an observable impact on prices, output, and employment. 
B)  quickly take steps to adjust their decision making in light of the more expansionary policies. 
C)  be fooled at the outset but eventually adjust their decision making in accordance with the change in policy. 
D)  be unaware that this policy change has been implemented until a higher rate of inflation is observed. 
A)  ignore the policy until it exerts an observable impact on prices, output, and employment. 
B)  quickly take steps to adjust their decision making in light of the more expansionary policies. 
C)  be fooled at the outset but eventually adjust their decision making in accordance with the change in policy. 
D)  be unaware that this policy change has been implemented until a higher rate of inflation is observed.

Question 6

"Preannounced, stable policies to achieve a low and constant money supply growth and a balanced federal budget are therefore the best way to lower the inflation rate." This statement best illustrates the:

Accepted Answer

A)  Keynesian theory. 
B)  rational expectations theory. 
C)  incomes policy. 
D)  supply-side theory. 
A)  Keynesian theory. 
B)  rational expectations theory. 
C)  incomes policy. 
D)  supply-side theory.

Question 7

Which of the following statements is true ?

Accepted Answer

A)  A political business cycle is one created by the incentive for politicians to make policies in accordance with benefit-cost analysis. 
B)  Adaptive expectations theory argues that the best indicator of the future is all of the available information. 
C)  Incomes policies tend to be very effective over time. 
D)  Incomes policies include jawboning, wage-price guidelines, and wage-price controls. 
A)  A political business cycle is one created by the incentive for politicians to make policies in accordance with benefit-cost analysis. 
B)  Adaptive expectations theory argues that the best indicator of the future is all of the available information. 
C)  Incomes policies tend to be very effective over time. 
D)  Incomes policies include jawboning, wage-price guidelines, and wage-price controls.

Question 8

Exhibit 17-2 Aggregate demand and aggregate supply curves
 
As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the price level to move:

Accepted Answer

A)  directly from 100 to 110 and then remain at 110. 
B)  directly from 100 to 105 and then remain at 105. 
C)  from 100 to 105 initially and then eventually move back to 100. 
D)  from 100 to 105 initially and then eventually move to 110. 
A)  directly from 100 to 110 and then remain at 110. 
B)  directly from 100 to 105 and then remain at 105. 
C)  from 100 to 105 initially and then eventually move back to 100. 
D)  from 100 to 105 initially and then eventually move to 110.

Question 9

Which of the following statements is true ?

Accepted Answer

A)  The Phillips curve has always been stable. 
B)  If the Phillips curve shifts outward to the right this illustrates a greater tradeoff between unemployment and inflation. 
C)  Keynesian economics assumes a vertical Phillips curve. 
D)  According to the natural rate hypothesis the Phillips curve is downward sloping. 
A)  The Phillips curve has always been stable. 
B)  If the Phillips curve shifts outward to the right this illustrates a greater tradeoff between unemployment and inflation. 
C)  Keynesian economics assumes a vertical Phillips curve. 
D)  According to the natural rate hypothesis the Phillips curve is downward sloping.

Question 10

On a Phillips curve diagram, a decrease in the rate of inflation, other things being equal, is represented by a(n):

Accepted Answer

A)  upward shift of the Phillips curve. 
B)  downward movement along Phillips curve. 
C)  upward movement along the Phillips curve. 
D)  downward shift of the Phillips curve. 
A)  upward shift of the Phillips curve. 
B)  downward movement along Phillips curve. 
C)  upward movement along the Phillips curve. 
D)  downward shift of the Phillips curve.

Question 11

Exhibit 17-2 Aggregate demand and aggregate supply curves
 
As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the economy to move:

Accepted Answer

A)  directly from E1 to E3 and then remain at E3. 
B)  directly from E1 to E2 and then remain at E2. 
C)  from E1 to E2 initially and then eventually move back to E1. 
D)  from E1 to E2 initially and then eventually move to E3. 
A)  directly from E1 to E3 and then remain at E3. 
B)  directly from E1 to E2 and then remain at E2. 
C)  from E1 to E2 initially and then eventually move back to E1. 
D)  from E1 to E2 initially and then eventually move to E3.

Question 12

Under adaptive expectations theory, people persistently:

Accepted Answer

A)  underestimate inflation when it is slowing down. 
B)  overestimate inflation when it is accelerating. 
C)  underestimate inflation when it is accelerating. 
D)  adapt to the prevailing inflation rate. 
A)  underestimate inflation when it is slowing down. 
B)  overestimate inflation when it is accelerating. 
C)  underestimate inflation when it is accelerating. 
D)  adapt to the prevailing inflation rate.

Question 13

Exhibit 17-5 Short-run and long-run Phillips curve
 
Suppose the government shown in Exhibit 17-5 uses contractionary monetary policy to reduce inflation from 9 to 6 percent. If people have rational expectations, then:

Accepted Answer

A)  the economy will remain stuck at point E1. 
B)  the natural rate will permanently increase to 8 percent. 
C)  unemployment will rise to 8 percent in the short run. 
D)  unemployment will remain at 6 percent as the inflation rate falls. 
A)  the economy will remain stuck at point E1. 
B)  the natural rate will permanently increase to 8 percent. 
C)  unemployment will rise to 8 percent in the short run. 
D)  unemployment will remain at 6 percent as the inflation rate falls.

Question 14

Wage and price controls imposed for an extended period of time are likely to result in:

Accepted Answer

A)  surpluses. 
B)  efficient markets. 
C)  black markets. 
D)  lower inflation rates once the controls are lifted. 
A)  surpluses. 
B)  efficient markets. 
C)  black markets. 
D)  lower inflation rates once the controls are lifted.

Question 15

Which of the following groups believes that government policy is undermined by people's incorporation of the anticipated consequences of the policy into their present decisions?

Accepted Answer

A)  monetarist school 
B)  Keynesian school 
C)  supply-side school 
D)  rational expectations school 
A)  monetarist school 
B)  Keynesian school 
C)  supply-side school 
D)  rational expectations school

Question 16

Under adaptive expectations theory, a decrease in the short-run aggregate demand curve ____ the inflation rate and ____ the unemployment rate.

Accepted Answer

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

Question 17

According to the Phillips curve, a more expansionary macro-policy that causes inflation to be greater will:

Accepted Answer

A)  place downward pressure on prices. 
B)  reduce unemployment. 
C)  reduce output. 
D)  reduce the natural rate of unemployment. 
A)  place downward pressure on prices. 
B)  reduce unemployment. 
C)  reduce output. 
D)  reduce the natural rate of unemployment.

Question 18

Exhibit 17-1 Inflation and unemployment rates
 
In Exhibit 17-1, when the unemployment rate goes from 3 percent to 9 percent,

Accepted Answer

A)  the level of inflation is unaffected. 
B)  the inflation rate goes from 8 percent to 14 percent. 
C)  the inflation rate goes from 8 percent to 3 percent. 
D)  the inflation rate goes to 0 percent. 
A)  the level of inflation is unaffected. 
B)  the inflation rate goes from 8 percent to 14 percent. 
C)  the inflation rate goes from 8 percent to 3 percent. 
D)  the inflation rate goes to 0 percent.

Question 19

When people use recent information to gradually adjust their forecasts of inflation, they are said to have:

Accepted Answer

A)  static expectations. 
B)  adaptive expectations. 
C)  rational expectations. 
D)  spiraling expectations. 
A)  static expectations. 
B)  adaptive expectations. 
C)  rational expectations. 
D)  spiraling expectations.

Exam 27: The Phillips Curve and Expectations Theory

Under the natural rate hypothesis, expansionary monetary and fiscal policies can at best produce a:

According to rational expectations theory, predictable expansionary monetary and fiscal policies to reduce the unemployment rate are:

What is the difference between the Keynesian and rational expectations theories concerning the success of stabilization policy?

Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause:

If the government accelerates money supply growth and enlarges the budget deficit to stimulate aggregate demand, the rational expectations hypothesis indicates that decision makers will:

"Preannounced, stable policies to achieve a low and constant money supply growth and a balanced federal budget are therefore the best way to lower the inflation rate." This statement best illustrates the:

Which of the following statements is true ?

Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the price level to move:

Which of the following statements is true ?

On a Phillips curve diagram, a decrease in the rate of inflation, other things being equal, is represented by a(n):

Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the economy to move:

Under adaptive expectations theory, people persistently:

Exhibit 17-5 Short-run and long-run Phillips curve Suppose the government shown in Exhibit 17-5 uses contractionary monetary policy to reduce inflation from 9 to 6 percent. If people have rational expectations, then:

Wage and price controls imposed for an extended period of time are likely to result in:

Which of the following groups believes that government policy is undermined by people's incorporation of the anticipated consequences of the policy into their present decisions?

Under adaptive expectations theory, a decrease in the short-run aggregate demand curve ____ the inflation rate and ____ the unemployment rate.

According to the Phillips curve, a more expansionary macro-policy that causes inflation to be greater will:

Exhibit 17-1 Inflation and unemployment rates In Exhibit 17-1, when the unemployment rate goes from 3 percent to 9 percent,

When people use recent information to gradually adjust their forecasts of inflation, they are said to have:

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

Filters

Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause:

Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move:

Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the economy to move:

Under adaptive expectations theory, a decrease in the short-run aggregate demand curve the inflation rate and the unemployment rate.