Question 1

According to the adaptive expectations hypothesis, people will

Accepted Answer

A)  anticipate that what has happened in the immediate past will continue. 
B)  systematically overestimate inflation when inflation is increasing. 
C)  use all available information, including information on the expected impact of economic policy, when they formulate expectations about economic events. 
D)  systematically underestimate inflation when inflation is declining. 
A)  anticipate that what has happened in the immediate past will continue. 
B)  systematically overestimate inflation when inflation is increasing. 
C)  use all available information, including information on the expected impact of economic policy, when they formulate expectations about economic events. 
D)  systematically underestimate inflation when inflation is declining.

Question 2

Under the 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 quickly. 
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 quickly.

Question 3

The main policy conclusion of the rational expectations theory is

Accepted Answer

A)  fiscal policy lags are so long and variable that such policy is worthless, but monetary policy can stimulate output. 
B)  monetary policy lags are so long and variable that such policy is worthless, but fiscal policy can stimulate output. 
C)  both monetary and fiscal policy will affect real output if firms and households correctly anticipate the effects of changes in government policy. 
D)  neither monetary nor fiscal policy will affect real output if firms and households correctly anticipate the effects of changes in government policy. 
A)  fiscal policy lags are so long and variable that such policy is worthless, but monetary policy can stimulate output. 
B)  monetary policy lags are so long and variable that such policy is worthless, but fiscal policy can stimulate output. 
C)  both monetary and fiscal policy will affect real output if firms and households correctly anticipate the effects of changes in government policy. 
D)  neither monetary nor fiscal policy will affect real output if firms and households correctly anticipate the effects of changes in government policy.

Question 4

Currently, the Federal Reserve earns approximately $90 billion of interest annually on its holdings of government bonds. Only a small portion of these earnings is required to cover the Fed's operating costs. The remainder of these earnings is

Accepted Answer

A)  distributed to the member banks of the Federal Reserve system. 
B)  invested in corporate stocks held by the Fed. 
C)  returned to the U.S. Treasury. 
D)  loaned to commercial banks. 
A)  distributed to the member banks of the Federal Reserve system. 
B)  invested in corporate stocks held by the Fed. 
C)  returned to the U.S. Treasury. 
D)  loaned to commercial banks.

Question 5

In terms of the Phillips curve, the experience of the 1970s indicates that macro-policy

Accepted Answer

A)  can permanently reduce unemployment if we are willing to tolerate higher inflation. 
B)  can reduce unemployment in the long run if we are willing to tolerate higher inflation. 
C)  may be able to reduce unemployment but cannot retard inflation. 
D)  may be able to reduce unemployment in the short run, but there is little evidence that expansionary policies can reduce unemployment permanently. 
A)  can permanently reduce unemployment if we are willing to tolerate higher inflation. 
B)  can reduce unemployment in the long run if we are willing to tolerate higher inflation. 
C)  may be able to reduce unemployment but cannot retard inflation. 
D)  may be able to reduce unemployment in the short run, but there is little evidence that expansionary policies can reduce unemployment permanently.

Question 6

Deficit spending and a large national debt can have important effects on future generations because they

Accepted Answer

A)  make it possible for those living in the present to pass the opportunity costs of current government spending on to future generations. 
B)  can significantly impact spending on capital formation. 
C)  will pass interest obligations on to future generations with no corresponding benefits. 
D)  will cause the government to go bankrupt. 
A)  make it possible for those living in the present to pass the opportunity costs of current government spending on to future generations. 
B)  can significantly impact spending on capital formation. 
C)  will pass interest obligations on to future generations with no corresponding benefits. 
D)  will cause the government to go bankrupt.

Question 7

Compared to the 1910-1960 period, economic fluctuations during the past 50 years have been less severe.  Most economists believe that this increased stability is primarily the result of

Accepted Answer

A)  more stable monetary policy. 
B)  the smaller budget deficits of recent decades. 
C)  regulations that promoted more affordable housing. 
D)  greater stability of stock prices as measured by the Dow Jones Industrial Average. 
A)  more stable monetary policy. 
B)  the smaller budget deficits of recent decades. 
C)  regulations that promoted more affordable housing. 
D)  greater stability of stock prices as measured by the Dow Jones Industrial Average.

Question 8

Which of the following would suggest that monetary policy is restrictive?

Accepted Answer

A)  falling commodity prices 
B)  depreciation of the foreign exchange value of the dollar 
C)  a rising M1 money supply 
D)  an increase in the rate of inflation 
A)  falling commodity prices 
B)  depreciation of the foreign exchange value of the dollar 
C)  a rising M1 money supply 
D)  an increase in the rate of inflation

Question 9

The modern view of the Phillips curve suggests that

Accepted Answer

A)  when inflation is less than anticipated, unemployment will fall below the natural rate. 
B)  when inflation is steady, actual unemployment will equal the natural rate of unemployment. 
C)  systematic demand stimulus policies will be unable to affect prices in the long run. 
D)  there will be a trade-off between inflation and unemployment in the long run. 
A)  when inflation is less than anticipated, unemployment will fall below the natural rate. 
B)  when inflation is steady, actual unemployment will equal the natural rate of unemployment. 
C)  systematic demand stimulus policies will be unable to affect prices in the long run. 
D)  there will be a trade-off between inflation and unemployment in the long run.

Question 10

Use the figure below to answer the following question(s). Figure 15-1
  In Figure 15-1, AD1 and SRAS1 indicate initial conditions in the goods and services market. In the short run, which of the following will most likely result from a shift to a more expansionary monetary policy under the adaptive expectations hypothesis?

Accepted Answer

A)  price level P1 and output Y1 
B)  price level P2 and output Y2 
C)  price level P3 and output Y1 
D)  price level P1 and output Y2 
A)  price level P1 and output Y1 
B)  price level P2 and output Y2 
C)  price level P3 and output Y1 
D)  price level P1 and output Y2

Question 11

Which of the following was an important source of economic stability during the two decades following the recovery from the 1982 recession?

Accepted Answer

A)  countercyclical fiscal policy instituted by Congress 
B)  a substantial increase in government spending as a share of the economy 
C)  monetary policy that kept the inflation rate low and relatively steady 
D)  balanced federal budgets throughout the period 
A)  countercyclical fiscal policy instituted by Congress 
B)  a substantial increase in government spending as a share of the economy 
C)  monetary policy that kept the inflation rate low and relatively steady 
D)  balanced federal budgets throughout the period

Question 12

Under the adaptive expectations theory, expansionary monetary and fiscal policies designed to reduce the unemployment rate will be

Accepted Answer

A)  ineffective in the long run. 
B)  ineffective in the short run. 
C)  noninflationary. 
D)  all of the above. 
A)  ineffective in the long run. 
B)  ineffective in the short run. 
C)  noninflationary. 
D)  all of the above.

Question 13

The interval between the recognition of a need for a policy change and when the policy change is instituted is called the:

Accepted Answer

A)  recognition lag. 
B)  impact lag. 
C)  policy lag. 
D)  administrative lag. 
A)  recognition lag. 
B)  impact lag. 
C)  policy lag. 
D)  administrative lag.

Question 14

What are the two theories about how expectations are formed? Discuss each.

Accepted Answer

The two theories are adaptive and ration

Question 15

What will happen if a country uses money creation to finance a large and expanding national debt?

Accepted Answer

A)  Real output and employment will grow rapidly. 
B)  Nominal interest rates will fall. 
C)  The foreign exchange value of the currency will increase. 
D)  The rate of inflation will rise. 
A)  Real output and employment will grow rapidly. 
B)  Nominal interest rates will fall. 
C)  The foreign exchange value of the currency will increase. 
D)  The rate of inflation will rise.

Question 16

As measured by the amount of time spent in recession, the 1983-2015 period was

Accepted Answer

A)  characterized by 4 downturns and 65 months of recession. 
B)  characterized by 2 downturns and 72 months of recession. 
C)  the most stable era in American history. 
D)  the second most unstable 33-year period in American history. 
A)  characterized by 4 downturns and 65 months of recession. 
B)  characterized by 2 downturns and 72 months of recession. 
C)  the most stable era in American history. 
D)  the second most unstable 33-year period in American history.

Question 17

Those who favor active use of monetary and fiscal policy believe that

Accepted Answer

A)  the M1 money supply should be increased at a steady rate annually. 
B)  taxes should be increased during a recession in order to balance the federal budget. 
C)  the economy's self-correcting mechanism, if not stifled by perverse policies, will prevent prolonged periods of high unemployment. 
D)  discretionary changes in macroeconomic policy can help smooth the business cycle of a market economy. 
A)  the M1 money supply should be increased at a steady rate annually. 
B)  taxes should be increased during a recession in order to balance the federal budget. 
C)  the economy's self-correcting mechanism, if not stifled by perverse policies, will prevent prolonged periods of high unemployment. 
D)  discretionary changes in macroeconomic policy can help smooth the business cycle of a market economy.

Question 18

What is the difference between the federal budget deficit and the national debt?

Accepted Answer

A)  The budget deficit is the amount by which expenditures exceed revenues in a particular year, while the national debt is the cumulative effect of all past budget deficits and surpluses. 
B)  The budget deficit is the cumulative effect of all prior national debts. 
C)  The national debt includes all outstanding bonds, while the budget deficit excludes bonds held by government agencies. 
D)  This is a trick question because there is no difference between the budget deficit and the national debt. 
A)  The budget deficit is the amount by which expenditures exceed revenues in a particular year, while the national debt is the cumulative effect of all past budget deficits and surpluses. 
B)  The budget deficit is the cumulative effect of all prior national debts. 
C)  The national debt includes all outstanding bonds, while the budget deficit excludes bonds held by government agencies. 
D)  This is a trick question because there is no difference between the budget deficit and the national debt.

Question 19

In order to make effective policy changes, policy makers need to know

Accepted Answer

A)  where the economy is going to be six to twelve months from now. 
B)  the magnitude of past recessions. 
C)  Keynesian economics. 
D)  the exact size of the current M1 money supply. 
A)  where the economy is going to be six to twelve months from now. 
B)  the magnitude of past recessions. 
C)  Keynesian economics. 
D)  the exact size of the current M1 money supply.

Question 20

The rational expectations hypothesis implies that use of discretionary macro-policy as a stabilization tool will

Accepted Answer

A)  be ineffective, even in the short run. 
B)  be effective in the short run but ineffective in the long run. 
C)  be effective both in the short run and long run. 
D)  make it possible to trade-off a higher rate of inflation for a lower rate of unemployment. 
A)  be ineffective, even in the short run. 
B)  be effective in the short run but ineffective in the long run. 
C)  be effective both in the short run and long run. 
D)  make it possible to trade-off a higher rate of inflation for a lower rate of unemployment.

According to the adaptive expectations hypothesis, people will

Under the adaptive expectations theory, people persistently

The main policy conclusion of the rational expectations theory is

Currently, the Federal Reserve earns approximately $90 billion of interest annually on its holdings of government bonds. Only a small portion of these earnings is required to cover the Fed's operating costs. The remainder of these earnings is

In terms of the Phillips curve, the experience of the 1970s indicates that macro-policy

Deficit spending and a large national debt can have important effects on future generations because they

Compared to the 1910-1960 period, economic fluctuations during the past 50 years have been less severe. Most economists believe that this increased stability is primarily the result of

Which of the following would suggest that monetary policy is restrictive?

The modern view of the Phillips curve suggests that

Which of the following was an important source of economic stability during the two decades following the recovery from the 1982 recession?

Under the adaptive expectations theory, expansionary monetary and fiscal policies designed to reduce the unemployment rate will be

The interval between the recognition of a need for a policy change and when the policy change is instituted is called the:

What are the two theories about how expectations are formed? Discuss each.

What will happen if a country uses money creation to finance a large and expanding national debt?

As measured by the amount of time spent in recession, the 1983-2015 period was

Those who favor active use of monetary and fiscal policy believe that

What is the difference between the federal budget deficit and the national debt?

In order to make effective policy changes, policy makers need to know

The rational expectations hypothesis implies that use of discretionary macro-policy as a stabilization tool will

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

According to the adaptive expectations hypothesis, people will

Under the adaptive expectations theory, people persistently

The main policy conclusion of the rational expectations theory is

Currently, the Federal Reserve earns approximately $90 billion of interest annually on its holdings of government bonds. Only a small portion of these earnings is required to cover the Fed's operating costs. The remainder of these earnings is

In terms of the Phillips curve, the experience of the 1970s indicates that macro-policy

Deficit spending and a large national debt can have important effects on future generations because they

Compared to the 1910-1960 period, economic fluctuations during the past 50 years have been less severe. Most economists believe that this increased stability is primarily the result of

Which of the following would suggest that monetary policy is restrictive?

The modern view of the Phillips curve suggests that

Which of the following was an important source of economic stability during the two decades following the recovery from the 1982 recession?

Under the adaptive expectations theory, expansionary monetary and fiscal policies designed to reduce the unemployment rate will be

The interval between the recognition of a need for a policy change and when the policy change is instituted is called the:

What are the two theories about how expectations are formed? Discuss each.

What will happen if a country uses money creation to finance a large and expanding national debt?

As measured by the amount of time spent in recession, the 1983-2015 period was

Those who favor active use of monetary and fiscal policy believe that

What is the difference between the federal budget deficit and the national debt?

In order to make effective policy changes, policy makers need to know

The rational expectations hypothesis implies that use of discretionary macro-policy as a stabilization tool will

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