Question 1

When the economy is in long-run equilibrium, there will be

Accepted Answer

A) no unemployment. 
B) frictional and structural unemployment. 
C) cyclical unemployment only. 
D) cyclical and seasonal unemployment. 
A) no unemployment. 
B) frictional and structural unemployment. 
C) cyclical unemployment only. 
D) cyclical and seasonal unemployment.

Question 2

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to AD₂. In the long run

Accepted Answer

A) the unemployment rate will be the same rate as before the contractionary monetary policy. 
B) the unemployment rate will be larger than the rate before the expansionary monetary policy. 
C) the unemployment rate will be smaller than the rate before the expansionary monetary policy. 
D) the unemployment rate can increase or decrease depending upon how much the LRAS will shift. 
A) the unemployment rate will be the same rate as before the contractionary monetary policy. 
B) the unemployment rate will be larger than the rate before the expansionary monetary policy. 
C) the unemployment rate will be smaller than the rate before the expansionary monetary policy. 
D) the unemployment rate can increase or decrease depending upon how much the LRAS will shift.

Question 3

Compare and contrast the arguments favoring active versus passive policy making.

Accepted Answer

The models that stress wage and price fl

Question 4

Suppose the government abolished the minimum wage law and the law that requires union wage rates to be paid on all government contract jobs. We would expect to see

Accepted Answer

A) a decline in the natural rate of unemployment. 
B) an increase in claims for unemployment benefits. 
C) the duration of unemployment to increase. 
D) a recession. 
A) a decline in the natural rate of unemployment. 
B) an increase in claims for unemployment benefits. 
C) the duration of unemployment to increase. 
D) a recession.

Question 5

Policymakers' attempts to use the Phillips curve to reduce the unemployment rate below the natural rate

Accepted Answer

A) will be successful since the Phillips curve shows the relationship between the inflation rate and the unemployment rate. 
B) will be successful if monetary policy is used. 
C) will be unsuccessful if monetary policy is used since monetary policy leads to higher prices. 
D) will be unsuccessful since workers' expectations adjust to attempts to reduce unemployment below the natural rate. 
A) will be successful since the Phillips curve shows the relationship between the inflation rate and the unemployment rate. 
B) will be successful if monetary policy is used. 
C) will be unsuccessful if monetary policy is used since monetary policy leads to higher prices. 
D) will be unsuccessful since workers' expectations adjust to attempts to reduce unemployment below the natural rate.

Question 6

Those who favor active policy making argue that all of the following exist EXCEPT

Accepted Answer

A) perfectly flexible wages and prices. 
B) inflation and unemployment are stable in the short run and predictable in the long run. 
C) pure competition is not typical. 
D) aggregate demand shocks can influence real GDP and unemployment. 
A) perfectly flexible wages and prices. 
B) inflation and unemployment are stable in the short run and predictable in the long run. 
C) pure competition is not typical. 
D) aggregate demand shocks can influence real GDP and unemployment.

Question 7

According to the text, minimum-wage laws cause increases in

Accepted Answer

A) employment possibilities. 
B) structural unemployment. 
C) poverty. 
D) productivity. 
A) employment possibilities. 
B) structural unemployment. 
C) poverty. 
D) productivity.

Question 8

The rational expectations hypothesis states that

Accepted Answer

A) individuals always behave rationally. 
B) prices do not adjust in a downward direction. 
C) past and present economic information is incorporated into decision making. 
D) consumers do not understand the effects of monetary and fiscal policy. 
A) individuals always behave rationally. 
B) prices do not adjust in a downward direction. 
C) past and present economic information is incorporated into decision making. 
D) consumers do not understand the effects of monetary and fiscal policy.

Question 9

The idea that anticipated monetary policy cannot affect real variables such as real Gross Domestic Product (GDP)or employment is known as

Accepted Answer

A) the Keynesian hypothesis. 
B) the policy irrelevance proposition. 
C) the job search model. 
D) the monetary velocity theory. 
A) the Keynesian hypothesis. 
B) the policy irrelevance proposition. 
C) the job search model. 
D) the monetary velocity theory.

Question 10

Which of the following holds that economic decision making on all levels is unbiased and is based on all available information?

Accepted Answer

A) Keynesian cycle theory 
B) rational expectations based theory 
C) adaptive expectations based theory 
D) none of the above 
A) Keynesian cycle theory 
B) rational expectations based theory 
C) adaptive expectations based theory 
D) none of the above

Question 11

The stagflation experienced in the U.S. during the late 1960s and the 1970s showed us that

Accepted Answer

A) the Phillips curve accurately represents the trade-off between unemployment and inflation. 
B) both inflation and economic expansion could exist simultaneously. 
C) the relationship between unemployment and inflation was not as clear-cut as presented on the Phillips curve. 
D) it is possible to alleviate economic stagflation through the government discretionary fiscal policy. 
A) the Phillips curve accurately represents the trade-off between unemployment and inflation. 
B) both inflation and economic expansion could exist simultaneously. 
C) the relationship between unemployment and inflation was not as clear-cut as presented on the Phillips curve. 
D) it is possible to alleviate economic stagflation through the government discretionary fiscal policy.

Question 12

The U.S. economic data for the last 50 years indicates that

Accepted Answer

A) there is an inverse relationship between unemployment rate and inflation rate. 
B) there is a direct relationship between unemployment rate and inflation rate. 
C) during recessions the unemployment rate was always twice as high as the inflation rate. 
D) there has been no long-run relationship between unemployment and inflation rates. 
A) there is an inverse relationship between unemployment rate and inflation rate. 
B) there is a direct relationship between unemployment rate and inflation rate. 
C) during recessions the unemployment rate was always twice as high as the inflation rate. 
D) there has been no long-run relationship between unemployment and inflation rates.

Question 13

The Phillips curve shows the relationship between

Accepted Answer

A) the rate of growth in real GDP and the unemployment rate. 
B) the inflation rate and the unemployment rate. 
C) aggregate demand and the unemployment rate. 
D) aggregate supply and the unemployment rate. 
A) the rate of growth in real GDP and the unemployment rate. 
B) the inflation rate and the unemployment rate. 
C) aggregate demand and the unemployment rate. 
D) aggregate supply and the unemployment rate.

Question 14

-In the above figure, start with the economy in equilibrium at point A. Then an unanticipated reduction in aggregate demand triggers a shift from AD₁ to AD₂. In the short run, this would cause

Accepted Answer

A) the price level to fall from P₁ to P₂, real Gross Domestic Product (GDP)to fall from Y₁ to Y₂, and the rate of unemployment to increase. 
B) the price level to move from P₁ to P₂, but real Gross Domestic Product (GDP)would stay at Y₁. 
C) the price level to fall by some amount less than P₁ but greater than P₂, and the rate of unemployment would decrease. 
D) no change in either the price level or real Gross Domestic Product (GDP), but a decrease in unemployment. 
A) the price level to fall from P₁ to P₂, real Gross Domestic Product (GDP)to fall from Y₁ to Y₂, and the rate of unemployment to increase. 
B) the price level to move from P₁ to P₂, but real Gross Domestic Product (GDP)would stay at Y₁. 
C) the price level to fall by some amount less than P₁ but greater than P₂, and the rate of unemployment would decrease. 
D) no change in either the price level or real Gross Domestic Product (GDP), but a decrease in unemployment.

Question 15

An unexpected decrease in aggregate demand

Accepted Answer

A) causes the price level to fall and the unemployment rate to rise. 
B) causes the price level to fall and the unemployment rate to fall. 
C) causes the price level to rise and the unemployment rate to rise. 
D) causes the price level to rise and the unemployment rate to fall. 
A) causes the price level to fall and the unemployment rate to rise. 
B) causes the price level to fall and the unemployment rate to fall. 
C) causes the price level to rise and the unemployment rate to rise. 
D) causes the price level to rise and the unemployment rate to fall.

Question 16

The longer is the interval between firms' price adjustments

Accepted Answer

A) the longer the interval that the horizontal new Keynesian aggregate supply curve will remain in position. 
B) the shorter the interval the horizontal new Keynesian aggregate supply curve will remain in position. 
C) the new Keynesian aggregate supply curve will become steeper. 
D) the smaller the output effect of a given change in the money supply. 
A) the longer the interval that the horizontal new Keynesian aggregate supply curve will remain in position. 
B) the shorter the interval the horizontal new Keynesian aggregate supply curve will remain in position. 
C) the new Keynesian aggregate supply curve will become steeper. 
D) the smaller the output effect of a given change in the money supply.

Question 17

If a significant portion of firms in the economy does not immediately adjust product prices, then the short-run aggregate supply curve

Accepted Answer

A) slopes upward. 
B) slopes downward. 
C) is horizontal. 
D) is vertical. 
A) slopes upward. 
B) slopes downward. 
C) is horizontal. 
D) is vertical.

Question 18

The idea of policy making taking place in response to a predetermined set of rules is referred to as

Accepted Answer

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

Question 19

The inflation rate has been constant for several years at 4 percent, and the unemployment rate has been stable at 6 percent over the same time period. Changes in government policy that cause the inflation rate to rise to 6 percent will

Accepted Answer

A) have no effect on the unemployment rate. 
B) cause the unemployment rate to fall in the short run. 
C) cause the unemployment rate to rise to 9 percent in the short run. 
D) cause the unemployment rate to rise in the short run, but we cannot tell by how much. 
A) have no effect on the unemployment rate. 
B) cause the unemployment rate to fall in the short run. 
C) cause the unemployment rate to rise to 9 percent in the short run. 
D) cause the unemployment rate to rise in the short run, but we cannot tell by how much.

Question 20

An important source of structural unemployment is

Accepted Answer

A) seasonal variations in aggregate demand. 
B) unemployment insurance benefits. 
C) people looking for the right job decide to change jobs. 
D) recessions. 
A) seasonal variations in aggregate demand. 
B) unemployment insurance benefits. 
C) people looking for the right job decide to change jobs. 
D) recessions.

When the economy is in long-run equilibrium, there will be

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to AD₂. In the long run

Compare and contrast the arguments favoring active versus passive policy making.

Suppose the government abolished the minimum wage law and the law that requires union wage rates to be paid on all government contract jobs. We would expect to see

Policymakers' attempts to use the Phillips curve to reduce the unemployment rate below the natural rate

Those who favor active policy making argue that all of the following exist EXCEPT

According to the text, minimum-wage laws cause increases in

The rational expectations hypothesis states that

The idea that anticipated monetary policy cannot affect real variables such as real Gross Domestic Product (GDP)or employment is known as

Which of the following holds that economic decision making on all levels is unbiased and is based on all available information?

The stagflation experienced in the U.S. during the late 1960s and the 1970s showed us that

The U.S. economic data for the last 50 years indicates that

The Phillips curve shows the relationship between

-In the above figure, start with the economy in equilibrium at point A. Then an unanticipated reduction in aggregate demand triggers a shift from AD₁ to AD₂. In the short run, this would cause

An unexpected decrease in aggregate demand

The longer is the interval between firms' price adjustments

If a significant portion of firms in the economy does not immediately adjust product prices, then the short-run aggregate supply curve

The idea of policy making taking place in response to a predetermined set of rules is referred to as

The inflation rate has been constant for several years at 4 percent, and the unemployment rate has been stable at 6 percent over the same time period. Changes in government policy that cause the inflation rate to rise to 6 percent will

An important source of structural unemployment is

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

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Exam 16: Stabilization in an Integrated World Economy

When the economy is in long-run equilibrium, there will be

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to AD₂. In the long run

Compare and contrast the arguments favoring active versus passive policy making.

Suppose the government abolished the minimum wage law and the law that requires union wage rates to be paid on all government contract jobs. We would expect to see

Policymakers' attempts to use the Phillips curve to reduce the unemployment rate below the natural rate

Those who favor active policy making argue that all of the following exist EXCEPT

According to the text, minimum-wage laws cause increases in

The rational expectations hypothesis states that

The idea that anticipated monetary policy cannot affect real variables such as real Gross Domestic Product (GDP)or employment is known as

Which of the following holds that economic decision making on all levels is unbiased and is based on all available information?

The stagflation experienced in the U.S. during the late 1960s and the 1970s showed us that

The U.S. economic data for the last 50 years indicates that

The Phillips curve shows the relationship between

-In the above figure, start with the economy in equilibrium at point A. Then an unanticipated reduction in aggregate demand triggers a shift from AD₁ to AD₂. In the short run, this would cause

An unexpected decrease in aggregate demand

The longer is the interval between firms' price adjustments

If a significant portion of firms in the economy does not immediately adjust product prices, then the short-run aggregate supply curve

The idea of policy making taking place in response to a predetermined set of rules is referred to as

The inflation rate has been constant for several years at 4 percent, and the unemployment rate has been stable at 6 percent over the same time period. Changes in government policy that cause the inflation rate to rise to 6 percent will

An important source of structural unemployment is

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