Question 1

The total indebtedness of the federal government in the form of outstanding interest-earning bonds is the

Accepted Answer

A)  budget deficit. 
B)  budget surplus. 
C)  national debt. 
D)  trade deficit. 
A)  budget deficit. 
B)  budget surplus. 
C)  national debt. 
D)  trade deficit.

Question 2

The view that decision-maker expectations are based on actual outcomes observed during the recent past is called the

Accepted Answer

A)  rational expectations hypothesis. 
B)  adaptive expectations hypothesis. 
C)  permanent income theory. 
D)  recognition lag. 
A)  rational expectations hypothesis. 
B)  adaptive expectations hypothesis. 
C)  permanent income theory. 
D)  recognition lag.

Question 3

According to the rational expectations theory,

Accepted Answer

A)  on average people have very little idea of what to expect from government policy makers. 
B)  people form expectations by focusing only on the private sector. 
C)  people do not consider likely government policies when forming expectations. 
D)  people form expectations, in part, by considering the probable future effects of changes in government policy. 
A)  on average people have very little idea of what to expect from government policy makers. 
B)  people form expectations by focusing only on the private sector. 
C)  people do not consider likely government policies when forming expectations. 
D)  people form expectations, in part, by considering the probable future effects of changes in government policy.

Question 4

If the monetary authorities follow policies that keep the annual rate of inflation steady and low (for example, 2 percent), which of the following is most likely to occur?

Accepted Answer

A)  a high rate of unemployment because people will anticipate a higher rate of inflation 
B)  considerable fluctuations in real GDP because the monetary authorities are not constantly adjusting monetary policy in light of current business conditions 
C)  higher real interest rates because decision makers will fail to anticipate the 2 percent rate of inflation 
D)  an unemployment rate that is at or near the natural rate of unemployment because the actual rate of inflation will not be much different than what people expect 
A)  a high rate of unemployment because people will anticipate a higher rate of inflation 
B)  considerable fluctuations in real GDP because the monetary authorities are not constantly adjusting monetary policy in light of current business conditions 
C)  higher real interest rates because decision makers will fail to anticipate the 2 percent rate of inflation 
D)  an unemployment rate that is at or near the natural rate of unemployment because the actual rate of inflation will not be much different than what people expect

Question 5

What are the macroeconomic policy implications of the rational expectations hypothesis? What should policy makers do and not do?

Accepted Answer

The hypothesis implies that macro-policy

Question 6

Under the adaptive expectations hypothesis, which of the following is the most likely short-run effect of a move to a more expansionary monetary policy?

Accepted Answer

A)  higher prices and no change in real output 
B)  higher prices and expansion in real output 
C)  no change in prices but an expansion in real output 
D)  no change in either prices or real output 
A)  higher prices and no change in real output 
B)  higher prices and expansion in real output 
C)  no change in prices but an expansion in real output 
D)  no change in either prices or real output

Question 7

Figure 15-3   As shown in Figure 15-3, 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 8

Public choice analysis explains that

Accepted Answer

A)  politicians have strong incentives to favor deficit finance over tax finance. 
B)  policy makers believe the budget should be balanced except in times of war. 
C)  the legislator who is a spending "watch dog" can save her constituents a substantial amount of tax money. 
D)  given the way Congress operates, the apparent popularity of deficit financing is surprising. 
A)  politicians have strong incentives to favor deficit finance over tax finance. 
B)  policy makers believe the budget should be balanced except in times of war. 
C)  the legislator who is a spending "watch dog" can save her constituents a substantial amount of tax money. 
D)  given the way Congress operates, the apparent popularity of deficit financing is surprising.

Question 9

Since the 1960s, macroeconomists have become more aware

Accepted Answer

A)  that increases in government expenditures are more effective than tax reductions as a source of economic stimulus. 
B)  that  persistent inflation will reduce the unemployment rate. 
C)  of both the potential and the limitations of fiscal and monetary policy as stabilization tools. 
D)  of the fact that fiscal policy is more potent than monetary policy. 
A)  that increases in government expenditures are more effective than tax reductions as a source of economic stimulus. 
B)  that  persistent inflation will reduce the unemployment rate. 
C)  of both the potential and the limitations of fiscal and monetary policy as stabilization tools. 
D)  of the fact that fiscal policy is more potent than monetary policy.

Question 10

Figure 15-3   As shown in Figure 15-3, 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 11

Under the rational expectations hypothesis, which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Accepted Answer

A)  higher prices and no change in real output 
B)  higher prices and expansion in real output 
C)  no change in prices but an expansion in real output 
D)  no change in either prices or real output 
A)  higher prices and no change in real output 
B)  higher prices and expansion in real output 
C)  no change in prices but an expansion in real output 
D)  no change in either prices or real output

Question 12

Use the figure below to answer the following question(s). Figure 15-2
  According to the modern expectational Phillips curve illustrated in Figure 15-2, unemployment will equal the natural rate of unemployment when

Accepted Answer

A)  inflation turns out to be lower than what people expected. 
B)  inflation turns out to be higher than what people expected. 
C)  inflation turns out to be equal to what people expected. 
D)  all of the above are true. 
A)  inflation turns out to be lower than what people expected. 
B)  inflation turns out to be higher than what people expected. 
C)  inflation turns out to be equal to what people expected. 
D)  all of the above are true.

Question 13

When government debt is financed internally, future generations will

Accepted Answer

A)  inherit a higher tax liability without additional interest income. 
B)  inherit neither higher taxes nor additional interest income. 
C)  inherit both higher taxes and additional interest income. 
D)  receive lower interest income and a lower tax liability. 
A)  inherit a higher tax liability without additional interest income. 
B)  inherit neither higher taxes nor additional interest income. 
C)  inherit both higher taxes and additional interest income. 
D)  receive lower interest income and a lower tax liability.

Question 14

The "implicit debt" accompanying the Social Security and Medicare programs is

Accepted Answer

A)  substantially greater than the national debt. 
B)  approximately equal to the national debt. 
C)  about half the size of the national debt. 
D)  about one tenth the size of the national debt. 
A)  substantially greater than the national debt. 
B)  approximately equal to the national debt. 
C)  about half the size of the national debt. 
D)  about one tenth the size of the national debt.

Question 15

Use the figure below to answer the following question(s). Figure 15-2
  According to the modern expectational Phillips curve illustrated in Figure 15-2, unemployment will temporarily fall below the natural rate of unemployment when

Accepted Answer

A)  inflation turns out to be lower than what people expected. 
B)  inflation turns out to be higher than what people expected. 
C)  inflation turns out to be equal to what people expected. 
D)  all of the above are true. 
A)  inflation turns out to be lower than what people expected. 
B)  inflation turns out to be higher than what people expected. 
C)  inflation turns out to be equal to what people expected. 
D)  all of the above are true.

Question 16

The index of leading indicators was developed to provide more reliable information on

Accepted Answer

A)  the expected future direction of the economy. 
B)  the future profitability of the leading companies in various industries. 
C)  where the economy has been in the recent past. 
D)  the extent to which the economy's existing plant and equipment capacity is being used. 
A)  the expected future direction of the economy. 
B)  the future profitability of the leading companies in various industries. 
C)  where the economy has been in the recent past. 
D)  the extent to which the economy's existing plant and equipment capacity is being used.

Question 17

Which of the following is an implication of the modern view of the Phillips curve?

Accepted Answer

A)  Higher rates of inflation always lead to lower rates of unemployment. 
B)  Higher rates of inflation always lead to higher rates of unemployment. 
C)  If actual inflation exceeds the inflation rate anticipated by decision makers, unemployment will temporarily fall below the natural rate. 
D)  If actual inflation exceeds the inflation rate anticipated by decision makers, unemployment will temporarily rise above the natural rate. 
A)  Higher rates of inflation always lead to lower rates of unemployment. 
B)  Higher rates of inflation always lead to higher rates of unemployment. 
C)  If actual inflation exceeds the inflation rate anticipated by decision makers, unemployment will temporarily fall below the natural rate. 
D)  If actual inflation exceeds the inflation rate anticipated by decision makers, unemployment will temporarily rise above the natural rate.

Question 18

Explain two reasons why economic forecasting can only be of limited use.

Accepted Answer

One reason is that changes in market con

Question 19

Which of the following best explains the political attractiveness of debt financing relative to taxation?

Accepted Answer

A)  Debt financing pushes the visible cost of government into the future. 
B)  Debt financing exposes the current costs of government programs; taxes do not. 
C)  Debt financing reduces the attractiveness of special-interest spending. 
D)  Taxes allow politicians to supply voters with immediate benefits without having to impose a visible cost. 
A)  Debt financing pushes the visible cost of government into the future. 
B)  Debt financing exposes the current costs of government programs; taxes do not. 
C)  Debt financing reduces the attractiveness of special-interest spending. 
D)  Taxes allow politicians to supply voters with immediate benefits without having to impose a visible cost.

Question 20

Under the adaptive expectations hypothesis, which of the following is the effect of a shift to a more expansionary monetary policy?

Accepted Answer

A)  In the short run, the real rate of output will be unaffected, but in the long run, it will increase. 
B)  In the short run, the real rate of output will increase, but in the long run, it will be unchanged. 
C)  There will be a permanent increase in the real rate of output, but the inflation rate will also be a little higher. 
D)  In the short run, the impact on the real rate of output is uncertain, but in the long run, output will increase. 
A)  In the short run, the real rate of output will be unaffected, but in the long run, it will increase. 
B)  In the short run, the real rate of output will increase, but in the long run, it will be unchanged. 
C)  There will be a permanent increase in the real rate of output, but the inflation rate will also be a little higher. 
D)  In the short run, the impact on the real rate of output is uncertain, but in the long run, output will increase.

The total indebtedness of the federal government in the form of outstanding interest-earning bonds is the

The view that decision-maker expectations are based on actual outcomes observed during the recent past is called the

According to the rational expectations theory,

If the monetary authorities follow policies that keep the annual rate of inflation steady and low (for example, 2 percent), which of the following is most likely to occur?

What are the macroeconomic policy implications of the rational expectations hypothesis? What should policy makers do and not do?

Under the adaptive expectations hypothesis, which of the following is the most likely short-run effect of a move to a more expansionary monetary policy?

Figure 15-3 As shown in Figure 15-3, 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

Public choice analysis explains that

Since the 1960s, macroeconomists have become more aware

Figure 15-3 As shown in Figure 15-3, 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 the rational expectations hypothesis, which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Use the figure below to answer the following question(s). Figure 15-2 According to the modern expectational Phillips curve illustrated in Figure 15-2, unemployment will equal the natural rate of unemployment when

When government debt is financed internally, future generations will

The "implicit debt" accompanying the Social Security and Medicare programs is

Use the figure below to answer the following question(s). Figure 15-2 According to the modern expectational Phillips curve illustrated in Figure 15-2, unemployment will temporarily fall below the natural rate of unemployment when

The index of leading indicators was developed to provide more reliable information on

Which of the following is an implication of the modern view of the Phillips curve?

Explain two reasons why economic forecasting can only be of limited use.

Which of the following best explains the political attractiveness of debt financing relative to taxation?

Under the adaptive expectations hypothesis, which of the following is the effect of a shift to a more expansionary monetary policy?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 15: Stabilization Policy, Output, and Employment

The total indebtedness of the federal government in the form of outstanding interest-earning bonds is the

The view that decision-maker expectations are based on actual outcomes observed during the recent past is called the

According to the rational expectations theory,

If the monetary authorities follow policies that keep the annual rate of inflation steady and low (for example, 2 percent), which of the following is most likely to occur?

What are the macroeconomic policy implications of the rational expectations hypothesis? What should policy makers do and not do?

Under the adaptive expectations hypothesis, which of the following is the most likely short-run effect of a move to a more expansionary monetary policy?

Figure 15-3 As shown in Figure 15-3, 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

Public choice analysis explains that

Since the 1960s, macroeconomists have become more aware

Figure 15-3 As shown in Figure 15-3, 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 the rational expectations hypothesis, which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Use the figure below to answer the following question(s). Figure 15-2 According to the modern expectational Phillips curve illustrated in Figure 15-2, unemployment will equal the natural rate of unemployment when

When government debt is financed internally, future generations will

The "implicit debt" accompanying the Social Security and Medicare programs is

Use the figure below to answer the following question(s). Figure 15-2 According to the modern expectational Phillips curve illustrated in Figure 15-2, unemployment will temporarily fall below the natural rate of unemployment when

The index of leading indicators was developed to provide more reliable information on

Which of the following is an implication of the modern view of the Phillips curve?

Explain two reasons why economic forecasting can only be of limited use.

Which of the following best explains the political attractiveness of debt financing relative to taxation?

Under the adaptive expectations hypothesis, which of the following is the effect of a shift to a more expansionary monetary policy?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Figure 15-3 As shown in Figure 15-3, 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

Figure 15-3 As shown in Figure 15-3, 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