Question 1

-Refer to the above figure. Line ABCD is a(n)

Accepted Answer

A) aggregate demand curve. 
B) Phillips curve. 
C) discretionary-policy curve. 
D) natural rate of unemployment curve. 
A) aggregate demand curve. 
B) Phillips curve. 
C) discretionary-policy curve. 
D) natural rate of unemployment curve.

Question 2

Which one of the following is an example of passive policy making?

Accepted Answer

A) introducing expansionary monetary policy to combat a recession 
B) introducing expansionary monetary policy to combat inflation 
C) introducing expansionary fiscal policy to combat a recession 
D) following a predetermined monetary policy rule 
A) introducing expansionary monetary policy to combat a recession 
B) introducing expansionary monetary policy to combat inflation 
C) introducing expansionary fiscal policy to combat a recession 
D) following a predetermined monetary policy rule

Question 3

According to economists who promote sticky-price theories

Accepted Answer

A) only fiscal policy is an effective stabilization policy. 
B) only monetary policy is an effective stabilization policy. 
C) both fiscal and monetary policy can be effective stabilization policies. 
D) neither fiscal nor monetary policy is an effective stabilization policy. 
A) only fiscal policy is an effective stabilization policy. 
B) only monetary policy is an effective stabilization policy. 
C) both fiscal and monetary policy can be effective stabilization policies. 
D) neither fiscal nor monetary policy is an effective stabilization policy.

Question 4

Which of the following is NOT associated with the new Keynesian economics?

Accepted Answer

A) inflation dynamics 
B) small-menu cost theory 
C) market-clearing models to explain business cycles 
D) sticky-price theories of real GDP determination 
A) inflation dynamics 
B) small-menu cost theory 
C) market-clearing models to explain business cycles 
D) sticky-price theories of real GDP determination

Question 5

According to the rational expectations hypothesis, monetary policy can have real effects on such variables as real Gross Domestic Product (GDP)in the short run

Accepted Answer

A) only when the policy is anticipated. 
B) only when the policy is unsystematic and unanticipated. 
C) regardless of whether the policy is anticipated or unanticipated. 
D) when the Federal Reserve's open market committee operates as expected in either buying or selling bonds. 
A) only when the policy is anticipated. 
B) only when the policy is unsystematic and unanticipated. 
C) regardless of whether the policy is anticipated or unanticipated. 
D) when the Federal Reserve's open market committee operates as expected in either buying or selling bonds.

Question 6

Structural unemployment is likely to be affected by

Accepted Answer

A) recessions and expansions. 
B) the reservation wage curves of people. 
C) minimum wage laws and other "rigidities" in the economy. 
D) the amount of the money supply. 
A) recessions and expansions. 
B) the reservation wage curves of people. 
C) minimum wage laws and other "rigidities" in the economy. 
D) the amount of the money supply.

Question 7

Menu costs are

Accepted Answer

A) the constantly changing resource prices that make planning for firms difficult. 
B) the advertised prices for final products that firms guarantee for a certain period of time. 
C) the cost of compliance with government regulations. 
D) the costs that deter firms from changing prices in reaction to demand changes. 
A) the constantly changing resource prices that make planning for firms difficult. 
B) the advertised prices for final products that firms guarantee for a certain period of time. 
C) the cost of compliance with government regulations. 
D) the costs that deter firms from changing prices in reaction to demand changes.

Question 8

-In the above figure, if initial equilibrium is at point A and there is a fully anticipated increase in aggregate demand from AD₁ to AD₂ due to an anticipated increase in the money supply, then

Accepted Answer

A) the economy will move directly from point A to point C without passing through point B. 
B) the economy will move directly from point A to point B, and will remain at point B in the long run. 
C) the price level will shift to P₂ in the short run. 
D) the price level will shift to P₂ in the long run. 
A) the economy will move directly from point A to point C without passing through point B. 
B) the economy will move directly from point A to point B, and will remain at point B in the long run. 
C) the price level will shift to P₂ in the short run. 
D) the price level will shift to P₂ in the long run.

Question 9

An unexpected increase 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 10

Initial studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States was as long as

Accepted Answer

A) 6 months. 
B) 12 months. 
C) 2 years. 
D) 4 years. 
A) 6 months. 
B) 12 months. 
C) 2 years. 
D) 4 years.

Question 11

The new Keynesian sticky-price theory indicates that an increase in aggregate demand generates

Accepted Answer

A) a speedy rise in real GDP but a sluggish increase in the price level. 
B) a speedy rise in the price level but a sluggish increase in real GDP. 
C) sluggish increases in both real GDP and the price level. 
D) rapid increases in both real GDP and the price level. 
A) a speedy rise in real GDP but a sluggish increase in the price level. 
B) a speedy rise in the price level but a sluggish increase in real GDP. 
C) sluggish increases in both real GDP and the price level. 
D) rapid increases in both real GDP and the price level.

Question 12

Deviations of the actual unemployment rate away from the natural rate are

Accepted Answer

A) cyclical unemployment. 
B) frictional unemployment. 
C) structural unemployment. 
D) the monetary rule. 
A) cyclical unemployment. 
B) frictional unemployment. 
C) structural unemployment. 
D) the monetary rule.

Question 13

-Refer to the above figure. Suppose the economy is in equilibrium at point A. If rational expectations exist, an increase in aggregate demand caused by an anticipated increase in the money supply will cause the economy to

Accepted Answer

A) stay at point A. 
B) move to point B. 
C) move to point C. 
D) move to point D. 
A) stay at point A. 
B) move to point B. 
C) move to point C. 
D) move to point D.

Question 14

New Keynesian inflation dynamics can account for sluggish responses of

Accepted Answer

A) real GDP to variations in aggregate supply. 
B) real GDP to variations in aggregate demand. 
C) inflation to variations in aggregate supply. 
D) inflation to variations in aggregate demand. 
A) real GDP to variations in aggregate supply. 
B) real GDP to variations in aggregate demand. 
C) inflation to variations in aggregate supply. 
D) inflation to variations in aggregate demand.

Question 15

New Keynesians hypothesize that

Accepted Answer

A) the relationship between inflation and unemployment is exploitable in the long run. 
B) the relationship between inflation and unemployment is exploitable in the short run. 
C) there is no relationship between inflation and unemployment. 
D) fluctuations in output are largely caused by supply shocks. 
A) the relationship between inflation and unemployment is exploitable in the long run. 
B) the relationship between inflation and unemployment is exploitable in the short run. 
C) there is no relationship between inflation and unemployment. 
D) fluctuations in output are largely caused by supply shocks.

Question 16

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

Accepted Answer

A) real GDP will be Y₁, and the price level will be P₁. 
B) real GDP will be Y₂, and the price level will be P₂. 
C) real GDP will be Y₁, and the price level will be above P₂. 
D) real GDP will be between Y₁ and Y₂, and the price level will be between P₁ and P₂. 
A) real GDP will be Y₁, and the price level will be P₁. 
B) real GDP will be Y₂, and the price level will be P₂. 
C) real GDP will be Y₁, and the price level will be above P₂. 
D) real GDP will be between Y₁ and Y₂, and the price level will be between P₁ and P₂.

Question 17

The natural rate of unemployment includes

Accepted Answer

A) frictional and cyclical unemployment. 
B) only cyclical unemployment. 
C) only unemployment due to layoffs and corporate downsizing. 
D) frictional unemployment and structural unemployment. 
A) frictional and cyclical unemployment. 
B) only cyclical unemployment. 
C) only unemployment due to layoffs and corporate downsizing. 
D) frictional unemployment and structural unemployment.

Question 18

According to Friedman and Phelps, which of the following statements is a correct characterization of unemployment and inflation in the United States since the 1950s?

Accepted Answer

A) A trade-off between inflation and unemployment as pictured in the Phillips curve existed over the entire time period. 
B) A trade-off between inflation and unemployment as pictured in the Phillips curve existed in the 1970s and 1980s, but not over the entire period. 
C) The relationship between inflation and unemployment is very different from the Phillips curve. A positive relationship is evident rather than an inverse relationship. 
D) There is no clear relationship between unemployment and inflation. 
A) A trade-off between inflation and unemployment as pictured in the Phillips curve existed over the entire time period. 
B) A trade-off between inflation and unemployment as pictured in the Phillips curve existed in the 1970s and 1980s, but not over the entire period. 
C) The relationship between inflation and unemployment is very different from the Phillips curve. A positive relationship is evident rather than an inverse relationship. 
D) There is no clear relationship between unemployment and inflation.

Question 19

Suppose that the economy is in long-run equilibrium and the government decided to engage in unexpected contractionary policy by decreasing the money supply. If we assume rational expectations, which of the following statements is correct about the effect of contractionary 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 20

When workers and employers correctly anticipate the rate of inflation

Accepted Answer

A) there will be no unemployment. 
B) there will be only involuntary unemployment. 
C) unemployment will be at the natural rate. 
D) workers will underestimate the real wage. 
A) there will be no unemployment. 
B) there will be only involuntary unemployment. 
C) unemployment will be at the natural rate. 
D) workers will underestimate the real wage.

-Refer to the above figure. Line ABCD is a(n)

Which one of the following is an example of passive policy making?

According to economists who promote sticky-price theories

Which of the following is NOT associated with the new Keynesian economics?

According to the rational expectations hypothesis, monetary policy can have real effects on such variables as real Gross Domestic Product (GDP)in the short run

Structural unemployment is likely to be affected by

Menu costs are

-In the above figure, if initial equilibrium is at point A and there is a fully anticipated increase in aggregate demand from AD₁ to AD₂ due to an anticipated increase in the money supply, then

An unexpected increase in aggregate demand

Initial studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States was as long as

The new Keynesian sticky-price theory indicates that an increase in aggregate demand generates

Deviations of the actual unemployment rate away from the natural rate are

-Refer to the above figure. Suppose the economy is in equilibrium at point A. If rational expectations exist, an increase in aggregate demand caused by an anticipated increase in the money supply will cause the economy to

New Keynesian inflation dynamics can account for sluggish responses of

New Keynesians hypothesize that

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

The natural rate of unemployment includes

According to Friedman and Phelps, which of the following statements is a correct characterization of unemployment and inflation in the United States since the 1950s?

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

When workers and employers correctly anticipate the rate of inflation

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

-Refer to the above figure. Line ABCD is a(n)

Which one of the following is an example of passive policy making?

According to economists who promote sticky-price theories

Which of the following is NOT associated with the new Keynesian economics?

According to the rational expectations hypothesis, monetary policy can have real effects on such variables as real Gross Domestic Product (GDP)in the short run

Structural unemployment is likely to be affected by

Menu costs are

-In the above figure, if initial equilibrium is at point A and there is a fully anticipated increase in aggregate demand from AD₁ to AD₂ due to an anticipated increase in the money supply, then

An unexpected increase in aggregate demand

Initial studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States was as long as

The new Keynesian sticky-price theory indicates that an increase in aggregate demand generates

Deviations of the actual unemployment rate away from the natural rate are

-Refer to the above figure. Suppose the economy is in equilibrium at point A. If rational expectations exist, an increase in aggregate demand caused by an anticipated increase in the money supply will cause the economy to

New Keynesian inflation dynamics can account for sluggish responses of

New Keynesians hypothesize that

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

The natural rate of unemployment includes

According to Friedman and Phelps, which of the following statements is a correct characterization of unemployment and inflation in the United States since the 1950s?

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

When workers and employers correctly anticipate the rate of inflation

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