Question 1

In the IS-MP analysis in the Fed model, the MP curve shows you the:

Accepted Answer

A) potential GDP level in the economy. 
B) output level in the economy. 
C) current real interest rate. 
D) price level in the economy. 
A) potential GDP level in the economy. 
B) output level in the economy. 
C) current real interest rate. 
D) price level in the economy.

Question 2

Explain the following concepts:
(a) financial shock
(b) spending shock
(c) supply shock

Accepted Answer

The answer of Explain the following concepts:
(a) financial shock
(b) spending...

Question 3

In the IS-MP analysis in the Fed model, a decrease in exports will shift the:

Accepted Answer

A) MP curve up. 
B) MP curve down. 
C) IS curve to the left. 
D) IS curve to the right. 
A) MP curve up. 
B) MP curve down. 
C) IS curve to the left. 
D) IS curve to the right.

Question 4

Suppose nominal wages fall in Bangladesh. Analyze this shock graphically, and explain using the Fed model.

Accepted Answer

The answer of Suppose nominal wages fall in Bangladesh. Analyze...

Question 5

The economy shown here begins at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. This leads to:

Accepted Answer

A) a new real interest rate of 3%. 
B) unexpected inflation of 1%. 
C) a new output gap of -4%. 
D) a new real interest rate of 0%. 
A) a new real interest rate of 3%. 
B) unexpected inflation of 1%. 
C) a new output gap of -4%. 
D) a new real interest rate of 0%.

Question 6

The framework that the Federal Reserve uses to analyze, forecast, and adjust the economy is called:

Accepted Answer

A) the Fed model. 
B) the real GDP model. 
C) expansionary monetary policy. 
D) contractionary monetary policy. 
A) the Fed model. 
B) the real GDP model. 
C) expansionary monetary policy. 
D) contractionary monetary policy.

Question 7

Which of the following graphs correctly represents an increase in the risk premium on the MP curve?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 8

If the default risk rises in Greece, which of the following graphs correctly represents the effect on the MP curve in Greece?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 9

Assume that the economy starts at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. Based on this scenario, the economy experiences:
​
Figure A
  ​
Figure B
  ​
Figure C
  ​
Figure D

Accepted Answer

A)  no change, as shown in Figure A. 
B)  an upward shift of the MP curve and a new interest rate of 3%, as shown in Figure B. 
C)  a leftward shift of the IS curve and an output gap of -4%, as shown in Figure C. 
D)  an upward shift of the Phillips curve and 1% unexpected inflation, as shown in Figure D. 
A)  no change, as shown in Figure A. 
B)  an upward shift of the MP curve and a new interest rate of 3%, as shown in Figure B. 
C)  a leftward shift of the IS curve and an output gap of -4%, as shown in Figure C. 
D)  an upward shift of the Phillips curve and 1% unexpected inflation, as shown in Figure D.

Question 10

The first step in analyzing a macroeconomic shock is to:

Accepted Answer

A) assess inflation. 
B) find the output gap. 
C) identify the shock and shift the curve. 
D) forecast future GDP growth. 
A) assess inflation. 
B) find the output gap. 
C) identify the shock and shift the curve. 
D) forecast future GDP growth.

Question 11

If you see a newspaper headline that says "Consumer confidence falls as stock market plummets 1,500 points," this is an example of _____ shock.

Accepted Answer

A) a spending 
B) an interest rate 
C) a financial 
D) a supply 
A) a spending 
B) an interest rate 
C) a financial 
D) a supply

Question 12

Which of the following graphs correctly represents a negative spending shock on the IS curve?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 13

Suppose there is a financial upheaval, which leads banks to hold on to deposits and stem the flow of loans. Analyze this shock graphically, and explain using the Fed model.

Accepted Answer

The answer of Suppose there is a financial upheaval, which...

Question 14

The economy shown here begins at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. If inflation expectations remain unchanged, the actual inflation rate will be:

Accepted Answer

A) 2% higher. 
B) 1% higher. 
C) 1% lower. 
D) 4% lower. 
A) 2% higher. 
B) 1% higher. 
C) 1% lower. 
D) 4% lower.

Question 15

Take a look at the IS-MP-PC model shown here. At equilibrium, the output gap is:

Accepted Answer

A) 4%. 
B) 3%. 
C) -6%. 
D) -1%. 
A) 4%. 
B) 3%. 
C) -6%. 
D) -1%.

Question 16

In the IS-MP analysis in the Fed model, a fall in government expenditure will shift the:

Accepted Answer

A) IS curve to the left. 
B) IS curve to the right. 
C) MP curve up. 
D) MP curve down. 
A) IS curve to the left. 
B) IS curve to the right. 
C) MP curve up. 
D) MP curve down.

Question 17

In the IS-MP analysis in the Fed model, a rise in government expenditure will shift the:

Accepted Answer

A) IS curve to the left. 
B) IS curve to the right. 
C) MP curve up. 
D) MP curve down. 
A) IS curve to the left. 
B) IS curve to the right. 
C) MP curve up. 
D) MP curve down.

Question 18

In the IS-MP analysis in the Fed model, the intersection of the IS and MP curves determines the:

Accepted Answer

A) equilibrium exchange rate. 
B) output gap. 
C) unemployment rate. 
D) potential GDP. 
A) equilibrium exchange rate. 
B) output gap. 
C) unemployment rate. 
D) potential GDP.

Question 19

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

Accepted Answer

A) a new output gap of -6%. 
B) unexpected inflation of 1%. 
C) a new real interest rate of 4%. 
D) a new real interest rate of 0%. 
A) a new output gap of -6%. 
B) unexpected inflation of 1%. 
C) a new real interest rate of 4%. 
D) a new real interest rate of 0%.

Question 20

Which of the following graphs correctly represents the effect on the MP curve if lenders become less risk averse?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Exam 32: The Fed Model: Linking Interest Rates, Output, and Inflation

In the IS-MP analysis in the Fed model, the MP curve shows you the:

Explain the following concepts: (a) financial shock (b) spending shock (c) supply shock

In the IS-MP analysis in the Fed model, a decrease in exports will shift the:

Suppose nominal wages fall in Bangladesh. Analyze this shock graphically, and explain using the Fed model.

The economy shown here begins at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. This leads to:

The framework that the Federal Reserve uses to analyze, forecast, and adjust the economy is called:

Which of the following graphs correctly represents an increase in the risk premium on the MP curve?

If the default risk rises in Greece, which of the following graphs correctly represents the effect on the MP curve in Greece?

Assume that the economy starts at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. Based on this scenario, the economy experiences: ​ Figure A ​ Figure B ​ Figure C ​ Figure D

The first step in analyzing a macroeconomic shock is to:

If you see a newspaper headline that says "Consumer confidence falls as stock market plummets 1,500 points," this is an example of _____ shock.

Which of the following graphs correctly represents a negative spending shock on the IS curve?

Suppose there is a financial upheaval, which leads banks to hold on to deposits and stem the flow of loans. Analyze this shock graphically, and explain using the Fed model.

The economy shown here begins at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. If inflation expectations remain unchanged, the actual inflation rate will be:

Take a look at the IS-MP-PC model shown here. At equilibrium, the output gap is:

In the IS-MP analysis in the Fed model, a fall in government expenditure will shift the:

In the IS-MP analysis in the Fed model, a rise in government expenditure will shift the:

In the IS-MP analysis in the Fed model, the intersection of the IS and MP curves determines the:

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

Which of the following graphs correctly represents the effect on the MP curve if lenders become less risk averse?

The Core Principles of Economics

Demand: Thinking Like a Buyer

Supply: Thinking Like a Seller

Equilibrium: Where Supply Meets Demand

Elasticity: Measuring Responsiveness

When Governments Intervene in Markets

Welfare and Efficiency

Gains From Trade

International Trade

Externalities and Public Goods

Labor Demand and Supply

Wages, Workers, and Management

Inequality, Social Insurance, and Redistribution

Market Structure and Market Power

Entry, Exit, and Long-Run Profitability

Business Strategy

Sophisticated Pricing Strategies

Game Theory and Strategic Choices

Decisions Involving Uncertainty

Decisions With Private Information

Sizing up the Economy Using Gdp

Economic Growth

Unemployment

Inflation and Money

Consumption and Saving

Investment

The Financial Sector

International Finance and the Exchange Rate

Business Cycles

IS-MP Analysis: Interest Rates and Output

Phillips Curve

Aggregate Demand and Aggregate Supply

Monetary Policy

Government Spending, Taxes, and Fiscal Policy

Appendix: Aggregate Expenditure and the Multiplier

Filters

Assume that the economy starts at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. Based on this scenario, the economy experiences: Figure A Figure B Figure C Figure D