Question 1

-In the above figure, if we start at AD₁ and SRAS₁, and the money supply increases unexpectedly, what would be the long-run equilibrium?

Accepted Answer

A) E₁ 
B) E₂ 
C) E₃ 
D) P₁ 
A) E₁ 
B) E₂ 
C) E₃ 
D) P₁

Question 2

According to the real-business-cycle perspective

Accepted Answer

A) the economy cannot be stabilized by policy activism. 
B) the Phillips curve is very important. 
C) active policy making is important. 
D) passive policy making is important. 
A) the economy cannot be stabilized by policy activism. 
B) the Phillips curve is very important. 
C) active policy making is important. 
D) passive policy making is important.

Question 3

According to the Phillips curve

Accepted Answer

A) there is a direct relationship between price-level changes and the level of unemployment rate. 
B) the unemployment rate is not affected by changes in the price level. 
C) price-level changes are not affected by changes in the unemployment rate. 
D) there is an inverse relationship between price-level changes and the unemployment rate. 
A) there is a direct relationship between price-level changes and the level of unemployment rate. 
B) the unemployment rate is not affected by changes in the price level. 
C) price-level changes are not affected by changes in the unemployment rate. 
D) there is an inverse relationship between price-level changes and the unemployment rate.

Question 4

From the late 1980s to 2000, the natural rate of unemployment

Accepted Answer

A) climbed sharply. 
B) held constant. 
C) fluctuated up and down, following the path of the actual rate of unemployment. 
D) gradually declined. 
A) climbed sharply. 
B) held constant. 
C) fluctuated up and down, following the path of the actual rate of unemployment. 
D) gradually declined.

Question 5

If a group of economists believes the following points are true, which is likely to be their policy making stance?
∙ Aggregate demand shocks have no long run effect on real Gross Domestic Product (GDP)or unemployment.
∙ Pure competition is widespread throughout the economy.
∙ Real wages are flexible.
∙ The Phillips Curve trade-off does not exist in the long run.

Accepted Answer

A) They will support active policy making. 
B) They will support passive policy making. 
C) They will support discretionary policy making. 
D) They will argue that any attempt at economic policy making is futile. 
A) They will support active policy making. 
B) They will support passive policy making. 
C) They will support discretionary policy making. 
D) They will argue that any attempt at economic policy making is futile.

Question 6

Explain the difference between active and passive policy making.

Accepted Answer

Active policy making, or discretionary p

Question 7

-Refer to the above figure. Unexpected expansionary 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 expansionary 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 expansionary 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 8

The conclusion that the economy has price flexibility, wage flexibility, and perfectly competitive markets justifies

Accepted Answer

A) active policy making. 
B) rational policy making. 
C) passive policy making. 
D) none of the above. 
A) active policy making. 
B) rational policy making. 
C) passive policy making. 
D) none of the above.

Question 9

During a recession, the

Accepted Answer

A) natural rate of unemployment has fallen. 
B) cyclical rate of unemployment is positive. 
C) cyclical rate of unemployment is zero. 
D) cyclical rate of unemployment is negative. 
A) natural rate of unemployment has fallen. 
B) cyclical rate of unemployment is positive. 
C) cyclical rate of unemployment is zero. 
D) cyclical rate of unemployment is negative.

Question 10

The menu cost theory states that

Accepted Answer

A) prices are not fully flexible because it is costly for firms to change prices every time there is a demand change. 
B) economic agents quickly learn the likely responses of the Fed to changes in unemployment. 
C) wages depend on the productivity of workers. 
D) the economy is characterized by perfect competition. 
A) prices are not fully flexible because it is costly for firms to change prices every time there is a demand change. 
B) economic agents quickly learn the likely responses of the Fed to changes in unemployment. 
C) wages depend on the productivity of workers. 
D) the economy is characterized by perfect competition.

Question 11

Which of the following unemployment rates can be negative?

Accepted Answer

A) the cyclical unemployment rate 
B) the natural unemployment rate 
C) the seasonal unemployment rate 
D) the official unemployment rate reported by the Bureau of Labor Statistics 
A) the cyclical unemployment rate 
B) the natural unemployment rate 
C) the seasonal unemployment rate 
D) the official unemployment rate reported by the Bureau of Labor Statistics

Question 12

If cyclical unemployment is negative, then

Accepted Answer

A) the actual unemployment rate is below the natural rate of unemployment. 
B) the natural rate of unemployment is getting smaller. 
C) there have been some errors in classifying the type of unemployment experienced by some people. 
D) structural unemployment must be increasing. 
A) the actual unemployment rate is below the natural rate of unemployment. 
B) the natural rate of unemployment is getting smaller. 
C) there have been some errors in classifying the type of unemployment experienced by some people. 
D) structural unemployment must be increasing.

Question 13

Which statement is TRUE when rational expectations exist and there is a change in monetary policy which is expected?

Accepted Answer

A) The change in monetary policy leads to a change in aggregate demand that leads to a temporary short-run equilibrium that is different from the long-run equilibrium. 
B) The change in monetary policy leads to a simultaneous shift of the short-run aggregate supply curve. 
C) The change in monetary policy lead to a simultaneous shift in the long-run aggregate supply curve. 
D) The change in monetary policy does not change equilibrium in either the short-run or long-run. 
A) The change in monetary policy leads to a change in aggregate demand that leads to a temporary short-run equilibrium that is different from the long-run equilibrium. 
B) The change in monetary policy leads to a simultaneous shift of the short-run aggregate supply curve. 
C) The change in monetary policy lead to a simultaneous shift in the long-run aggregate supply curve. 
D) The change in monetary policy does not change equilibrium in either the short-run or long-run.

Question 14

-In the above figure, starting at E₃, if there is an increase in technology that causes a permanent increase in production capabilities

Accepted Answer

A) aggregate supply would shift to SRAS₀ and LRAS₁ would shift to LRAS₀. 
B) aggregate supply would shift to SRAS₁ and LRAS₀ would shift to LRAS₁. 
C) aggregate supply would shift to SRAS₂ and LRAS₀ would shift to LRAS₁. 
D) aggregate supply would shift to SRAS₁ and then return to SRAS₀. 
A) aggregate supply would shift to SRAS₀ and LRAS₁ would shift to LRAS₀. 
B) aggregate supply would shift to SRAS₁ and LRAS₀ would shift to LRAS₁. 
C) aggregate supply would shift to SRAS₂ and LRAS₀ would shift to LRAS₁. 
D) aggregate supply would shift to SRAS₁ and then return to SRAS₀.

Question 15

Which type of unemployment is associated with the slump in aggregate demand that accompanies a recession?

Accepted Answer

A) expansionary unemployment 
B) cyclical unemployment 
C) frictional unemployment 
D) structural unemployment 
A) expansionary unemployment 
B) cyclical unemployment 
C) frictional unemployment 
D) structural unemployment

Question 16

If a policy maker is convinced that time lags frequently negate the impact of short-run stabilization efforts, it is likely she would favor ________ policy making.

Accepted Answer

A) nondiscretionary 
B) discretionary 
C) active 
D) aggressive 
A) nondiscretionary 
B) discretionary 
C) active 
D) aggressive

Question 17

Describe and explain the policy irrelevance proposition.

Accepted Answer

The policy irrelevance proposition is th

Question 18

Adding the assumption of pure competition and complete flexibility of all prices and wages to the rational expectations hypothesis yields a theory that provides support for

Accepted Answer

A) passive policy making. 
B) active policy making. 
C) discretionary policy making. 
D) unemployment reducing policy making. 
A) passive policy making. 
B) active policy making. 
C) discretionary policy making. 
D) unemployment reducing policy making.

Question 19

Menu costs are a possible reason for

Accepted Answer

A) aggregate supply shocks. 
B) low levels of consumer confidence in response to aggregate supply shocks. 
C) sticky product prices. 
D) swings in the labor force participation rate. 
A) aggregate supply shocks. 
B) low levels of consumer confidence in response to aggregate supply shocks. 
C) sticky product prices. 
D) swings in the labor force participation rate.

Question 20

The rational expectations hypothesis is based on the assumption that

Accepted Answer

A) individuals combine effects of past policy actions with their own judgment about future policy effects and changes when forming their expectations. 
B) individuals adapt in response to past policy actions and changes without looking ahead when forming their expectations. 
C) firms pay above equilibrium wages to their employees. 
D) most firms operate in a less than competitive environment. 
A) individuals combine effects of past policy actions with their own judgment about future policy effects and changes when forming their expectations. 
B) individuals adapt in response to past policy actions and changes without looking ahead when forming their expectations. 
C) firms pay above equilibrium wages to their employees. 
D) most firms operate in a less than competitive environment.

-In the above figure, if we start at AD₁ and SRAS₁, and the money supply increases unexpectedly, what would be the long-run equilibrium?

According to the real-business-cycle perspective

According to the Phillips curve

From the late 1980s to 2000, the natural rate of unemployment

Explain the difference between active and passive policy making.

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

The conclusion that the economy has price flexibility, wage flexibility, and perfectly competitive markets justifies

During a recession, the

The menu cost theory states that

Which of the following unemployment rates can be negative?

If cyclical unemployment is negative, then

Which statement is TRUE when rational expectations exist and there is a change in monetary policy which is expected?

-In the above figure, starting at E₃, if there is an increase in technology that causes a permanent increase in production capabilities

Which type of unemployment is associated with the slump in aggregate demand that accompanies a recession?

If a policy maker is convinced that time lags frequently negate the impact of short-run stabilization efforts, it is likely she would favor ________ policy making.

Describe and explain the policy irrelevance proposition.

Adding the assumption of pure competition and complete flexibility of all prices and wages to the rational expectations hypothesis yields a theory that provides support for

Menu costs are a possible reason for

The rational expectations hypothesis is based on the assumption 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

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Exam 16: Stabilization in an Integrated World Economy

-In the above figure, if we start at AD₁ and SRAS₁, and the money supply increases unexpectedly, what would be the long-run equilibrium?

According to the real-business-cycle perspective

According to the Phillips curve

From the late 1980s to 2000, the natural rate of unemployment

Explain the difference between active and passive policy making.

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

The conclusion that the economy has price flexibility, wage flexibility, and perfectly competitive markets justifies

During a recession, the

The menu cost theory states that

Which of the following unemployment rates can be negative?

If cyclical unemployment is negative, then

Which statement is TRUE when rational expectations exist and there is a change in monetary policy which is expected?

-In the above figure, starting at E₃, if there is an increase in technology that causes a permanent increase in production capabilities

Which type of unemployment is associated with the slump in aggregate demand that accompanies a recession?

If a policy maker is convinced that time lags frequently negate the impact of short-run stabilization efforts, it is likely she would favor ________ policy making.

Describe and explain the policy irrelevance proposition.

Adding the assumption of pure competition and complete flexibility of all prices and wages to the rational expectations hypothesis yields a theory that provides support for

Menu costs are a possible reason for

The rational expectations hypothesis is based on the assumption 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