Question 1

What types of unemployment will still exist when the economy is at the natural rate of unemployment?

Accepted Answer

A) frictional and cyclical unemployment only 
B) frictional and structural unemployment only 
C) structural and cyclical unemployment only 
D) frictional, structural, and cyclical unemployment 
A) frictional and cyclical unemployment only 
B) frictional and structural unemployment only 
C) structural and cyclical unemployment only 
D) frictional, structural, and cyclical unemployment

Question 2

-In the above figure, starting at E₁, if there is a supply shock that is permanent, the

Accepted Answer

A) aggregate supply would shift to SRAS₁ 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 SRAS₁ 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 3

Most economists agree with which of the following?

Accepted Answer

A) Active policymaking is likely to exert sizable long-run effects on real GDP. 
B) Active policymaking is unlikely to exert sizable long-run effects on real GDP. 
C) Passive policymaking is likely to exert sizable long-run effects on real GDP. 
D) none of the above 
A) Active policymaking is likely to exert sizable long-run effects on real GDP. 
B) Active policymaking is unlikely to exert sizable long-run effects on real GDP. 
C) Passive policymaking is likely to exert sizable long-run effects on real GDP. 
D) none of the above

Question 4

-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) 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 between Y₁ and Y₂, and the price level will be above P₁. 
D) real GDP will be between Y₁ and Y₂, and the price level will be below 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 between Y₁ and Y₂, and the price level will be above P₁. 
D) real GDP will be between Y₁ and Y₂, and the price level will be below P₂.

Question 5

All of the following would increase the natural rate of unemployment EXCEPT

Accepted Answer

A) union activity restricts the mobility of labor. 
B) government licensing of teachers restricts employment. 
C) a mismatch of skills and jobs. 
D) a downturn in the economy. 
A) union activity restricts the mobility of labor. 
B) government licensing of teachers restricts employment. 
C) a mismatch of skills and jobs. 
D) a downturn in the economy.

Question 6

-In the above figure, starting at E₁, if there is a supply shock that is temporary, the

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 7

Cyclical unemployment is positive when

Accepted Answer

A) the inflation rate is positive. 
B) the economy is at the peak of a business expansion. 
C) the natural rate of unemployment exceeds the actual rate. 
D) the actual unemployment rate exceeds the natural rate. 
A) the inflation rate is positive. 
B) the economy is at the peak of a business expansion. 
C) the natural rate of unemployment exceeds the actual rate. 
D) the actual unemployment rate exceeds the natural rate.

Question 8

Which one of the following would likely reduce the level of structural unemployment?

Accepted Answer

A) increasing the minimum wage to encourage more people to work 
B) increasing the level of union bargaining power 
C) limiting unemployment insurance benefits 
D) strengthening restrictions on who can be licensed to enter certain professions 
A) increasing the minimum wage to encourage more people to work 
B) increasing the level of union bargaining power 
C) limiting unemployment insurance benefits 
D) strengthening restrictions on who can be licensed to enter certain professions

Question 9

Suppose that the economy is in long-run equilibrium and the government decided to engage in expected expansionary policy by increasing the money supply. If we assume rational expectations, which of the following statements is correct about the effect of expansionary 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 10

What kinds of unemployment are associated with the natural rate of unemployment?

Accepted Answer

The natural rate of unemployment is asso

Question 11

A reduction in world oil supplies is likely to cause

Accepted Answer

A) an increase in aggregate demand and a decrease in the equilibrium price level. 
B) a decrease in equilibrium price level and an increase in real Gross Domestic Product (GDP). 
C) an increase in equilibrium price level and an increase in real Gross Domestic Product (GDP). 
D) a reduction in aggregate supply, a rise in the equilibrium price level, and a fall in real Gross Domestic Product (GDP). 
A) an increase in aggregate demand and a decrease in the equilibrium price level. 
B) a decrease in equilibrium price level and an increase in real Gross Domestic Product (GDP). 
C) an increase in equilibrium price level and an increase in real Gross Domestic Product (GDP). 
D) a reduction in aggregate supply, a rise in the equilibrium price level, and a fall in real Gross Domestic Product (GDP).

Question 12

Costs that deter firms from changing prices in response to demand changes are known as

Accepted Answer

A) sticky costs. 
B) menu costs. 
C) policy costs. 
D) production costs. 
A) sticky costs. 
B) menu costs. 
C) policy costs. 
D) production costs.

Question 13

The policy irrelevance proposition implies that

Accepted Answer

A) unanticipated monetary policy actions are equally effective in stimulating both aggregate demand and aggregate supply. 
B) anticipated monetary policy actions are effective in stimulating aggregate supply, but they are not effective in stimulating aggregate demand. 
C) anticipated monetary policy actions are effective in increasing real GDP, but they do not reduce unemployment. 
D) anticipated monetary policy actions are ineffective in generating changes in real GDP. 
A) unanticipated monetary policy actions are equally effective in stimulating both aggregate demand and aggregate supply. 
B) anticipated monetary policy actions are effective in stimulating aggregate supply, but they are not effective in stimulating aggregate demand. 
C) anticipated monetary policy actions are effective in increasing real GDP, but they do not reduce unemployment. 
D) anticipated monetary policy actions are ineffective in generating changes in real GDP.

Question 14

Real business cycle theory explains variations in prices, employment, and real Gross Domestic Product (GDP)by focusing on

Accepted Answer

A) changes in real variables such as supply shocks, technological changes, and shifts in the composition of the labor force. 
B) anticipated monetary policies enacted by the Fed. 
C) the effects of the Phillips curve. 
D) anticipated changes in fiscal policy enacted by the government. 
A) changes in real variables such as supply shocks, technological changes, and shifts in the composition of the labor force. 
B) anticipated monetary policies enacted by the Fed. 
C) the effects of the Phillips curve. 
D) anticipated changes in fiscal policy enacted by the government.

Question 15

Proponents of passive policy making believe that

Accepted Answer

A) the existence of time lags makes active policy ineffective or even procyclical. 
B) time lags do not exist so the economy will adjust too rapidly with active policy. 
C) government should not follow any particular policy. 
D) fiscal policy is always better than monetary policy in stabilizing the economy. 
A) the existence of time lags makes active policy ineffective or even procyclical. 
B) time lags do not exist so the economy will adjust too rapidly with active policy. 
C) government should not follow any particular policy. 
D) fiscal policy is always better than monetary policy in stabilizing the economy.

Question 16

The policy irrelevance proposition states that

Accepted Answer

A) only relatively large expected changes in monetary policy impact the economy. 
B) anticipated changes in monetary policy are ineffective in changing real GDP. 
C) only statements from the White House have impact on the economy. 
D) in the short run unanticipated changes in monetary policy are ineffective in changing real GDP. 
A) only relatively large expected changes in monetary policy impact the economy. 
B) anticipated changes in monetary policy are ineffective in changing real GDP. 
C) only statements from the White House have impact on the economy. 
D) in the short run unanticipated changes in monetary policy are ineffective in changing real GDP.

Question 17

The idea that policy actions have no real effects in the short run if they are anticipated and no real effects in the long run is called the

Accepted Answer

A) Keynesian proposition. 
B) policy irrelevance proposition. 
C) adaptive proposition. 
D) activism proposition. 
A) Keynesian proposition. 
B) policy irrelevance proposition. 
C) adaptive proposition. 
D) activism proposition.

Question 18

On average, the greater the unexpected decline in aggregate demand

Accepted Answer

A) the weaker is the resulting deflation. 
B) the greater is the resulting deflation. 
C) the greater is the resulting inflation. 
D) the greater is the rise in the price level. 
A) the weaker is the resulting deflation. 
B) the greater is the resulting deflation. 
C) the greater is the resulting inflation. 
D) the greater is the rise in the price level.

Question 19

The most important new Keynesian assumption that distinguishes this theory from the real-business-cycle theory is the new Keynesian assumption

Accepted Answer

A) of a horizontal aggregate demand curve. 
B) of price flexibility. 
C) about the importance of interest rates in determining investment spending. 
D) of a horizontal short-run aggregate curve. 
A) of a horizontal aggregate demand curve. 
B) of price flexibility. 
C) about the importance of interest rates in determining investment spending. 
D) of a horizontal short-run aggregate curve.

Question 20

Suppose a constitutional amendment is passed that mandates a balanced federal budget every year and the President and Congress consistently carry this mandate out. This would be an example of

Accepted Answer

A) active policy making. 
B) decisive policy making. 
C) nondiscretionary policy making. 
D) cooperative policy making. 
A) active policy making. 
B) decisive policy making. 
C) nondiscretionary policy making. 
D) cooperative policy making.

What types of unemployment will still exist when the economy is at the natural rate of unemployment?

-In the above figure, starting at E₁, if there is a supply shock that is permanent, the

Most economists agree with which of the following?

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

All of the following would increase the natural rate of unemployment EXCEPT

-In the above figure, starting at E₁, if there is a supply shock that is temporary, the

Cyclical unemployment is positive when

Which one of the following would likely reduce the level of structural unemployment?

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

What kinds of unemployment are associated with the natural rate of unemployment?

A reduction in world oil supplies is likely to cause

Costs that deter firms from changing prices in response to demand changes are known as

The policy irrelevance proposition implies that

Real business cycle theory explains variations in prices, employment, and real Gross Domestic Product (GDP)by focusing on

Proponents of passive policy making believe that

The policy irrelevance proposition states that

The idea that policy actions have no real effects in the short run if they are anticipated and no real effects in the long run is called the

On average, the greater the unexpected decline in aggregate demand

The most important new Keynesian assumption that distinguishes this theory from the real-business-cycle theory is the new Keynesian assumption

Suppose a constitutional amendment is passed that mandates a balanced federal budget every year and the President and Congress consistently carry this mandate out. This would be an example of

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

What types of unemployment will still exist when the economy is at the natural rate of unemployment?

-In the above figure, starting at E₁, if there is a supply shock that is permanent, the

Most economists agree with which of the following?

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

All of the following would increase the natural rate of unemployment EXCEPT

-In the above figure, starting at E₁, if there is a supply shock that is temporary, the

Cyclical unemployment is positive when

Which one of the following would likely reduce the level of structural unemployment?

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

What kinds of unemployment are associated with the natural rate of unemployment?

A reduction in world oil supplies is likely to cause

Costs that deter firms from changing prices in response to demand changes are known as

The policy irrelevance proposition implies that

Real business cycle theory explains variations in prices, employment, and real Gross Domestic Product (GDP)by focusing on

Proponents of passive policy making believe that

The policy irrelevance proposition states that

The idea that policy actions have no real effects in the short run if they are anticipated and no real effects in the long run is called the

On average, the greater the unexpected decline in aggregate demand

The most important new Keynesian assumption that distinguishes this theory from the real-business-cycle theory is the new Keynesian assumption

Suppose a constitutional amendment is passed that mandates a balanced federal budget every year and the President and Congress consistently carry this mandate out. This would be an example of

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