Question 1

If the rate of growth in the money supply is predetermined on the basis of a monetary rule, this is known as

Accepted Answer

A) direct policy making. 
B) active policy making. 
C) passive policy making. 
D) fiscal policy making. 
A) direct policy making. 
B) active policy making. 
C) passive policy making. 
D) fiscal policy making. C

Question 2

When a supply shock is permanent

Accepted Answer

A) only the long-run aggregate supply curve shifts leftward. 
B) only the short-run aggregate supply curve shifts leftward. 
C) both the long-run and short-run aggregate supply curves shift leftward. 
D) there are no shifts in either the long-run or short-run aggregate supply curve. 
A) only the long-run aggregate supply curve shifts leftward. 
B) only the short-run aggregate supply curve shifts leftward. 
C) both the long-run and short-run aggregate supply curves shift leftward. 
D) there are no shifts in either the long-run or short-run aggregate supply curve. C

Question 3

If all the assumptions underpinning the policy irrelevance proposition are in place, fully anticipated monetary policy will

Accepted Answer

A) affect the unemployment rate but have no impact on the level of real Gross Domestic Product (GDP). 
B) have an impact on real Gross Domestic Product (GDP)but cannot alter the level of unemployment. 
C) effectively alter both the rate of unemployment and the level of real Gross Domestic Product (GDP). 
D) not change either the level of real Gross Domestic Product (GDP)or the unemployment rate. 
A) affect the unemployment rate but have no impact on the level of real Gross Domestic Product (GDP). 
B) have an impact on real Gross Domestic Product (GDP)but cannot alter the level of unemployment. 
C) effectively alter both the rate of unemployment and the level of real Gross Domestic Product (GDP). 
D) not change either the level of real Gross Domestic Product (GDP)or the unemployment rate. D

Question 4

According to the hypothesis of New Keynesian inflation dynamics, an increase in aggregate demand brings about

Accepted Answer

A) initial sluggish adjustment of the price level followed by higher inflation later on. 
B) initial rapid adjustment of the price level followed by lower inflation later on. 
C) initial sluggish adjustment of real GDP followed by more rapid real GDP growth later on. 
D) sluggish growth in real GDP both initially and later on. 
A) initial sluggish adjustment of the price level followed by higher inflation later on. 
B) initial rapid adjustment of the price level followed by lower inflation later on. 
C) initial sluggish adjustment of real GDP followed by more rapid real GDP growth later on. 
D) sluggish growth in real GDP both initially and later on.

Question 5

People combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes is consistent with

Accepted Answer

A) frictional unemployment. 
B) the rational expectations hypothesis. 
C) active policy making. 
D) passive policy making. 
A) frictional unemployment. 
B) the rational expectations hypothesis. 
C) active policy making. 
D) passive policy making.

Question 6

Suppose that the economy is in long-run equilibrium and the central bank decided to engage in unexpected expansionary policy by increasing the money supply. If we assume rational expectations, which of the following statements is correct about the effect of expansionary policy in the long run?

Accepted Answer

A) The unemployment rate will increase, real GDP will increase and the price level will increase. 
B) The unemployment rate will decrease, real GDP will decrease and the price level will decrease. 
C) The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will increase. 
D) The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will decrease. 
A) The unemployment rate will increase, real GDP will increase and the price level will increase. 
B) The unemployment rate will decrease, real GDP will decrease and the price level will decrease. 
C) The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will increase. 
D) The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will decrease.

Question 7

The idea of policy making being undertaken as a response to a change in the economy is referred to as

Accepted Answer

A) active policy making. 
B) non-discretionary policy making. 
C) passive policy making. 
D) Keynesianism. 
A) active policy making. 
B) non-discretionary policy making. 
C) passive policy making. 
D) Keynesianism.

Question 8

The downward slope of the Phillips curve suggests that

Accepted Answer

A) an increase in the price level will depress nominal wages. 
B) an increase in the price level will increase the money supply. 
C) a decrease in the money supply will stimulate aggregate demand. 
D) policy makers face a trade-off between inflation and unemployment. 
A) an increase in the price level will depress nominal wages. 
B) an increase in the price level will increase the money supply. 
C) a decrease in the money supply will stimulate aggregate demand. 
D) policy makers face a trade-off between inflation and unemployment.

Question 9

The rational expectations hypothesis states that

Accepted Answer

A) the government combines the effects of past policy changes on important economic variables with accepted views about the effects of current and future policy changes. 
B) people combine the effect of past policy changes on important economic variables with unpredictable views on what policy makers will do to determine what the economy will do in the future. 
C) people combine the effects of past policy changes on important economic variables with their own judgments about the future effects of current and future policy changes. 
D) people understand how the economy operates and use their knowledge in making expectations about the future, but are uninformed about how fiscal and monetary policies are made and carried out. 
A) the government combines the effects of past policy changes on important economic variables with accepted views about the effects of current and future policy changes. 
B) people combine the effect of past policy changes on important economic variables with unpredictable views on what policy makers will do to determine what the economy will do in the future. 
C) people combine the effects of past policy changes on important economic variables with their own judgments about the future effects of current and future policy changes. 
D) people understand how the economy operates and use their knowledge in making expectations about the future, but are uninformed about how fiscal and monetary policies are made and carried out.

Question 10

The short-run Phillips curve suggests what policy making implications?

Accepted Answer

A) Active policy making does not yield any predictable results. 
B) Passive policy making is more effective than active policy making. 
C) Using discretionary policies, it may be possible to achieve just the right unemployment and inflation mix. 
D) Maintaining both the inflation and unemployment rates at low levels is possible if policy makers will rely solely on nondiscretionary policy making. 
A) Active policy making does not yield any predictable results. 
B) Passive policy making is more effective than active policy making. 
C) Using discretionary policies, it may be possible to achieve just the right unemployment and inflation mix. 
D) Maintaining both the inflation and unemployment rates at low levels is possible if policy makers will rely solely on nondiscretionary policy making.

Question 11

According to New Keynesians, an increase in which of the following will tend to cause the inflation rate to increase?

Accepted Answer

A) anticipated future inflation 
B) firms' average inflation adjusted per-unit costs of production 
C) an unexpected increase in aggregate demand 
D) all of the above 
A) anticipated future inflation 
B) firms' average inflation adjusted per-unit costs of production 
C) an unexpected increase in aggregate demand 
D) all of the above

Question 12

How do rational expectations models differ from traditional classical economics?
 How does the new Keynesian model differ from the traditional Keynesian view?

Accepted Answer

A rational expectations model sees no re

Question 13

-Refer to the above figure. The economy initially is at point A. The Fed unexpectedly increases the money supply. Which of the following statements are TRUE?

Accepted Answer

A) In the short run, the economy will move from point A to point C. In the long run, the economy will move to point B. 
B) In the short run, the economy will move from point A to point C. In the long run, the economy will move back to point A. 
C) In the short run, the economy will move from point A to point B. In the long run, the economy will stay at point B. 
D) In the short run, the economy will move from point A to point B. In the long run, the economy will move back to point A. 
A) In the short run, the economy will move from point A to point C. In the long run, the economy will move to point B. 
B) In the short run, the economy will move from point A to point C. In the long run, the economy will move back to point A. 
C) In the short run, the economy will move from point A to point B. In the long run, the economy will stay at point B. 
D) In the short run, the economy will move from point A to point B. In the long run, the economy will move back to point A.

Question 14

New Keynesians conclude that

Accepted Answer

A) appropriate activist policies can dampen cyclical fluctuations. 
B) appropriate activist policies will increase the length of cyclical fluctuations. 
C) appropriate activist policies will have an known effect on the length of cyclical fluctuations. 
D) none of the above. 
A) appropriate activist policies can dampen cyclical fluctuations. 
B) appropriate activist policies will increase the length of cyclical fluctuations. 
C) appropriate activist policies will have an known effect on the length of cyclical fluctuations. 
D) none of the above.

Question 15

According to A.W. Phillips, an inverse relationship has existed between

Accepted Answer

A) unemployment and interest rates. 
B) the rate of growth of the money supply and the unemployment rate. 
C) the inflation rate and unemployment rate. 
D) the inflation rate and the money supply. 
A) unemployment and interest rates. 
B) the rate of growth of the money supply and the unemployment rate. 
C) the inflation rate and unemployment rate. 
D) the inflation rate and the money supply.

Question 16

With discretionary policy making, fiscal and monetary policies are usually

Accepted Answer

A) undertaken in response to or anticipation of some change in the overall economy. 
B) set according to pre-established standards that do not take into account any changes in the economy. 
C) immune to any political overtones. 
D) immune to any lag times that might counter their effectiveness. 
A) undertaken in response to or anticipation of some change in the overall economy. 
B) set according to pre-established standards that do not take into account any changes in the economy. 
C) immune to any political overtones. 
D) immune to any lag times that might counter their effectiveness.

Question 17

According to New Keynesians, which of the following is one of the two key factors that determines the inflation rate?

Accepted Answer

A) fiscal policy 
B) firms' average inflation adjusted per-unit costs of production 
C) oil prices 
D) stock prices 
A) fiscal policy 
B) firms' average inflation adjusted per-unit costs of production 
C) oil prices 
D) stock prices

Question 18

The natural rate of unemployment has increased in the United States and Europe over the last twenty years. What are things that could account for this?

Accepted Answer

The natural rate of unemployment is affe

Question 19

The real business cycle theory is based on all of the assumptions below EXCEPT

Accepted Answer

A) small menu costs. 
B) flexible wages. 
C) pure competition. 
D) flexible prices. 
A) small menu costs. 
B) flexible wages. 
C) pure competition. 
D) flexible prices.

Question 20

-Use the above figure. Graph ________ correctly depicts the short-run Phillips Curve.

Accepted Answer

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

If the rate of growth in the money supply is predetermined on the basis of a monetary rule, this is known as

When a supply shock is permanent

If all the assumptions underpinning the policy irrelevance proposition are in place, fully anticipated monetary policy will

According to the hypothesis of New Keynesian inflation dynamics, an increase in aggregate demand brings about

People combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes is consistent with

Suppose that the economy is in long-run equilibrium and the central bank decided to engage in unexpected expansionary policy by increasing the money supply. If we assume rational expectations, which of the following statements is correct about the effect of expansionary policy in the long run?

The idea of policy making being undertaken as a response to a change in the economy is referred to as

The downward slope of the Phillips curve suggests that

The rational expectations hypothesis states that

The short-run Phillips curve suggests what policy making implications?

According to New Keynesians, an increase in which of the following will tend to cause the inflation rate to increase?

How do rational expectations models differ from traditional classical economics? How does the new Keynesian model differ from the traditional Keynesian view?

-Refer to the above figure. The economy initially is at point A. The Fed unexpectedly increases the money supply. Which of the following statements are TRUE?

New Keynesians conclude that

According to A.W. Phillips, an inverse relationship has existed between

With discretionary policy making, fiscal and monetary policies are usually

According to New Keynesians, which of the following is one of the two key factors that determines the inflation rate?

The natural rate of unemployment has increased in the United States and Europe over the last twenty years. What are things that could account for this?

The real business cycle theory is based on all of the assumptions below EXCEPT

-Use the above figure. Graph ________ correctly depicts the short-run Phillips Curve.

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money Banking and Central Banking

Domestic and International Dimensions of Monetary Policy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

Exam 16: Stabilization in an Integrated World Economy

If the rate of growth in the money supply is predetermined on the basis of a monetary rule, this is known as

When a supply shock is permanent

If all the assumptions underpinning the policy irrelevance proposition are in place, fully anticipated monetary policy will

According to the hypothesis of New Keynesian inflation dynamics, an increase in aggregate demand brings about

People combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes is consistent with

Suppose that the economy is in long-run equilibrium and the central bank decided to engage in unexpected expansionary policy by increasing the money supply. If we assume rational expectations, which of the following statements is correct about the effect of expansionary policy in the long run?

The idea of policy making being undertaken as a response to a change in the economy is referred to as

The downward slope of the Phillips curve suggests that

The rational expectations hypothesis states that

The short-run Phillips curve suggests what policy making implications?

According to New Keynesians, an increase in which of the following will tend to cause the inflation rate to increase?

How do rational expectations models differ from traditional classical economics? How does the new Keynesian model differ from the traditional Keynesian view?

-Refer to the above figure. The economy initially is at point A. The Fed unexpectedly increases the money supply. Which of the following statements are TRUE?

New Keynesians conclude that

According to A.W. Phillips, an inverse relationship has existed between

With discretionary policy making, fiscal and monetary policies are usually

According to New Keynesians, which of the following is one of the two key factors that determines the inflation rate?

The natural rate of unemployment has increased in the United States and Europe over the last twenty years. What are things that could account for this?

The real business cycle theory is based on all of the assumptions below EXCEPT

-Use the above figure. Graph ________ correctly depicts the short-run Phillips Curve.

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money Banking and Central Banking

Domestic and International Dimensions of Monetary Policy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters