Question 1

When a permanent negative supply shock hits the economy ________.

Accepted Answer

A) in the long-run,the output gap returns to zero only if the central bank raises interest rates 
B) the long-run equilibrium level of output depends on whether and how the central bank responds 
C) there is no permanent effect on inflation if the central bank raises interest rates 
D) all of the above 
E) none of the above 
A) in the long-run,the output gap returns to zero only if the central bank raises interest rates 
B) the long-run equilibrium level of output depends on whether and how the central bank responds 
C) there is no permanent effect on inflation if the central bank raises interest rates 
D) all of the above 
E) none of the above C

Question 2

If workers push for wages that are beyond what productivity gains can justify ________.

Accepted Answer

A) a positive output gap ensues which will lead to lower unemployment if the Federal Reserve does not act 
B) a temporary negative supply shock ensues driving up prices 
C) and the Federal Reserve eases monetary policy aimed at increasing aggregate demand to counter the negative supply shock,the inflation rate will decrease 
D) all of the above 
E) none of the above 
A) a positive output gap ensues which will lead to lower unemployment if the Federal Reserve does not act 
B) a temporary negative supply shock ensues driving up prices 
C) and the Federal Reserve eases monetary policy aimed at increasing aggregate demand to counter the negative supply shock,the inflation rate will decrease 
D) all of the above 
E) none of the above B

Question 3

Ceteris Paribus,if current output has fallen below potential ________.

Accepted Answer

A) a positive inflation gap will ensue 
B) it is likely that the equilibrium real rate has fallen below the policy rate 
C) a negative unemployment gap will ensue 
D) it is likely that the equilibrium real rate has risen above the policy rate 
E) none of the above 
A) a positive inflation gap will ensue 
B) it is likely that the equilibrium real rate has fallen below the policy rate 
C) a negative unemployment gap will ensue 
D) it is likely that the equilibrium real rate has risen above the policy rate 
E) none of the above B

Question 4

Figure 13.1  
-If the economy is at point 1 in Figure 13.1 and the central bank issues a credible statement that it can and will cause inflation to rise,what happens next?

Accepted Answer

A) the economy moves to point 2 
B) the economy remains at point 1 
C) the economy moves to the left along the AS curve 
D) the AS curve shifts down,causing both output and inflation to decline 
E) the AS curve shifts up,causing both output and inflation to rise 
A) the economy moves to point 2 
B) the economy remains at point 1 
C) the economy moves to the left along the AS curve 
D) the AS curve shifts down,causing both output and inflation to decline 
E) the AS curve shifts up,causing both output and inflation to rise

Question 5

Aggregate Demand and Supply Analysis  
-In the figure above,assume that output is $10.5 trillion,while potential output is $12 trillion.If there is no policy intervention,we should expect ________.

Accepted Answer

A) rightward shifts of IS & AD,so that both output and inflation rise 
B) a decrease in inflation to shift the MP curve,raising the real interest rate 
C) declines in both the inflation rate and the real interest rate as output rises 
D) a decrease in inflation to shift the AD curve,causing output to rise 
E) none of the above 
A) rightward shifts of IS & AD,so that both output and inflation rise 
B) a decrease in inflation to shift the MP curve,raising the real interest rate 
C) declines in both the inflation rate and the real interest rate as output rises 
D) a decrease in inflation to shift the AD curve,causing output to rise 
E) none of the above

Question 6

How might strict adherence to the Taylor rule discourage demand-pull inflation? How might demand-pull inflation occur,nonetheless?

Accepted Answer

The Taylor rule requires monetary policy

Question 7

Which statement is a good argument in support of policy activism?

Accepted Answer

A) Policy lags are generally longer than the time it takes the self-correcting mechanism to work. 
B) Activist policies help to ensure stability of the real interest rate. 
C) Well-considered policies can assist the economy's self-correcting mechanism,thus reducing the variability of inflation and unemployment. 
D) all of the above 
E) none of the above 
A) Policy lags are generally longer than the time it takes the self-correcting mechanism to work. 
B) Activist policies help to ensure stability of the real interest rate. 
C) Well-considered policies can assist the economy's self-correcting mechanism,thus reducing the variability of inflation and unemployment. 
D) all of the above 
E) none of the above

Question 8

If higher inflation ensues from a temporary negative supply shock,and in response,the central bank raises interest rates,then the resulting decrease in AD will return inflation back to its original level ________.

Accepted Answer

A) and no further action will be required by the central bank 
B) but the ensuing positive output gap will lead to higher inflation once again so further interest rate increases will be required by the central bank to return inflation back to its long run level 
C) but the ensuing negative output gap will lead to short-run increases in AS and the central bank will have to "undo" its original interest rate hike in order to return inflation back to its target rate 
D) all of the above 
E) none of the above 
A) and no further action will be required by the central bank 
B) but the ensuing positive output gap will lead to higher inflation once again so further interest rate increases will be required by the central bank to return inflation back to its long run level 
C) but the ensuing negative output gap will lead to short-run increases in AS and the central bank will have to "undo" its original interest rate hike in order to return inflation back to its target rate 
D) all of the above 
E) none of the above

Question 9

When a temporary negative supply shock hits the economy ________.

Accepted Answer

A) the divine coincidence does not always hold 
B) the divine coincidence holds in the short-run 
C) the divine coincidence does not hold in the long-run 
D) all of the above 
E) none of the above 
A) the divine coincidence does not always hold 
B) the divine coincidence holds in the short-run 
C) the divine coincidence does not hold in the long-run 
D) all of the above 
E) none of the above

Question 10

Suppose that wages and prices are quite flexible,so that the short-run aggregate supply curve is steep.In that case,________.

Accepted Answer

A) policies to stabilize inflation are probably needed more than policies to stabilize economic activity 
B) supply shocks will destabilize inflation,but have minimal impact on output 
C) demand shocks will destabilize output,but have minimal impact on inflation 
D) all of the above 
E) none of the above 
A) policies to stabilize inflation are probably needed more than policies to stabilize economic activity 
B) supply shocks will destabilize inflation,but have minimal impact on output 
C) demand shocks will destabilize output,but have minimal impact on inflation 
D) all of the above 
E) none of the above

Question 11

Aggregate Demand and Supply Analysis  
-In the figure above,assume that output is $10.5 trillion,while potential output is $12 trillion.If a fiscal stimulus package is implemented quickly,raising output to $12 trillion,while inflation remains constant at one percent,then the figure implies that the real interest rate will be ________ percent.

Accepted Answer

A) 1.5 
B) zero 
C) one 
D) 0.5 
E) 2.5 
A) 1.5 
B) zero 
C) one 
D) 0.5 
E) 2.5

Question 12

Which of the following is a primary objective of monetary policy?

Accepted Answer

A) achieving a zero natural rate of unemployment 
B) targeting a zero rate of inflation 
C) achieving price stability 
D) all of the above 
E) none of the above 
A) achieving a zero natural rate of unemployment 
B) targeting a zero rate of inflation 
C) achieving price stability 
D) all of the above 
E) none of the above

Question 13

When a permanent negative supply shock hits the economy ________.

Accepted Answer

A) in the long-run,output is permanently lowered whether the central bank reacts or not 
B) inflation decreases in the short-run 
C) there is no long-run effect on inflation whether the central bank reacts or not 
D) all of the above 
E) none of the above 
A) in the long-run,output is permanently lowered whether the central bank reacts or not 
B) inflation decreases in the short-run 
C) there is no long-run effect on inflation whether the central bank reacts or not 
D) all of the above 
E) none of the above

Question 14

Macroeconomic Shocks & Policies  
-On the graphs above,show how the central bank implements a decrease in the inflation target.In words,explain why the change in the real interest rate is temporary.

Accepted Answer

The graphs resemble Fig.13.10 with all s

Question 15

A good reason for policy makers to pursue a goal of stabilizing economic activity is that ________.

Accepted Answer

A) high inflation is always accompanied by high variability of inflation 
B) high unemployment causes human misery and lost output 
C) in a stable economy,there is little or no structural inflation 
D) all of the above 
E) none of the above 
A) high inflation is always accompanied by high variability of inflation 
B) high unemployment causes human misery and lost output 
C) in a stable economy,there is little or no structural inflation 
D) all of the above 
E) none of the above

Question 16

Which of the following statements is correct?

Accepted Answer

A) Through autonomous monetary policy adjustments the Federal Reserve can target any inflation rate in the long run. 
B) Ultimately,autonomous monetary policy adjustments by the Federal Reserve cannot determine the equilibrium real interest rate in the long run. 
C) Ultimately,autonomous monetary policy adjustments by the Federal Reserve cannot determine long run aggregate output. 
D) all of the above 
E) none of the above 
A) Through autonomous monetary policy adjustments the Federal Reserve can target any inflation rate in the long run. 
B) Ultimately,autonomous monetary policy adjustments by the Federal Reserve cannot determine the equilibrium real interest rate in the long run. 
C) Ultimately,autonomous monetary policy adjustments by the Federal Reserve cannot determine long run aggregate output. 
D) all of the above 
E) none of the above

Question 17

Figure 13.1  
-Which is a plausible cause of the movement in Figure 13.1 from point 1 to point 2?

Accepted Answer

A) a change in expectations that causes a decline in the real interest rate for investments 
B) a decrease in expected inflation 
C) the economy's self-correcting mechanism 
D) the central bank achieves a negative value for the nominal interest rate 
E) none of the above 
A) a change in expectations that causes a decline in the real interest rate for investments 
B) a decrease in expected inflation 
C) the economy's self-correcting mechanism 
D) the central bank achieves a negative value for the nominal interest rate 
E) none of the above

Question 18

A negative shock in aggregate demand will likely result in ________.

Accepted Answer

A) a permanent change in output,if the central bank responds by lowering interest rates 
B) no permanent change in the equilibrium inflation rate,unless the central bank responds by lowering interest rates 
C) an eventual increase in aggregate supply for any inflation rate,if the central bank responds by lowering interest rates 
D) all of the above 
E) none of the above 
A) a permanent change in output,if the central bank responds by lowering interest rates 
B) no permanent change in the equilibrium inflation rate,unless the central bank responds by lowering interest rates 
C) an eventual increase in aggregate supply for any inflation rate,if the central bank responds by lowering interest rates 
D) all of the above 
E) none of the above

Question 19

Is the Taylor rule of greater use to activist or to nonactivist policy makers?

Accepted Answer

Nonactivist.The Taylor rule is an altern

Question 20

If the inflation rate target is 2%,the current inflation rate is also 2%,and the output gap is zero,then according to the Taylor rule,the nominal federal funds rate should be ________ percent.

Accepted Answer

A) zero 
B) two 
C) four 
D) three 
E) none of the above 
A) zero 
B) two 
C) four 
D) three 
E) none of the above

Exam 13: Macroeconomic Policy and Aggregate Demand and Supply Analysis

When a permanent negative supply shock hits the economy ________.

If workers push for wages that are beyond what productivity gains can justify ________.

Ceteris Paribus,if current output has fallen below potential ________.

Figure 13.1 -If the economy is at point 1 in Figure 13.1 and the central bank issues a credible statement that it can and will cause inflation to rise,what happens next?

Aggregate Demand and Supply Analysis -In the figure above,assume that output is $10.5 trillion,while potential output is $12 trillion.If there is no policy intervention,we should expect ________.

How might strict adherence to the Taylor rule discourage demand-pull inflation? How might demand-pull inflation occur,nonetheless?

Which statement is a good argument in support of policy activism?

If higher inflation ensues from a temporary negative supply shock,and in response,the central bank raises interest rates,then the resulting decrease in AD will return inflation back to its original level ________.

When a temporary negative supply shock hits the economy ________.

Suppose that wages and prices are quite flexible,so that the short-run aggregate supply curve is steep.In that case,________.

Which of the following is a primary objective of monetary policy?

When a permanent negative supply shock hits the economy ________.

Macroeconomic Shocks & Policies -On the graphs above,show how the central bank implements a decrease in the inflation target.In words,explain why the change in the real interest rate is temporary.

A good reason for policy makers to pursue a goal of stabilizing economic activity is that ________.

Which of the following statements is correct?

Figure 13.1 -Which is a plausible cause of the movement in Figure 13.1 from point 1 to point 2?

A negative shock in aggregate demand will likely result in ________.

Is the Taylor rule of greater use to activist or to nonactivist policy makers?

If the inflation rate target is 2%,the current inflation rate is also 2%,and the output gap is zero,then according to the Taylor rule,the nominal federal funds rate should be ________ percent.

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

The Aggregate Demand and Supply Model

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

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