Question 1

If for any given inflation rate,the federal government lowered taxes,________.

Accepted Answer

A) it would have a similar qualitative result on output as an increase in government purchases 
B) it would raise disposable income leading to higher consumption spending 
C) the aggregate demand curve would shift to the right 
D) all of the above 
E) none of the above 
A) it would have a similar qualitative result on output as an increase in government purchases 
B) it would raise disposable income leading to higher consumption spending 
C) the aggregate demand curve would shift to the right 
D) all of the above 
E) none of the above

Question 2

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,both the inflation and unemployment rates were higher than during most of the 1950s,60s and early 70s.The Federal Reserve implemented an autonomous tightening of monetary policy that resulted in the famous Volker Disinflation which was successful in bringing both problems under control.What would have been a likely result had Mr.Volker conducted an expansionary monetary policy instead?

Accepted Answer

A) Inflation would have been made worse right away but unemployment would have been permanently lowered. 
B) In the long run the unemployment problem would not have been fixed and the inflation problem would have been made much worse. 
C) In the short-run both inflation and unemployment would have declined but in the long-run unemployment would have been worse than before the Fed's action. 
D) In the short-run both inflation and unemployment would have been made worse but both would have been lowered in the long-run. 
E) none of the above 
A) Inflation would have been made worse right away but unemployment would have been permanently lowered. 
B) In the long run the unemployment problem would not have been fixed and the inflation problem would have been made much worse. 
C) In the short-run both inflation and unemployment would have declined but in the long-run unemployment would have been worse than before the Fed's action. 
D) In the short-run both inflation and unemployment would have been made worse but both would have been lowered in the long-run. 
E) none of the above

Question 3

In the short run,________.

Accepted Answer

A) cost push shocks can cause firms to raise prices 
B) workers pushing for higher wages may lead to increases in inflation 
C) the aggregate supply curve may shift to the left with increases in expected inflation 
D) all of the above 
E) none of the above 
A) cost push shocks can cause firms to raise prices 
B) workers pushing for higher wages may lead to increases in inflation 
C) the aggregate supply curve may shift to the left with increases in expected inflation 
D) all of the above 
E) none of the above

Question 4

When a temporary shock in the economy involves a restriction in supply ________.

Accepted Answer

A) we refer to it as a negative supply shock 
B) a rise in commodity prices typically follows 
C) a reduction in output typically ensues 
D) all of the above 
E) none of the above 
A) we refer to it as a negative supply shock 
B) a rise in commodity prices typically follows 
C) a reduction in output typically ensues 
D) all of the above 
E) none of the above

Question 5

In 1973,the Organization of Petroleum Exporting Countries (OPEC)engineered a quadrupling of oil prices by restricting oil production.Which of the following is an appropriate description of this negative supply shock?

Accepted Answer

A) The AS curve likely shifted to the left and output likely fell because of this adverse shock. 
B) In the short-run there was a movement out of general equilibrium leading to an increase in inflation as a likely result of this adverse shock. 
C) In the short-run there was a movement out of general equilibrium leading to an increase in unemployment as a likely result of this adverse shock. 
D) all of the above 
E) none of the above 
A) The AS curve likely shifted to the left and output likely fell because of this adverse shock. 
B) In the short-run there was a movement out of general equilibrium leading to an increase in inflation as a likely result of this adverse shock. 
C) In the short-run there was a movement out of general equilibrium leading to an increase in unemployment as a likely result of this adverse shock. 
D) all of the above 
E) none of the above

Question 6

The endogenous variable in the aggregate demand curve is ________.

Accepted Answer

A) the real interest rate 
B) output 
C) inflation 
D) planned expenditure 
E) none of the above 
A) the real interest rate 
B) output 
C) inflation 
D) planned expenditure 
E) none of the above

Question 7

Describe how changes in expected inflation impact an economy in the wake of a temporary negative supply shock.

Accepted Answer

The supply shock causes the short-run ag

Question 8

AD - AS Shocks  
-On the graph above,movement from point ________ to point ________ might occur if there is a negative demand shock,followed by updating of expected inflation.

Accepted Answer

A) F;G 
B) H;I 
C) H;F 
D) F;H 
E) none of the above 
A) F;G 
B) H;I 
C) H;F 
D) F;H 
E) none of the above

Question 9

According to the economy's self-correcting mechanism,how does the economy return to potential output following a negative demand shock? How is the recovery process different,if the government implements a policy of economic stimulus?

Accepted Answer

The negative demand shock causes output

Question 10

What is the main difference between a demand shock stemming from monetary policy and a demand shock that comes from a change in spending?

Accepted Answer

A) In the short-run,an autonomous monetary policy easing lowers real interest rates and raises aggregate output whereas a positive spending shock has the opposite effect on both variables. 
B) An autonomous monetary policy easing raises inflation permanently whereas a positive spending shock only raises inflation temporarily. 
C) An autonomous monetary policy easing has a temporary effect on the real interest rate whereas a positive spending shock has a permanent effect on the real interest rate. 
D) all of the above 
E) none of the above 
A) In the short-run,an autonomous monetary policy easing lowers real interest rates and raises aggregate output whereas a positive spending shock has the opposite effect on both variables. 
B) An autonomous monetary policy easing raises inflation permanently whereas a positive spending shock only raises inflation temporarily. 
C) An autonomous monetary policy easing has a temporary effect on the real interest rate whereas a positive spending shock has a permanent effect on the real interest rate. 
D) all of the above 
E) none of the above

Question 11

Rising inflation causes quantity demanded to decline,because ________.

Accepted Answer

A) the central bank raises the nominal interest rate by more than the increase in expected inflation 
B) households and businesses are reluctant to spend when prices rise 
C) higher inflation causes the IS curve to shift to the left 
D) all of the above 
E) none of the above 
A) the central bank raises the nominal interest rate by more than the increase in expected inflation 
B) households and businesses are reluctant to spend when prices rise 
C) higher inflation causes the IS curve to shift to the left 
D) all of the above 
E) none of the above

Question 12

In the short run,________.

Accepted Answer

A) when expected inflation rises,there is a movement up along the AS curve 
B) workers pushing for higher wages causes output to rise 
C) the aggregate supply curve may shift to the right with increases in output 
D) all of the above 
E) none of the above 
A) when expected inflation rises,there is a movement up along the AS curve 
B) workers pushing for higher wages causes output to rise 
C) the aggregate supply curve may shift to the right with increases in output 
D) all of the above 
E) none of the above

Question 13

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,both the inflation and unemployment rates were higher than during most of the 1950s,60s and early 70s.The Federal Reserve implemented an autonomous tightening of monetary policy that resulted in the famous Volker Disinflation which was successful in bringing both problems under control.What would have been a likely long-run result had Mr.Volker conducted an expansionary monetary policy instead?

Accepted Answer

A) Eventually,inflation would have been made worse and unemployment would not have been fixed. 
B) Eventually,both the inflation and unemployment rates would have declined. 
C) Eventually,inflation would have been fixed and unemployment would have been made worse. 
D) There would have been no effect on the unemployment and inflation rates. 
E) none of the above 
A) Eventually,inflation would have been made worse and unemployment would not have been fixed. 
B) Eventually,both the inflation and unemployment rates would have declined. 
C) Eventually,inflation would have been fixed and unemployment would have been made worse. 
D) There would have been no effect on the unemployment and inflation rates. 
E) none of the above

Question 14

12.2 Equilibrium in Aggregate Demand and Supply Analysis
AD - AS Equilibrium  
-On the graph above,consider a point A on the aggregate demand curve and above the aggregate supply curve.At this point,________.

Accepted Answer

A) quantity demanded equals output,but the inflation rate will fall,so output will rise 
B) quantity demanded is greater than quantity supplied,so the inflation rate will rise 
C) output is greater than the quantity demanded,so output will fall 
D) the aggregate demand curve will shift to the right until quantity demanded is equal to quantity supplied 
E) none of the above 
A) quantity demanded equals output,but the inflation rate will fall,so output will rise 
B) quantity demanded is greater than quantity supplied,so the inflation rate will rise 
C) output is greater than the quantity demanded,so output will fall 
D) the aggregate demand curve will shift to the right until quantity demanded is equal to quantity supplied 
E) none of the above

Question 15

A fall in import prices or an increase in productivity ________.

Accepted Answer

A) constitute a positive supply shock 
B) typically leads to a rise in commodity prices 
C) typically comes with a reduction in output 
D) all of the above 
E) none of the above 
A) constitute a positive supply shock 
B) typically leads to a rise in commodity prices 
C) typically comes with a reduction in output 
D) all of the above 
E) none of the above

Question 16

Which of the following is (are)linked to (an)adverse supply shock(s)?

Accepted Answer

A) the terrorist attacks of 2001 
B) collective bargaining that followed the termination of U.S.wage and price controls in 1973 
C) the corporate scandals of 2002 
D) all of the above 
E) none of the above 
A) the terrorist attacks of 2001 
B) collective bargaining that followed the termination of U.S.wage and price controls in 1973 
C) the corporate scandals of 2002 
D) all of the above 
E) none of the above

Question 17

If consumers suddenly became more optimistic ________.

Accepted Answer

A) they would spend more at any given inflation rate 
B) planned expenditures would decline 
C) the aggregate demand curve would shift to the left 
D) all of the above 
E) none of the above 
A) they would spend more at any given inflation rate 
B) planned expenditures would decline 
C) the aggregate demand curve would shift to the left 
D) all of the above 
E) none of the above

Question 18

Suppose there is a temporary supply shock because of a war in the Middle East,then,ceteris paribus,the ensuing cost push shock ________.

Accepted Answer

A) would lead to a temporary increase in prices due to a restriction in the supply of oil 
B) would lead to a temporary decrease in output as the AS curve would shift to the left 
C) would lead to a temporary shift in the AS curve but ultimately output and inflation would return to the original long-run values 
D) all of the above 
E) none of the above 
A) would lead to a temporary increase in prices due to a restriction in the supply of oil 
B) would lead to a temporary decrease in output as the AS curve would shift to the left 
C) would lead to a temporary shift in the AS curve but ultimately output and inflation would return to the original long-run values 
D) all of the above 
E) none of the above

Question 19

What was(were)the effect(s)of the Enron Bankruptcy in late 2001 and other corporate scandals in 2002?

Accepted Answer

A) An ensuing lack of confidence in financial accounting. 
B) The value of corporate bonds declined. 
C) It became more expensive for firms to finance their investments. 
D) all of the above 
E) none of the above 
A) An ensuing lack of confidence in financial accounting. 
B) The value of corporate bonds declined. 
C) It became more expensive for firms to finance their investments. 
D) all of the above 
E) none of the above

Question 20

If the unemployment rate is below its natural rate,then ________.

Accepted Answer

A) output is above its potential level 
B) there is excess tightness in the labor market 
C) wages and prices will rise more rapidly and the AS curve will shift to the left 
D) all of the above 
E) none of the above 
A) output is above its potential level 
B) there is excess tightness in the labor market 
C) wages and prices will rise more rapidly and the AS curve will shift to the left 
D) all of the above 
E) none of the above

If for any given inflation rate,the federal government lowered taxes,________.

In the short run,________.

When a temporary shock in the economy involves a restriction in supply ________.

In 1973,the Organization of Petroleum Exporting Countries (OPEC)engineered a quadrupling of oil prices by restricting oil production.Which of the following is an appropriate description of this negative supply shock?

The endogenous variable in the aggregate demand curve is ________.

Describe how changes in expected inflation impact an economy in the wake of a temporary negative supply shock.

AD - AS Shocks -On the graph above,movement from point to point might occur if there is a negative demand shock,followed by updating of expected inflation.

According to the economy's self-correcting mechanism,how does the economy return to potential output following a negative demand shock? How is the recovery process different,if the government implements a policy of economic stimulus?

What is the main difference between a demand shock stemming from monetary policy and a demand shock that comes from a change in spending?

Rising inflation causes quantity demanded to decline,because ________.

In the short run,________.

12.2 Equilibrium in Aggregate Demand and Supply Analysis AD - AS Equilibrium -On the graph above,consider a point A on the aggregate demand curve and above the aggregate supply curve.At this point,________.

A fall in import prices or an increase in productivity ________.

Which of the following is (are)linked to (an)adverse supply shock(s)?

If consumers suddenly became more optimistic ________.

Suppose there is a temporary supply shock because of a war in the Middle East,then,ceteris paribus,the ensuing cost push shock ________.

What was(were)the effect(s)of the Enron Bankruptcy in late 2001 and other corporate scandals in 2002?

If the unemployment rate is below its natural rate,then ________.

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

Aggregate Supply and the Phillips Curve

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

Filters

Exam 12: The Aggregate Demand and Supply Model

If for any given inflation rate,the federal government lowered taxes,________.

In the short run,________.

When a temporary shock in the economy involves a restriction in supply ________.

In 1973,the Organization of Petroleum Exporting Countries (OPEC)engineered a quadrupling of oil prices by restricting oil production.Which of the following is an appropriate description of this negative supply shock?

The endogenous variable in the aggregate demand curve is ________.

Describe how changes in expected inflation impact an economy in the wake of a temporary negative supply shock.

AD - AS Shocks -On the graph above,movement from point ________ to point ________ might occur if there is a negative demand shock,followed by updating of expected inflation.

According to the economy's self-correcting mechanism,how does the economy return to potential output following a negative demand shock? How is the recovery process different,if the government implements a policy of economic stimulus?

What is the main difference between a demand shock stemming from monetary policy and a demand shock that comes from a change in spending?

Rising inflation causes quantity demanded to decline,because ________.

In the short run,________.

12.2 Equilibrium in Aggregate Demand and Supply Analysis AD - AS Equilibrium -On the graph above,consider a point A on the aggregate demand curve and above the aggregate supply curve.At this point,________.

A fall in import prices or an increase in productivity ________.

Which of the following is (are)linked to (an)adverse supply shock(s)?

If consumers suddenly became more optimistic ________.

Suppose there is a temporary supply shock because of a war in the Middle East,then,ceteris paribus,the ensuing cost push shock ________.

What was(were)the effect(s)of the Enron Bankruptcy in late 2001 and other corporate scandals in 2002?

If the unemployment rate is below its natural rate,then ________.

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

Aggregate Supply and the Phillips Curve

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

Filters

AD - AS Shocks -On the graph above,movement from point to point might occur if there is a negative demand shock,followed by updating of expected inflation.