Question 1

Figure 13.1  
-If the economy is at point 1 in Figure 13.1 and there is no policy intervention,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 2

Shocks to the macroeconomy will cause a change in the equilibrium real interest rate,except ________.

Accepted Answer

A) permanent supply shocks 
B) aggregate demand shocks 
C) temporary supply shocks 
D) all of the above 
E) none of the above 
A) permanent supply shocks 
B) aggregate demand shocks 
C) temporary supply shocks 
D) all of the above 
E) none of the above

Question 3

If most shocks to the economy are ________ shocks,then ________.

Accepted Answer

A) aggregate demand;there is a tradeoff between the dual objectives in the short-run 
B) temporary aggregate supply;inflation stabilization policy will not stabilize activity in the short-run 
C) temporary aggregate supply;output stabilization policy is consistent with no change in inflation in the long-run 
D) all of the above 
E) none of the above 
A) aggregate demand;there is a tradeoff between the dual objectives in the short-run 
B) temporary aggregate supply;inflation stabilization policy will not stabilize activity in the short-run 
C) temporary aggregate supply;output stabilization policy is consistent with no change in inflation in the long-run 
D) all of the above 
E) none of the above

Question 4

The equilibrium real interest rate is the rate ________.

Accepted Answer

A) at which the output gap is zero 
B) at which the inflation rate is low 
C) controlled by the central bank 
D) all of the above 
E) none of the above 
A) at which the output gap is zero 
B) at which the inflation rate is low 
C) controlled by the central bank 
D) all of the above 
E) none of the above

Question 5

The key difference between "quantitative easing" and "credit easing" is that ________.

Accepted Answer

A) the goal of the former is to raise expected inflation 
B) the latter refers to a substantial change in the composition of the central bank's balance sheet 
C) the latter refers to a substantial expansion of the central bank's balance sheet 
D) the former is endorsed by Federal Reserve Chairman Ben Bernanke,while the latter was devised by Japan's Prime Minister Shinzo Abe 
E) none of the above 
A) the goal of the former is to raise expected inflation 
B) the latter refers to a substantial change in the composition of the central bank's balance sheet 
C) the latter refers to a substantial expansion of the central bank's balance sheet 
D) the former is endorsed by Federal Reserve Chairman Ben Bernanke,while the latter was devised by Japan's Prime Minister Shinzo Abe 
E) none of the above

Question 6

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Accepted Answer

A) it would conduct monetary policy consistent with a downward shift of the MP curve 
B) it would conduct monetary policy that would lead to a rightward shift of the AD curve 
C) after an easing of monetary policy,an eventual decrease in short-run AS would drive the long-run equilibrium level of inflation up 
D) all of the above 
E) none of the above 
A) it would conduct monetary policy consistent with a downward shift of the MP curve 
B) it would conduct monetary policy that would lead to a rightward shift of the AD curve 
C) after an easing of monetary policy,an eventual decrease in short-run AS would drive the long-run equilibrium level of inflation up 
D) all of the above 
E) none of the above

Question 7

Macroeconomic Shocks & Policies  
-Suppose the economy is in a long-run equilibrium when a temporary,favorable aggregate supply shock occurs.On the graphs above,show what happens to bring the economy back to long-run equilibrium,assuming that there is no policy response.In words,explain why "no response" is the best policy.

Accepted Answer

The graphs should be similar to Fig.13.6

Question 8

How might strict adherence to the Taylor rule discourage cost-push inflation?

Accepted Answer

Cost-push inflation cannot persist witho

Question 9

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Accepted Answer

A) monetary policy would ultimately lead to higher inflation and real interest rates in the long run 
B) monetary policy would ultimately lead to higher inflation and thus higher potential output 
C) monetary policy would ultimately lead to higher potential output and real interest rates but no long-run impact on inflation 
D) all of the above 
E) none of the above 
A) monetary policy would ultimately lead to higher inflation and real interest rates in the long run 
B) monetary policy would ultimately lead to higher inflation and thus higher potential output 
C) monetary policy would ultimately lead to higher potential output and real interest rates but no long-run impact on inflation 
D) all of the above 
E) none of the above

Question 10

According to the Taylor rule,which of the following will lead to a higher nominal federal funds rate?

Accepted Answer

A) a decrease in inflation 
B) a negative output gap 
C) a positive inflation gap 
D) all of the above 
E) none of the above 
A) a decrease in inflation 
B) a negative output gap 
C) a positive inflation gap 
D) all of the above 
E) none of the above

Question 11

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Accepted Answer

A) it would likely conduct an easing of monetary policy by lowering the real interest rate for any given inflation rate 
B) an increase in aggregate demand would ensue generating a positive output gap 
C) an eventual decrease in short-run AS would drive the long-run equilibrium level of inflation up 
D) all of the above 
E) none of the above 
A) it would likely conduct an easing of monetary policy by lowering the real interest rate for any given inflation rate 
B) an increase in aggregate demand would ensue generating a positive output gap 
C) an eventual decrease in short-run AS would drive the long-run equilibrium level of inflation up 
D) all of the above 
E) none of the above

Question 12

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

Accepted Answer

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

Question 13

How do the hierarchical and dual mandates differ in terms of macroeconomic consequences?

Accepted Answer

A dual mandate implies more tolerance of

Question 14

The American Recovery and Reinvestment Act of 2009 ________.

Accepted Answer

A) placed greater emphasis on monetary policy than fiscal policy 
B) finally put an end to the inflationary spiral that had begun in 2005 
C) was intended to reverse the sharp increase in the equilibrium real interest rate 
D) all of the above 
E) none of the above 
A) placed greater emphasis on monetary policy than fiscal policy 
B) finally put an end to the inflationary spiral that had begun in 2005 
C) was intended to reverse the sharp increase in the equilibrium real interest rate 
D) all of the above 
E) none of the above

Question 15

An increase in financial frictions results in ________.

Accepted Answer

A) an increase in output and inflation 
B) a rise in the interest rate set by monetary policy 
C) a decline in the real interest rates faced by households and firms 
D) a decline in the interest rate set by monetary policy 
A) an increase in output and inflation 
B) a rise in the interest rate set by monetary policy 
C) a decline in the real interest rates faced by households and firms 
D) a decline in the interest rate set by monetary policy

Question 16

Which of the following statements is correct?

Accepted Answer

A) Through autonomous monetary policy adjustments the Federal Reserve can ultimately determine the equilibrium real interest rate in the long run. 
B) Through autonomous monetary policy adjustments the Federal Reserve can ultimately determine potential output in the long run. 
C) Through autonomous monetary policy adjustments the Federal Reserve can target any inflation rate in the long run. 
D) all of the above 
E) none of the above 
A) Through autonomous monetary policy adjustments the Federal Reserve can ultimately determine the equilibrium real interest rate in the long run. 
B) Through autonomous monetary policy adjustments the Federal Reserve can ultimately determine potential output in the long run. 
C) Through autonomous monetary policy adjustments the Federal Reserve can target any inflation rate in the long run. 
D) all of the above 
E) none of the above

Question 17

When a permanent negative supply shock hits the economy,a permanently ________.

Accepted Answer

A) lower equilibrium level of output ensues if the central bank raises interest rates 
B) lower equilibrium level of output ensues if the central bank does not respond 
C) higher equilibrium level of inflation ensues if the central bank does not respond 
D) all of the above 
E) none of the above 
A) lower equilibrium level of output ensues if the central bank raises interest rates 
B) lower equilibrium level of output ensues if the central bank does not respond 
C) higher equilibrium level of inflation ensues if the central bank does not respond 
D) all of the above 
E) none of the above

Question 18

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

Accepted Answer

A) achieving price stability 
B) stabilizing economic activity 
C) closing the output gap to zero 
D) all of the above 
E) none of the above 
A) achieving price stability 
B) stabilizing economic activity 
C) closing the output gap to zero 
D) all of the above 
E) none of the above

Question 19

Figure 13.1  
-Suppose the economy is at point 1 in Figure 13.1.With output below potential output,it might not be possible to create any expectation of an increase in inflation.How,then,might output be brought back to potential? What would this look like on the graph?

Accepted Answer

The reason output is so low is that the

Question 20

Frictional unemployment is to ________ as structural unemployment is to ________.

Accepted Answer

A) search;mismatch 
B) temperature;rigidity 
C) job training;output gap 
D) all of the above 
E) none of the above 
A) search;mismatch 
B) temperature;rigidity 
C) job training;output gap 
D) all of the above 
E) none of the above

Exam 13: Macroeconomic Policy and Aggregate Demand and Supply Analysis

Figure 13.1 -If the economy is at point 1 in Figure 13.1 and there is no policy intervention,what happens next?

Shocks to the macroeconomy will cause a change in the equilibrium real interest rate,except ________.

If most shocks to the economy are ________ shocks,then ________.

The equilibrium real interest rate is the rate ________.

The key difference between "quantitative easing" and "credit easing" is that ________.

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

How might strict adherence to the Taylor rule discourage cost-push inflation?

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

According to the Taylor rule,which of the following will lead to a higher nominal federal funds rate?

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

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

How do the hierarchical and dual mandates differ in terms of macroeconomic consequences?

The American Recovery and Reinvestment Act of 2009 ________.

An increase in financial frictions results in ________.

Which of the following statements is correct?

When a permanent negative supply shock hits the economy,a permanently ________.

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

Figure 13.1 -Suppose the economy is at point 1 in Figure 13.1.With output below potential output,it might not be possible to create any expectation of an increase in inflation.How,then,might output be brought back to potential? What would this look like on the graph?

Frictional unemployment is to ________ as structural unemployment is to ________.

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

Filters

If most shocks to the economy are shocks,then .

Frictional unemployment is to as structural unemployment is to .