Question 1

According to the Taylor rule,which of the following will lead to the largest increase in the nominal federal funds rate?

Accepted Answer

A) a two percentage point increase in the target inflation rate 
B) a one percentage point decrease in the target inflation rate 
C) a one percentage point increase in output 
D) a two percentage point decrease in output 
E) a one percentage point increase in the inflation rate 
A) a two percentage point increase in the target inflation rate 
B) a one percentage point decrease in the target inflation rate 
C) a one percentage point increase in output 
D) a two percentage point decrease in output 
E) a one percentage point increase in the inflation rate

Question 2

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007.Which of the following is a likely result of this increase in financial frictions?

Accepted Answer

A) The AD curve likely shifted left which caused a negative output gap. 
B) The AD curve likely shifted left which caused a positive inflation gap. 
C) The AD curve likely shifted left which caused an upward movement along the MP curve to a higher general equilibrium interest rate. 
D) The AD curve likely did not shift. 
E) none of the above 
A) The AD curve likely shifted left which caused a negative output gap. 
B) The AD curve likely shifted left which caused a positive inflation gap. 
C) The AD curve likely shifted left which caused an upward movement along the MP curve to a higher general equilibrium interest rate. 
D) The AD curve likely did not shift. 
E) none of the above

Question 3

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

Accepted Answer

A) a short run decrease in output 
B) a permanently lower equilibrium inflation rate if the central bank does not respond by lowering interest rates 
C) an eventual increase in aggregate supply for any inflation rate if the central bank does not respond by lowering interest rates 
D) all of the above 
E) none of the above 
A) a short run decrease in output 
B) a permanently lower equilibrium inflation rate if the central bank does not respond by lowering interest rates 
C) an eventual increase in aggregate supply for any inflation rate if the central bank does not respond by lowering interest rates 
D) all of the above 
E) none of the above

Question 4

When a temporary negative supply shock hits the economy,then in the short-run ________.

Accepted Answer

A) if the central bank focuses on stabilizing output,it cannot stabilize inflation 
B) if the central bank focuses on stabilizing inflation,it cannot stabilize output 
C) the divine coincidence does not hold 
D) all of the above 
E) none of the above 
A) if the central bank focuses on stabilizing output,it cannot stabilize inflation 
B) if the central bank focuses on stabilizing inflation,it cannot stabilize output 
C) the divine coincidence does not hold 
D) all of the above 
E) none of the above

Question 5

Aggregate Demand and Supply Analysis  
-In the figure above,assume that output is $10.5 trillion,while potential output is $12 trillion.Suppose that a combination of fiscal stimulus and recovery of consumer and business confidence shifts the IS and AD curves,as shown in the figure,while monetary policy sets the real interest rate at one percent.If the short-run aggregate supply curve is π =  
Y - 13,then the resulting values of output and inflation are ________.

Accepted Answer

A) $12 trillion & 3 percent 
B) $13.5 trillion & 5 percent 
C) $9.75 trillion & 0 percent 
D) $13.5 trillion & 0 percent 
E) $12.5 trillion & 2 percent 
A) $12 trillion & 3 percent 
B) $13.5 trillion & 5 percent 
C) $9.75 trillion & 0 percent 
D) $13.5 trillion & 0 percent 
E) $12.5 trillion & 2 percent

Question 6

An increase in financial frictions results in ________.

Accepted Answer

A) a movement to the left along the AD curve 
B) a leftward shift of the MP curve 
C) a decrease in output and increase in inflation 
D) a leftward shift of the IS curve 
A) a movement to the left along the AD curve 
B) a leftward shift of the MP curve 
C) a decrease in output and increase in inflation 
D) a leftward shift of the IS curve

Question 7

Some central banks pursue price stability before they pursue other goals.Which of the following central banks have this kind of hierarchical mandate?
I.Bank of England
Ii.Bank of Canada
Iii.European Central Bank
Iv.Federal Reserve (U.S.A. )

Accepted Answer

A) i,ii,and iv only 
B) i and iii only 
C) i and iv only 
D) ii,iii,and iv only 
E) none of the above 
A) i,ii,and iv only 
B) i and iii only 
C) i and iv only 
D) ii,iii,and iv only 
E) none of the above

Question 8

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 a tightening of monetary policy by raising the real interest rate for any given inflation rate 
B) it would likely conduct an easing of monetary policy by lowering the real interest rate for any given inflation rate 
C) it would likely conduct an easing of monetary policy where the real interest rate would increase due to the ensuing decrease in aggregate demand 
D) it would likely conduct a tightening of monetary policy where the real interest rate would increase due to the ensuing increase in aggregate demand 
E) none of the above 
A) it would likely conduct a tightening of monetary policy by raising the real interest rate for any given inflation rate 
B) it would likely conduct an easing of monetary policy by lowering the real interest rate for any given inflation rate 
C) it would likely conduct an easing of monetary policy where the real interest rate would increase due to the ensuing decrease in aggregate demand 
D) it would likely conduct a tightening of monetary policy where the real interest rate would increase due to the ensuing increase in aggregate demand 
E) none of the above

Question 9

Nonactivists believe that ________.

Accepted Answer

A) there is a very rapid self-correcting mechanism since prices and wages are very flexible 
B) lags to policy implementation are so long that even the "correct" policies may lead to undesirable consequences 
C) policy interventions should take place less frequently than what Keynesians advocate 
D) all of the above 
E) none of the above 
A) there is a very rapid self-correcting mechanism since prices and wages are very flexible 
B) lags to policy implementation are so long that even the "correct" policies may lead to undesirable consequences 
C) policy interventions should take place less frequently than what Keynesians advocate 
D) all of the above 
E) none of the above

Question 10

The American Recovery and Reinvestment Act of 2009 ________.

Accepted Answer

A) was a result of the Obama administration adopting an activist approach to policymaking 
B) is still being debated after the fact in terms of its effectiveness 
C) was supported by some economists,and opposed by as many economists 
D) all of the above 
E) none of the above 
A) was a result of the Obama administration adopting an activist approach to policymaking 
B) is still being debated after the fact in terms of its effectiveness 
C) was supported by some economists,and opposed by as many economists 
D) all of the above 
E) none of the above

Question 11

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

Accepted Answer

A) a permanent change in output,unless the central bank responds by lowering interest rates 
B) a permanently lower 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,unless the central bank responds by lowering interest rates 
B) a permanently lower 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 12

In the 1965 to 1973 period,U.S.policymakers ________.

Accepted Answer

A) targeted an unemployment rate that,in hindsight,was likely too low 
B) pursued an easing of monetary policy designed to increase aggregate demand 
C) made some mistakes that led to the most sustained inflationary episode in U.S.history 
D) all of the above 
E) none of the above 
A) targeted an unemployment rate that,in hindsight,was likely too low 
B) pursued an easing of monetary policy designed to increase aggregate demand 
C) made some mistakes that led to the most sustained inflationary episode in U.S.history 
D) all of the above 
E) none of the above

Question 13

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

Accepted Answer

A) a temporary negative supply shock ensues driving up prices 
B) a negative output gap ensues which will lead to higher unemployment if the Federal Reserve does not act 
C) and the Federal Reserve eases monetary policy aimed at increasing aggregate demand to counter the negative supply shock,a price-wage spiral could ensue 
D) all of the above 
E) none of the above 
A) a temporary negative supply shock ensues driving up prices 
B) a negative output gap ensues which will lead to higher unemployment if the Federal Reserve does not act 
C) and the Federal Reserve eases monetary policy aimed at increasing aggregate demand to counter the negative supply shock,a price-wage spiral could ensue 
D) all of the above 
E) none of the above

Question 14

A change in the equilibrium real interest rate may result from ________.

Accepted Answer

A) an autonomous monetary policy 
B) a change in the central bank's target inflation rate 
C) a change in expected inflation 
D) all of the above 
E) none of the above 
A) an autonomous monetary policy 
B) a change in the central bank's target inflation rate 
C) a change in expected inflation 
D) all of the above 
E) none of the above

Question 15

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

Accepted Answer

A) aggregate demand;inflation stabilization policy will also stabilize activity in the short-run 
B) permanent aggregate supply;inflation stabilization policy will also stabilize activity in the short-run 
C) temporary aggregate supply;inflation stabilization policy has no impact on economic activity in the long-run 
D) all of the above 
E) none of the above 
A) aggregate demand;inflation stabilization policy will also stabilize activity in the short-run 
B) permanent aggregate supply;inflation stabilization policy will also stabilize activity in the short-run 
C) temporary aggregate supply;inflation stabilization policy has no impact on economic activity in the long-run 
D) all of the above 
E) none of the above

Question 16

The goal of maximum sustainable employment is roughly equivalent to achieving ________.

Accepted Answer

A) the natural rate of unemployment 
B) an inflation target that is slightly above zero 
C) the elimination of frictional and structural unemployment 
D) all of the above 
E) none of the above 
A) the natural rate of unemployment 
B) an inflation target that is slightly above zero 
C) the elimination of frictional and structural unemployment 
D) all of the above 
E) none of the above

Question 17

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007.Which of the following is a likely result of this increase in financial frictions?

Accepted Answer

A) The AD curve likely shifted left which caused a negative output gap. 
B) The AD curve likely shifted left causing a negative inflation gap. 
C) The AD curve likely shifted left followed by an downward movement along the MP curve to a lower equilibrium interest rate in the short run. 
D) all of the above 
E) none of the above 
A) The AD curve likely shifted left which caused a negative output gap. 
B) The AD curve likely shifted left causing a negative inflation gap. 
C) The AD curve likely shifted left followed by an downward movement along the MP curve to a lower equilibrium interest rate in the short run. 
D) all of the above 
E) none of the above

Question 18

In the absence of financial frictions,________.

Accepted Answer

A) interest rates for different borrowers move closely together 
B) all loans in the economy are transacted at a common interest rate 
C) the level of output is not affected by changes in the real interest rate 
D) an increase in inflation leads to a decrease in the real interest rate 
A) interest rates for different borrowers move closely together 
B) all loans in the economy are transacted at a common interest rate 
C) the level of output is not affected by changes in the real interest rate 
D) an increase in inflation leads to a decrease in the real interest rate

Question 19

Figure 13.1  
-In Figure 13.1,"the zero lower bound" is displayed at ________.

Accepted Answer

A) point 1 
B) point 2 
C)    
D) the origin (intersection of the axes) 
E) none of the above 
A) point 1 
B) point 2 
C)    
D) the origin (intersection of the axes) 
E) none of the above

Question 20

Is the Taylor rule compatible with a hierarchical mandate?

Accepted Answer

Yes.Because inflation is affected by out

Exam 13: Macroeconomic Policy and Aggregate Demand and Supply Analysis

According to the Taylor rule,which of the following will lead to the largest increase in the nominal federal funds rate?

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007.Which of the following is a likely result of this increase in financial frictions?

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

When a temporary negative supply shock hits the economy,then in the short-run ________.

An increase in financial frictions results in ________.

Some central banks pursue price stability before they pursue other goals.Which of the following central banks have this kind of hierarchical mandate? I.Bank of England Ii.Bank of Canada Iii.European Central Bank Iv.Federal Reserve (U.S.A. )

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,________.

Nonactivists believe that ________.

The American Recovery and Reinvestment Act of 2009 ________.

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

In the 1965 to 1973 period,U.S.policymakers ________.

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

A change in the equilibrium real interest rate may result from ________.

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

The goal of maximum sustainable employment is roughly equivalent to achieving ________.

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007.Which of the following is a likely result of this increase in financial frictions?

In the absence of financial frictions,________.

Figure 13.1 -In Figure 13.1,"the zero lower bound" is displayed at ________.

Is the Taylor rule compatible with a hierarchical mandate?

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 .