Question 1

Stagflation means a

Accepted Answer

A) high rate of inflation coupled with a high rate of unemployment. 
B) high rate of inflation coupled with a very low rate of unemployment. 
C) low rate of inflation coupled with a very high rate of unemployment. 
D) low rate of inflation coupled with a rate of unemployment below the natural rate. 
A) high rate of inflation coupled with a high rate of unemployment. 
B) high rate of inflation coupled with a very low rate of unemployment. 
C) low rate of inflation coupled with a very high rate of unemployment. 
D) low rate of inflation coupled with a rate of unemployment below the natural rate.

Question 2

If a significant portion of firms in the economy does not adjust product prices, a predicted result according to new Keynesian theory is

Accepted Answer

A) real business cycles. 
B) real inflation cycles. 
C) inflation dynamics. 
D) output dynamics. 
A) real business cycles. 
B) real inflation cycles. 
C) inflation dynamics. 
D) output dynamics.

Question 3

Fully anticipated monetary policy actions cannot alter either the rate of unemployment or the level of real GDP. This statement is

Accepted Answer

A) the policy irrelevance proposition. 
B) the nonaccelerating inflation rate of unemployment theory. 
C) the Phillips curve. 
D) discretionary policy making. 
A) the policy irrelevance proposition. 
B) the nonaccelerating inflation rate of unemployment theory. 
C) the Phillips curve. 
D) discretionary policy making.

Question 4

The costs associated with changing prices are called

Accepted Answer

A) price costs. 
B) change costs. 
C) menu costs. 
D) inflation-dynamics costs. 
A) price costs. 
B) change costs. 
C) menu costs. 
D) inflation-dynamics costs.

Question 5

The historical record suggests that

Accepted Answer

A) the Phillips curve is horizontal. 
B) once policy makers attempted to exploit a short-run Phillips curve trade-off, it disappeared. 
C) shifts in long-run aggregate supply do not affect real output. 
D) inflation rates are lowest when unemployment rates are also low. 
A) the Phillips curve is horizontal. 
B) once policy makers attempted to exploit a short-run Phillips curve trade-off, it disappeared. 
C) shifts in long-run aggregate supply do not affect real output. 
D) inflation rates are lowest when unemployment rates are also low.

Question 6

Suppose the natural rate of unemployment is 5 percent. If the actual unemployment rate is 6 percent, then the cyclical unemployment rate

Accepted Answer

A) is 1 percent. 
B) is -1 percent. 
C) is 11 percent. 
D) cannot be determined given the information. 
A) is 1 percent. 
B) is -1 percent. 
C) is 11 percent. 
D) cannot be determined given the information.

Question 7

Under the rational expectations hypothesis, if wages adjust rapidly to new information about intended policy actions, monetary policy can have an effect

Accepted Answer

A) in both the short and the long run. 
B) in the long run, but not the short run. 
C) only in the short run and only if the policy is unanticipated. 
D) only in the long run and only if the policy is fully anticipated. 
A) in both the short and the long run. 
B) in the long run, but not the short run. 
C) only in the short run and only if the policy is unanticipated. 
D) only in the long run and only if the policy is fully anticipated.

Question 8

The Phillips curve shows the relationship between

Accepted Answer

A) the price level and real Gross Domestic Product (GDP). 
B) the tax rate and tax revenues. 
C) the unemployment rate and inflation rate. 
D) the interest rate and exchange rate. 
A) the price level and real Gross Domestic Product (GDP). 
B) the tax rate and tax revenues. 
C) the unemployment rate and inflation rate. 
D) the interest rate and exchange rate.

Question 9

There is greater support for passive policymaking when

Accepted Answer

A) pure competition is widespread. 
B) price flexibility is common. 
C) wage flexibility is common. 
D) all of the above. 
A) pure competition is widespread. 
B) price flexibility is common. 
C) wage flexibility is common. 
D) all of the above.

Question 10

If everyone in the economy correctly anticipates the inflation rate, the unemployment rate

Accepted Answer

A) will be the natural rate of unemployment. 
B) will be the cyclical rate of unemployment. 
C) will be inversely related to the expected inflation rate. 
D) will be positively related to the expected inflation rate. 
A) will be the natural rate of unemployment. 
B) will be the cyclical rate of unemployment. 
C) will be inversely related to the expected inflation rate. 
D) will be positively related to the expected inflation rate.

Question 11

One result of an unanticipated reduction in aggregate demand would be that

Accepted Answer

A) fewer firms would be hiring. 
B) more firms would be hiring. 
C) there would be no change in hiring. 
D) the price level would rise. 
A) fewer firms would be hiring. 
B) more firms would be hiring. 
C) there would be no change in hiring. 
D) the price level would rise.

Question 12

An increase in unemployment insurance and other transfer payments may

Accepted Answer

A) increase the natural rate of unemployment. 
B) increase the number of discouraged workers. 
C) reduce the rate of inflation at every level of unemployment. 
D) lead to less unanticipated inflation. 
A) increase the natural rate of unemployment. 
B) increase the number of discouraged workers. 
C) reduce the rate of inflation at every level of unemployment. 
D) lead to less unanticipated inflation.

Question 13

The short-run Phillips curve and the long-run Phillips curve are different because

Accepted Answer

A) the expected rate of inflation is always zero in the long run, while it is a positive number in the short run. 
B) the expected rate of inflation is always zero in the short run, while it is a positive number in the long run. 
C) the actual and expected rate of inflation are equal in the short run. 
D) the actual and expected rate of inflation are equal in the long run. 
A) the expected rate of inflation is always zero in the long run, while it is a positive number in the short run. 
B) the expected rate of inflation is always zero in the short run, while it is a positive number in the long run. 
C) the actual and expected rate of inflation are equal in the short run. 
D) the actual and expected rate of inflation are equal in the long run.

Question 14

According to a theory that relies on the rational expectations hypothesis and the assumption that wages and prices are flexible, why do anticipated expansionary monetary actions NOT boost real GDP?

Accepted Answer

A) Anticipated expansionary monetary policy actions do not increase aggregate demand. 
B) The short-run aggregate supply curve shifts upward simultaneously with the rightward shift of aggregate demand. 
C) The short-run aggregate supply curve shifts downward simultaneously with the upward shift of aggregate demand. 
D) The higher interest rates associated with anticipated expansionary monetary policy actions will dampen investment spending. 
A) Anticipated expansionary monetary policy actions do not increase aggregate demand. 
B) The short-run aggregate supply curve shifts upward simultaneously with the rightward shift of aggregate demand. 
C) The short-run aggregate supply curve shifts downward simultaneously with the upward shift of aggregate demand. 
D) The higher interest rates associated with anticipated expansionary monetary policy actions will dampen investment spending.

Question 15

What kind of relationship appears to actually exist, if one examines the actual data regarding the inflation rate and the unemployment rate for all years since 1953?

Accepted Answer

A) a direct relationship 
B) a one-to-one relationship 
C) an inverse relationship 
D) no relationship in the long run 
A) a direct relationship 
B) a one-to-one relationship 
C) an inverse relationship 
D) no relationship in the long run

Question 16

New Keynesian theory implies that which of the following reduces firms' incentive to adjust their prices?

Accepted Answer

A) a downward sloping aggregate demand curve 
B) the required reserve ratio 
C) menu costs 
D) none of the above 
A) a downward sloping aggregate demand curve 
B) the required reserve ratio 
C) menu costs 
D) none of the above

Question 17

One key implication of rational expectations is that

Accepted Answer

A) anticipated monetary policy has no effect on the rate of unemployment or the level of real GDP. 
B) anticipated monetary policy can affect the rate of unemployment but not the level of real GDP. 
C) unanticipated monetary policy has no effect on the economy but anticipated monetary policy does have an effect on the economy. 
D) both unanticipated monetary policy and anticipated monetary policy have an effect on the economy. 
A) anticipated monetary policy has no effect on the rate of unemployment or the level of real GDP. 
B) anticipated monetary policy can affect the rate of unemployment but not the level of real GDP. 
C) unanticipated monetary policy has no effect on the economy but anticipated monetary policy does have an effect on the economy. 
D) both unanticipated monetary policy and anticipated monetary policy have an effect on the economy.

Question 18

Which of the following statements is consistent with the rational expectations hypothesis?

Accepted Answer

A) When it comes to making personal economic decisions, people rarely behave in a rational manner. 
B) People combine the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes. 
C) When it comes to making personal economic decisions, people always behave in a rational manner. 
D) Every person in the economy is always correct in her predictions about current and future policy changes. 
A) When it comes to making personal economic decisions, people rarely behave in a rational manner. 
B) People combine the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes. 
C) When it comes to making personal economic decisions, people always behave in a rational manner. 
D) Every person in the economy is always correct in her predictions about current and future policy changes.

Question 19

According to economists who support passive policymaking

Accepted Answer

A) there is no difference between the effect of an anticipated change in aggregate demand and the effect of an unanticipated change in aggregate demand of an identical amount. 
B) workers always consider a change in nominal wages to be a change in real wages. 
C) expansionary policies can reduce unemployment without increasing the price level. 
D) policies that attempt to exploit the Phillips curve trade-off will eventually become ineffective for reducing unemployment. 
A) there is no difference between the effect of an anticipated change in aggregate demand and the effect of an unanticipated change in aggregate demand of an identical amount. 
B) workers always consider a change in nominal wages to be a change in real wages. 
C) expansionary policies can reduce unemployment without increasing the price level. 
D) policies that attempt to exploit the Phillips curve trade-off will eventually become ineffective for reducing unemployment.

Question 20

There is greater support for active policymaking when

Accepted Answer

A) pure competition is widespread. 
B) price flexibility is common. 
C) wage flexibility is common. 
D) none of the above. 
A) pure competition is widespread. 
B) price flexibility is common. 
C) wage flexibility is common. 
D) none of the above.

Stagflation means a

If a significant portion of firms in the economy does not adjust product prices, a predicted result according to new Keynesian theory is

Fully anticipated monetary policy actions cannot alter either the rate of unemployment or the level of real GDP. This statement is

The costs associated with changing prices are called

The historical record suggests that

Suppose the natural rate of unemployment is 5 percent. If the actual unemployment rate is 6 percent, then the cyclical unemployment rate

Under the rational expectations hypothesis, if wages adjust rapidly to new information about intended policy actions, monetary policy can have an effect

The Phillips curve shows the relationship between

There is greater support for passive policymaking when

If everyone in the economy correctly anticipates the inflation rate, the unemployment rate

One result of an unanticipated reduction in aggregate demand would be that

An increase in unemployment insurance and other transfer payments may

The short-run Phillips curve and the long-run Phillips curve are different because

According to a theory that relies on the rational expectations hypothesis and the assumption that wages and prices are flexible, why do anticipated expansionary monetary actions NOT boost real GDP?

What kind of relationship appears to actually exist, if one examines the actual data regarding the inflation rate and the unemployment rate for all years since 1953?

New Keynesian theory implies that which of the following reduces firms' incentive to adjust their prices?

One key implication of rational expectations is that

Which of the following statements is consistent with the rational expectations hypothesis?

According to economists who support passive policymaking

There is greater support for active policymaking when

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

Stagflation means a

If a significant portion of firms in the economy does not adjust product prices, a predicted result according to new Keynesian theory is

Fully anticipated monetary policy actions cannot alter either the rate of unemployment or the level of real GDP. This statement is

The costs associated with changing prices are called

The historical record suggests that

Suppose the natural rate of unemployment is 5 percent. If the actual unemployment rate is 6 percent, then the cyclical unemployment rate

Under the rational expectations hypothesis, if wages adjust rapidly to new information about intended policy actions, monetary policy can have an effect

The Phillips curve shows the relationship between

There is greater support for passive policymaking when

If everyone in the economy correctly anticipates the inflation rate, the unemployment rate

One result of an unanticipated reduction in aggregate demand would be that

An increase in unemployment insurance and other transfer payments may

The short-run Phillips curve and the long-run Phillips curve are different because

According to a theory that relies on the rational expectations hypothesis and the assumption that wages and prices are flexible, why do anticipated expansionary monetary actions NOT boost real GDP?

What kind of relationship appears to actually exist, if one examines the actual data regarding the inflation rate and the unemployment rate for all years since 1953?

New Keynesian theory implies that which of the following reduces firms' incentive to adjust their prices?

One key implication of rational expectations is that

Which of the following statements is consistent with the rational expectations hypothesis?

According to economists who support passive policymaking

There is greater support for active policymaking when

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