Question 1

The automatic mechanism can best be described as

Accepted Answer

A)  the process of the economy adjusting back to potential GDP without any action taken by the government. 
B)  the result of monetary policy implemented by the Fed restoring full employment. 
C)  how fiscal policy is used to return the economy to its potential. 
D)  using rule-based policies to stabilize the economy. 
A)  the process of the economy adjusting back to potential GDP without any action taken by the government. 
B)  the result of monetary policy implemented by the Fed restoring full employment. 
C)  how fiscal policy is used to return the economy to its potential. 
D)  using rule-based policies to stabilize the economy.

Question 2

According to the aggregate demand-aggregate supply model,what is the short-run impact of a reduction in the money supply by the Fed?

Accepted Answer

A)  Current output will fall, but the price level will rise. 
B)  Current output will rise, but the price level will fall. 
C)  Current output and the price level will both rise. 
D)  Current output and the price level will both fall. 
A)  Current output will fall, but the price level will rise. 
B)  Current output will rise, but the price level will fall. 
C)  Current output and the price level will both rise. 
D)  Current output and the price level will both fall.

Question 3

Which of the following is NOT a recommended solution proposed for the slow growth of employment during the economic expansion that began in 2009?

Accepted Answer

A)  expansionary monetary policy 
B)  Congress and the president addressing structural problems 
C)  the Fed reducing inflation by increasing its target for the federal funds rate 
D)  expansion of aggregate demand through fiscal policy 
A)  expansionary monetary policy 
B)  Congress and the president addressing structural problems 
C)  the Fed reducing inflation by increasing its target for the federal funds rate 
D)  expansion of aggregate demand through fiscal policy

Question 4

When output is below its full-employment level,the short-run aggregate supply curve will shift down and to the right because

Accepted Answer

A)  the expected price level will be below the actual price level. 
B)  workers' wages will decline. 
C)  prices of nonlabor inputs will rise. 
D)  workers' wages will rise. 
A)  the expected price level will be below the actual price level. 
B)  workers' wages will decline. 
C)  prices of nonlabor inputs will rise. 
D)  workers' wages will rise.

Question 5

In the aggregate demand-aggregate supply model,if entrepreneurs become convinced that future profitability of capital has increased

Accepted Answer

A)  current output will fall, but the price level will rise. 
B)  current output will rise, but the price level will fall. 
C)  current output and the price level will both rise. 
D)  current output and the price level will both fall. 
A)  current output will fall, but the price level will rise. 
B)  current output will rise, but the price level will fall. 
C)  current output and the price level will both rise. 
D)  current output and the price level will both fall.

Question 6

Which of the following is NOT a reason for the weak recovery following the 2007-2009 recession?

Accepted Answer

A)  Recessions started by financial crises are almost always severe. 
B)  The decline in the automobile industry appeared to be structural. 
C)  The collapse of the housing market was long lived. 
D)  The recession was caused by a decline in short-run aggregate supply. 
A)  Recessions started by financial crises are almost always severe. 
B)  The decline in the automobile industry appeared to be structural. 
C)  The collapse of the housing market was long lived. 
D)  The recession was caused by a decline in short-run aggregate supply.

Question 7

How does an increase in interest rates affect net exports?

Accepted Answer

A higher domestic interest rate makes re

Question 8

An increase in oil prices will

Accepted Answer

A)  shift the short-run aggregate supply curve up and to the left. 
B)  shift the short-run aggregate supply curve down and to the right. 
C)  cause a movement along the short-run aggregate supply curve. 
D)  not affect the short-run aggregate supply curve. 
A)  shift the short-run aggregate supply curve up and to the left. 
B)  shift the short-run aggregate supply curve down and to the right. 
C)  cause a movement along the short-run aggregate supply curve. 
D)  not affect the short-run aggregate supply curve.

Question 9

If there is a decrease in foreign demand for U.S.goods due to a recession in Europe

Accepted Answer

A)  the U.S. aggregate demand curve will shift right. 
B)  the U.S. aggregate demand curve will shift left. 
C)  the U.S. aggregate demand curve will not be affected. 
D)  the U.S. aggregate demand curve will become steeper. 
A)  the U.S. aggregate demand curve will shift right. 
B)  the U.S. aggregate demand curve will shift left. 
C)  the U.S. aggregate demand curve will not be affected. 
D)  the U.S. aggregate demand curve will become steeper.

Question 10

How does an increase in the price level lead to a higher interest rate?

Accepted Answer

An increase in the price level reduces t

Question 11

How do new Keynesians use the existence of long-term nominal contracts to help explain the failure of prices to adjust in the short run?

Accepted Answer

When contracts of this type exist,firms

Question 12

In comparing the views of economists on stabilization policy in the 1960s with the current views of economists on stabilization policy,one can say

Accepted Answer

A)  few economists in the 1960s favored stabilization policy, while most economists currently favor stabilization policy. 
B)  economists' views on stabilization policy have changed very little since the 1960s. 
C)  fewer economists currently believe it is possible to use stabilization policy to fine-tune the economy than in the 1960s. 
D)  almost no economists currently believe stabilization policy should be used. 
A)  few economists in the 1960s favored stabilization policy, while most economists currently favor stabilization policy. 
B)  economists' views on stabilization policy have changed very little since the 1960s. 
C)  fewer economists currently believe it is possible to use stabilization policy to fine-tune the economy than in the 1960s. 
D)  almost no economists currently believe stabilization policy should be used.

Question 13

When economists state that money is neutral in the long run,they mean that in the long run

Accepted Answer

A)  fluctuations in the money supply are equally likely to lead to recessions as to expansions. 
B)  changes in the money supply have the same impact on the rich as they do on the poor. 
C)  the level of output is independent of the nominal money supply. 
D)  the price level is independent of the nominal money supply. 
A)  fluctuations in the money supply are equally likely to lead to recessions as to expansions. 
B)  changes in the money supply have the same impact on the rich as they do on the poor. 
C)  the level of output is independent of the nominal money supply. 
D)  the price level is independent of the nominal money supply.

Question 14

The new classical explanation of aggregate supply is also known as

Accepted Answer

A)  monetarism. 
B)  Keynesianism. 
C)  the misperception theory. 
D)  the adaptive expectations theory. 
A)  monetarism. 
B)  Keynesianism. 
C)  the misperception theory. 
D)  the adaptive expectations theory.

Question 15

By 2016,the fraction of the population working

Accepted Answer

A)  was at its highest level since the 1970s. 
B)  was lower than its lowest level during the recession of 2007-2009. 
C)  had not yet recovered to pre-recession levels. 
D)  had not changed at all since the recession. 
A)  was at its highest level since the 1970s. 
B)  was lower than its lowest level during the recession of 2007-2009. 
C)  had not yet recovered to pre-recession levels. 
D)  had not changed at all since the recession.

Question 16

The key concept in the new classical approach to the aggregate supply curve is

Accepted Answer

A)  the impact of imperfect information on business decisions. 
B)  the impact of changes in the price level on real money balances. 
C)  the inverse relationship between the real interest rate and desired investment spending. 
D)  the crowding out of investment spending by government spending. 
A)  the impact of imperfect information on business decisions. 
B)  the impact of changes in the price level on real money balances. 
C)  the inverse relationship between the real interest rate and desired investment spending. 
D)  the crowding out of investment spending by government spending.

Question 17

Which of the following would cause the long-run aggregate supply curve to shift?

Accepted Answer

A)  an increase in the price level 
B)  a decrease in the expected price level 
C)  an increase in labor productivity 
D)  an autonomous increase in consumption spending 
A)  an increase in the price level 
B)  a decrease in the expected price level 
C)  an increase in labor productivity 
D)  an autonomous increase in consumption spending

Question 18

Suppose that many households look to the stock market to gauge how the economy is likely to perform in the future.When stock prices are rising,households will be optimistic about the future state of the economy and will increase their spending on houses and consumer durables,such as cars and furniture.When stock prices are falling,households will be pessimistic about the future and will cut back on their spending.If this view of the link between stock prices and household spending is correct,what will be the effect of a decline in stock prices on output in the new Keynesian view? Be sure to distinguish the short run from the long run.

Accepted Answer

The fall in stock prices will reduce hou

Question 19

Which of the following most accurately describes the behavior of the U.S.economy during the 2007-2009 recession?

Accepted Answer

A)  Aggregate demand fell as business investment and consumer spending declined, which put downward pressure on prices, shifting SRAS to the right. 
B)  Aggregate demand fell primarily as a result of reduced consumption while aggregate supply increased due to continued growth in productivity. 
C)  Aggregate demand fell due to a reduction in business investment while aggregate supply declined due to a reduction in productivity. 
D)  Aggregate demand fell due to the bursting of the housing bubble while aggregate supply fell due to slower productivity growth. 
A)  Aggregate demand fell as business investment and consumer spending declined, which put downward pressure on prices, shifting SRAS to the right. 
B)  Aggregate demand fell primarily as a result of reduced consumption while aggregate supply increased due to continued growth in productivity. 
C)  Aggregate demand fell due to a reduction in business investment while aggregate supply declined due to a reduction in productivity. 
D)  Aggregate demand fell due to the bursting of the housing bubble while aggregate supply fell due to slower productivity growth.

Question 20

An increase in the price level reduces net exports because

Accepted Answer

A)  it leads indirectly to a higher exchange rate. 
B)  it leads indirectly to a lower exchange rate. 
C)  it leads indirectly to a lower real interest rate. 
D)  it leads directly to higher real money balances. 
A)  it leads indirectly to a higher exchange rate. 
B)  it leads indirectly to a lower exchange rate. 
C)  it leads indirectly to a lower real interest rate. 
D)  it leads directly to higher real money balances.

The automatic mechanism can best be described as

According to the aggregate demand-aggregate supply model,what is the short-run impact of a reduction in the money supply by the Fed?

Which of the following is NOT a recommended solution proposed for the slow growth of employment during the economic expansion that began in 2009?

When output is below its full-employment level,the short-run aggregate supply curve will shift down and to the right because

In the aggregate demand-aggregate supply model,if entrepreneurs become convinced that future profitability of capital has increased

Which of the following is NOT a reason for the weak recovery following the 2007-2009 recession?

How does an increase in interest rates affect net exports?

An increase in oil prices will

If there is a decrease in foreign demand for U.S.goods due to a recession in Europe

How does an increase in the price level lead to a higher interest rate?

How do new Keynesians use the existence of long-term nominal contracts to help explain the failure of prices to adjust in the short run?

In comparing the views of economists on stabilization policy in the 1960s with the current views of economists on stabilization policy,one can say

When economists state that money is neutral in the long run,they mean that in the long run

The new classical explanation of aggregate supply is also known as

By 2016,the fraction of the population working

The key concept in the new classical approach to the aggregate supply curve is

Which of the following would cause the long-run aggregate supply curve to shift?

Which of the following most accurately describes the behavior of the U.S.economy during the 2007-2009 recession?

An increase in the price level reduces net exports because

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 17: Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

The automatic mechanism can best be described as

According to the aggregate demand-aggregate supply model,what is the short-run impact of a reduction in the money supply by the Fed?

Which of the following is NOT a recommended solution proposed for the slow growth of employment during the economic expansion that began in 2009?

When output is below its full-employment level,the short-run aggregate supply curve will shift down and to the right because

In the aggregate demand-aggregate supply model,if entrepreneurs become convinced that future profitability of capital has increased

Which of the following is NOT a reason for the weak recovery following the 2007-2009 recession?

How does an increase in interest rates affect net exports?

An increase in oil prices will

If there is a decrease in foreign demand for U.S.goods due to a recession in Europe

How does an increase in the price level lead to a higher interest rate?

How do new Keynesians use the existence of long-term nominal contracts to help explain the failure of prices to adjust in the short run?

In comparing the views of economists on stabilization policy in the 1960s with the current views of economists on stabilization policy,one can say

When economists state that money is neutral in the long run,they mean that in the long run

The new classical explanation of aggregate supply is also known as

By 2016,the fraction of the population working

The key concept in the new classical approach to the aggregate supply curve is

Which of the following would cause the long-run aggregate supply curve to shift?

Which of the following most accurately describes the behavior of the U.S.economy during the 2007-2009 recession?

An increase in the price level reduces net exports because

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory Ii: the Is-Mp Model

Filters