Question 1

What happens to the Phillips curve when the expected rate of inflation rises?

Accepted Answer

A) The curve shifts to the right. 
B) The curve shifts to the left. 
C) The curve becomes horizontal. 
D) The Phillips curve is unaffected. 
A) The curve shifts to the right. 
B) The curve shifts to the left. 
C) The curve becomes horizontal. 
D) The Phillips curve is unaffected.

Question 2

We observe the duration of unemployment falling and wage rates rising. It is likely that

Accepted Answer

A) the government has initiated expansionary fiscal policy but the policies haven't taken effect yet. 
B) summer has arrived. 
C) aggregate demand has increased. 
D) aggregate supply has increased. 
A) the government has initiated expansionary fiscal policy but the policies haven't taken effect yet. 
B) summer has arrived. 
C) aggregate demand has increased. 
D) aggregate supply has increased.

Question 3

The real business cycle theory

Accepted Answer

A) indicates that supply side shocks cause most business cycles. 
B) indicates that demand side shocks cause most business cycles. 
C) indicates that rapid changes in the money supply cause most business cycles. 
D) indicates that faulty fiscal policy creates most business cycles. 
A) indicates that supply side shocks cause most business cycles. 
B) indicates that demand side shocks cause most business cycles. 
C) indicates that rapid changes in the money supply cause most business cycles. 
D) indicates that faulty fiscal policy creates most business cycles.

Question 4

The hypothesis stating that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of future and current policy changes is known as

Accepted Answer

A) policy irrelevance hypothesis. 
B) rational expectations hypothesis. 
C) life cycle hypothesis. 
D) real business cycle hypothesis. 
A) policy irrelevance hypothesis. 
B) rational expectations hypothesis. 
C) life cycle hypothesis. 
D) real business cycle hypothesis.

Question 5

The natural rate of unemployment consists of

Accepted Answer

A) no workers looking for employment. 
B) only seasonal unemployment. 
C) only structural unemployment. 
D) structural and frictional unemployment. 
A) no workers looking for employment. 
B) only seasonal unemployment. 
C) only structural unemployment. 
D) structural and frictional unemployment.

Question 6

During the 1970s, the shocks to the United States' economy resulted in

Accepted Answer

A) an increase in the unemployment rate, but a decrease in the inflation rate. 
B) a decrease in the unemployment rate, but an increase in the inflation rate. 
C) an increase in both the unemployment rate and the inflation rate. 
D) a decrease in both the unemployment rate and the inflation rate. 
A) an increase in the unemployment rate, but a decrease in the inflation rate. 
B) a decrease in the unemployment rate, but an increase in the inflation rate. 
C) an increase in both the unemployment rate and the inflation rate. 
D) a decrease in both the unemployment rate and the inflation rate.

Question 7

Those who accept both the rational expectations hypothesis and the assumption of flexibility of wages and price would likely argue that

Accepted Answer

A) saving and investment do not contribute to economic growth. 
B) active policy making does not contribute to economic stability. 
C) if policy makers are willing to accept a high inflation rate, they can reduce unemployment to a point below the natural rate. 
D) policy makers can eliminate fluctuations in the level of business activity with careful planning of a widely publicized monetary policy. 
A) saving and investment do not contribute to economic growth. 
B) active policy making does not contribute to economic stability. 
C) if policy makers are willing to accept a high inflation rate, they can reduce unemployment to a point below the natural rate. 
D) policy makers can eliminate fluctuations in the level of business activity with careful planning of a widely publicized monetary policy.

Question 8

The Phillips Curve will shift when

Accepted Answer

A) the expected inflation rate changes. 
B) the price level falls. 
C) the overall employment rate remains unchanged. 
D) none of the above. 
A) the expected inflation rate changes. 
B) the price level falls. 
C) the overall employment rate remains unchanged. 
D) none of the above.

Question 9

-Use the above figure. The long-run Phillips curve is best depicted by graph

Accepted Answer

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

Question 10

According to the rational expectations hypothesis, the attempt by the government to reduce unemployment below its natural rate through expansionary policies will

Accepted Answer

A) succeed in the short run and can succeed in the long run as long as the government makes it clear what its goals are. 
B) succeed because the government knows how people will react to their policies and will adjust their policies accordingly. 
C) fail because people will figure out what the government is doing and alter their expectations and their behavior in ways that counteract the government policy. 
D) fail because the economy can never achieve an unemployment rate below the natural level. 
A) succeed in the short run and can succeed in the long run as long as the government makes it clear what its goals are. 
B) succeed because the government knows how people will react to their policies and will adjust their policies accordingly. 
C) fail because people will figure out what the government is doing and alter their expectations and their behavior in ways that counteract the government policy. 
D) fail because the economy can never achieve an unemployment rate below the natural level.

Question 11

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

Accepted Answer

A) frictional unemployment. 
B) cyclical unemployment. 
C) seasonal unemployment. 
D) underemployment. 
A) frictional unemployment. 
B) cyclical unemployment. 
C) seasonal unemployment. 
D) underemployment.

Question 12

An economist who would most likely use active policy making would support which of the following conclusions?

Accepted Answer

A) Pure competition is not typical in most markets. 
B) Price flexibility is common in most markets. 
C) Demand shocks have little or no short-run effects on real Gross Domestic Product (GDP)and unemployment. 
D) Supply shocks explain most business cycles. 
A) Pure competition is not typical in most markets. 
B) Price flexibility is common in most markets. 
C) Demand shocks have little or no short-run effects on real Gross Domestic Product (GDP)and unemployment. 
D) Supply shocks explain most business cycles.

Question 13

What best defines active policy making?

Accepted Answer

A) taking action to offset a change in economic performance 
B) taking action to increase long-term economic growth 
C) taking action to make markets more competitive so as to improve efficiency 
D) taking action to make markets less competitive so as to improve equity 
A) taking action to offset a change in economic performance 
B) taking action to increase long-term economic growth 
C) taking action to make markets more competitive so as to improve efficiency 
D) taking action to make markets less competitive so as to improve equity

Question 14

-In the above figure, what does the line U represent?

Accepted Answer

A) the Phillips curve 
B) the natural rate of Unemployment 
C) potential unemployment 
D) full inflation rate of unemployment 
A) the Phillips curve 
B) the natural rate of Unemployment 
C) potential unemployment 
D) full inflation rate of unemployment

Question 15

If the price of bubble gum changed in the market from 1 cent to 1.5 cents and Joe's Market didn't change the price it charges for the bubble gum, this behavior is likely due to

Accepted Answer

A) discretionary policy. 
B) economic laziness. 
C) large menu costs. 
D) small menu costs. 
A) discretionary policy. 
B) economic laziness. 
C) large menu costs. 
D) small menu costs.

Question 16

An unexpected decrease in aggregate demand

Accepted Answer

A) will decrease long-run aggregate supply. 
B) will decrease the average duration of unemployment. 
C) will decrease the price level. 
D) will decrease real GDP, but will not affect the rate and duration of unemployment. 
A) will decrease long-run aggregate supply. 
B) will decrease the average duration of unemployment. 
C) will decrease the price level. 
D) will decrease real GDP, but will not affect the rate and duration of unemployment.

Question 17

The natural rate of unemployment is defined as the rate of unemployment that

Accepted Answer

A) prevails in long-run macroeconomic equilibrium, when all workers and employers have fully adjusted to any changes in the economy. 
B) prevails in the short-run macroeconomic equilibrium, before workers and employers have had a chance to adjust to an economic shock. 
C) exists due to welfare and unemployment benefits that reduce potential workers' incentives to find work. 
D) exists only during periods of recession or depression in the economy. 
A) prevails in long-run macroeconomic equilibrium, when all workers and employers have fully adjusted to any changes in the economy. 
B) prevails in the short-run macroeconomic equilibrium, before workers and employers have had a chance to adjust to an economic shock. 
C) exists due to welfare and unemployment benefits that reduce potential workers' incentives to find work. 
D) exists only during periods of recession or depression in the economy.

Question 18

When it comes to active policy making most economists agree that

Accepted Answer

A) active policy making should be used over passive policy making. 
B) it is unlikely that active policy making will have any long term effects on the economy. 
C) it is likely that active policy making will have long term effects on the economy. 
D) it will lead to long term shocks in the system. 
A) active policy making should be used over passive policy making. 
B) it is unlikely that active policy making will have any long term effects on the economy. 
C) it is likely that active policy making will have long term effects on the economy. 
D) it will lead to long term shocks in the system.

Question 19

The Phillips curve shows

Accepted Answer

A) a positive relationship in the long run between the rate of inflation and the rate of unemployment. 
B) a negative relationship between the inflation rate and the unemployment rate, at least in the short run. 
C) a positive relationship between contractionary monetary policy and higher price levels. 
D) a positive relationship between price stability and constant, small-increment changes in the fiscal policy on the part of the Fed. 
A) a positive relationship in the long run between the rate of inflation and the rate of unemployment. 
B) a negative relationship between the inflation rate and the unemployment rate, at least in the short run. 
C) a positive relationship between contractionary monetary policy and higher price levels. 
D) a positive relationship between price stability and constant, small-increment changes in the fiscal policy on the part of the Fed.

Question 20

A plot of points representing the rate of inflation and the unemployment for the United States since 1953 reveals that

Accepted Answer

A) there is an inverse relationship between the two variables. 
B) there does not appear to be any trade-off between the two variables. 
C) there is a positive relationship between the two variables. 
D) none of the above. 
A) there is an inverse relationship between the two variables. 
B) there does not appear to be any trade-off between the two variables. 
C) there is a positive relationship between the two variables. 
D) none of the above.

What happens to the Phillips curve when the expected rate of inflation rises?

We observe the duration of unemployment falling and wage rates rising. It is likely that

The real business cycle theory

The hypothesis stating that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of future and current policy changes is known as

The natural rate of unemployment consists of

During the 1970s, the shocks to the United States' economy resulted in

Those who accept both the rational expectations hypothesis and the assumption of flexibility of wages and price would likely argue that

The Phillips Curve will shift when

-Use the above figure. The long-run Phillips curve is best depicted by graph

According to the rational expectations hypothesis, the attempt by the government to reduce unemployment below its natural rate through expansionary policies will

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

An economist who would most likely use active policy making would support which of the following conclusions?

What best defines active policy making?

-In the above figure, what does the line U represent?

If the price of bubble gum changed in the market from 1 cent to 1.5 cents and Joe's Market didn't change the price it charges for the bubble gum, this behavior is likely due to

An unexpected decrease in aggregate demand

The natural rate of unemployment is defined as the rate of unemployment that

When it comes to active policy making most economists agree that

The Phillips curve shows

A plot of points representing the rate of inflation and the unemployment for the United States since 1953 reveals that

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

What happens to the Phillips curve when the expected rate of inflation rises?

We observe the duration of unemployment falling and wage rates rising. It is likely that

The real business cycle theory

The hypothesis stating that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of future and current policy changes is known as

The natural rate of unemployment consists of

During the 1970s, the shocks to the United States' economy resulted in

Those who accept both the rational expectations hypothesis and the assumption of flexibility of wages and price would likely argue that

The Phillips Curve will shift when

-Use the above figure. The long-run Phillips curve is best depicted by graph

According to the rational expectations hypothesis, the attempt by the government to reduce unemployment below its natural rate through expansionary policies will

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

An economist who would most likely use active policy making would support which of the following conclusions?

What best defines active policy making?

-In the above figure, what does the line U represent?

If the price of bubble gum changed in the market from 1 cent to 1.5 cents and Joe's Market didn't change the price it charges for the bubble gum, this behavior is likely due to

An unexpected decrease in aggregate demand

The natural rate of unemployment is defined as the rate of unemployment that

When it comes to active policy making most economists agree that

The Phillips curve shows

A plot of points representing the rate of inflation and the unemployment for the United States since 1953 reveals that

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