Question 1

Globalization and trade:

Accepted Answer

A) expands economic potential in a similar fashion to productivity enhancing technological progress. 
B) shifts both the short-run and long-run aggregate supply curves to the right. 
C) provide an opportunity to reduce inflation permanently. 
D) all of the answers provided are correct. 
A) expands economic potential in a similar fashion to productivity enhancing technological progress. 
B) shifts both the short-run and long-run aggregate supply curves to the right. 
C) provide an opportunity to reduce inflation permanently. 
D) all of the answers provided are correct.

Question 2

Increases in potential output shift:

Accepted Answer

A) the long-run aggregate supply curve. 
B) the short-run aggregate supply curve. 
C) both the long-run aggregate supply curve and the short-run aggregate supply curve. 
D) the long-run aggregate supply curve, the short-run aggregate supply curve, and the dynamic aggregate demand curve. 
A) the long-run aggregate supply curve. 
B) the short-run aggregate supply curve. 
C) both the long-run aggregate supply curve and the short-run aggregate supply curve. 
D) the long-run aggregate supply curve, the short-run aggregate supply curve, and the dynamic aggregate demand curve.

Question 3

Policymakers can neutralize:

Accepted Answer

A) supply shocks, but only in the short run. 
B) supply shocks, but only in the long run. 
C) supply shocks in both the short run and the long run. 
D) only demand shocks. 
A) supply shocks, but only in the short run. 
B) supply shocks, but only in the long run. 
C) supply shocks in both the short run and the long run. 
D) only demand shocks.

Question 4

Why do negative supply shocks pose a particularly difficult dilemma for monetary policymakers?

Accepted Answer

Adverse or negative inflation shocks rai

Question 5

Why do increases in potential output allow monetary policymakers to think "opportunistically" about disinflation?

Accepted Answer

Increases in potential output put downwa

Question 6

Stabilization policy refers to the use of:

Accepted Answer

A) only fiscal policy. 
B) only monetary policy. 
C) either fiscal or monetary policy. 
D) policy to shift the long-run aggregate supply curve. 
A) only fiscal policy. 
B) only monetary policy. 
C) either fiscal or monetary policy. 
D) policy to shift the long-run aggregate supply curve.

Question 7

If prices were to adjust quickly:

Accepted Answer

A) output gaps would be persistent. 
B) output gaps would disappear quickly. 
C) inflation would adjust slowly. 
D) the short-run aggregate supply curve would not shift. 
A) output gaps would be persistent. 
B) output gaps would disappear quickly. 
C) inflation would adjust slowly. 
D) the short-run aggregate supply curve would not shift.

Question 8

Fiscal policy can act just like monetary policy to offset shifts in the dynamic aggregate demand curve and stabilize inflation and output.Explain how the two policies could have the same effect.

Accepted Answer

Fiscal policy consists of changes in tax

Question 9

Explain the view called real business cycle theory.

Accepted Answer

Real business cycle theory seeks to expl

Question 10

Comparing monetary and fiscal policy:

Accepted Answer

A) fiscal policy has an advantage because it is faster to implement than monetary policy. 
B) fiscal policy is easier to implement. 
C) monetary policy is easier to implement. 
D) history has shown fiscal policy to be more effective at stabilization. 
A) fiscal policy has an advantage because it is faster to implement than monetary policy. 
B) fiscal policy is easier to implement. 
C) monetary policy is easier to implement. 
D) history has shown fiscal policy to be more effective at stabilization.

Question 11

If an economy is initially at a state of long-run equilibrium, the short-run effect(s) from a decrease in aggregate demand will include:

Accepted Answer

A) an expansionary gap. 
B) a higher rate of inflation. 
C) a higher level of potential output. 
D) a recessionary gap. 
A) an expansionary gap. 
B) a higher rate of inflation. 
C) a higher level of potential output. 
D) a recessionary gap.

Question 12

Which of the following statements is incorrect?

Accepted Answer

A) A fall in the central bank's target inflation rate shifts the monetary policy reaction curve to the left. 
B) A decrease in the central bank's inflation target raises the real interest rate policymakers set at each level of inflation. 
C) Shifts in the monetary policy reaction curve shift the dynamic aggregate demand curve in the same direction. 
D) A fall in the central bank's target inflation rate causes the monetary policy reaction curve to flatten. 
A) A fall in the central bank's target inflation rate shifts the monetary policy reaction curve to the left. 
B) A decrease in the central bank's inflation target raises the real interest rate policymakers set at each level of inflation. 
C) Shifts in the monetary policy reaction curve shift the dynamic aggregate demand curve in the same direction. 
D) A fall in the central bank's target inflation rate causes the monetary policy reaction curve to flatten.

Question 13

In which situation will inflation fall the fastest?

Accepted Answer

A) A negative supply shock occurs, the dynamic aggregate demand curve is steep and so is the monetary policy reaction curve 
B) A negative supply shock occurs, the dynamic aggregate demand curve is flat and so is the monetary policy reaction curve 
C) A negative supply shock occurs, the dynamic aggregate demand curve is flat, and the monetary policy reaction curve is steep 
D) A negative supply shock occurs, the dynamic aggregate demand curve is steep, and the monetary policy reaction curve is flat 
A) A negative supply shock occurs, the dynamic aggregate demand curve is steep and so is the monetary policy reaction curve 
B) A negative supply shock occurs, the dynamic aggregate demand curve is flat and so is the monetary policy reaction curve 
C) A negative supply shock occurs, the dynamic aggregate demand curve is flat, and the monetary policy reaction curve is steep 
D) A negative supply shock occurs, the dynamic aggregate demand curve is steep, and the monetary policy reaction curve is flat

Question 14

In which situation would policymakers be unable to neutralize the effect on the economy?

Accepted Answer

A) The federal government runs a deficit 
B) An increase in the price of oil 
C) Imports exceed exports 
D) Consumer confidence declines 
A) The federal government runs a deficit 
B) An increase in the price of oil 
C) Imports exceed exports 
D) Consumer confidence declines

Question 15

Stagflation occurs when:

Accepted Answer

A) the inflation rate decreases and current output decreases. 
B) the inflation rate increases and current output decreases. 
C) the inflation rate decreases and current output increases. 
D) the inflation rate increases and current output increases. 
A) the inflation rate decreases and current output decreases. 
B) the inflation rate increases and current output decreases. 
C) the inflation rate decreases and current output increases. 
D) the inflation rate increases and current output increases.

Question 16

The assumption that prices and wages are flexible implies that the:

Accepted Answer

A) short-run aggregate supply curve is irrelevant. 
B) short-run aggregate supply curve shifts slowly in response to deviations of current output from potential output. 
C) long-run aggregate supply curve is irrelevant. 
D) long-run aggregate supply curve could not shift. 
A) short-run aggregate supply curve is irrelevant. 
B) short-run aggregate supply curve shifts slowly in response to deviations of current output from potential output. 
C) long-run aggregate supply curve is irrelevant. 
D) long-run aggregate supply curve could not shift.

Question 17

An increase in potential output will result in:

Accepted Answer

A) a temporary expansionary gap. 
B) a higher rate of inflation eventually. 
C) a temporary recessionary gap. 
D) an immediate shift upward in the short-run aggregate supply curve. 
A) a temporary expansionary gap. 
B) a higher rate of inflation eventually. 
C) a temporary recessionary gap. 
D) an immediate shift upward in the short-run aggregate supply curve.

Question 18

Real business cycle theory seeks to explain business cycle fluctuations by focusing on:

Accepted Answer

A) shifts in potential output. 
B) the inflexibility of prices and wages. 
C) aggregate demand. 
D) changes in monetary policy. 
A) shifts in potential output. 
B) the inflexibility of prices and wages. 
C) aggregate demand. 
D) changes in monetary policy.

Question 19

Which of the following is true?

Accepted Answer

A) A flat dynamic aggregate demand curve corresponds to a steep monetary policy reaction curve and means that supply shocks will create large changes in current output. 
B) A flat dynamic aggregate demand curve corresponds to a flat monetary policy reaction curve and means that supply shocks will create large changes in current output. 
C) A flat dynamic aggregate demand curve corresponds to a steep monetary policy reaction curve and means that supply shocks will create small changes in current output. 
D) A flat dynamic aggregate demand curve corresponds to a flat monetary policy reaction curve and means that supply shocks will create small changes in current output. 
A) A flat dynamic aggregate demand curve corresponds to a steep monetary policy reaction curve and means that supply shocks will create large changes in current output. 
B) A flat dynamic aggregate demand curve corresponds to a flat monetary policy reaction curve and means that supply shocks will create large changes in current output. 
C) A flat dynamic aggregate demand curve corresponds to a steep monetary policy reaction curve and means that supply shocks will create small changes in current output. 
D) A flat dynamic aggregate demand curve corresponds to a flat monetary policy reaction curve and means that supply shocks will create small changes in current output.

Question 20

The key part of the real business cycle theory model is:

Accepted Answer

A) the importance of monetary policy. 
B) the short-run aggregate supply curve. 
C) changes in aggregate demand. 
D) changes in potential output. 
A) the importance of monetary policy. 
B) the short-run aggregate supply curve. 
C) changes in aggregate demand. 
D) changes in potential output.

Exam 22: Understanding Business Cycle Fluctuations

Globalization and trade:

Increases in potential output shift:

Policymakers can neutralize:

Why do negative supply shocks pose a particularly difficult dilemma for monetary policymakers?

Why do increases in potential output allow monetary policymakers to think "opportunistically" about disinflation?

Stabilization policy refers to the use of:

If prices were to adjust quickly:

Fiscal policy can act just like monetary policy to offset shifts in the dynamic aggregate demand curve and stabilize inflation and output.Explain how the two policies could have the same effect.

Explain the view called real business cycle theory.

Comparing monetary and fiscal policy:

If an economy is initially at a state of long-run equilibrium, the short-run effect(s) from a decrease in aggregate demand will include:

Which of the following statements is incorrect?

In which situation will inflation fall the fastest?

In which situation would policymakers be unable to neutralize the effect on the economy?

Stagflation occurs when:

The assumption that prices and wages are flexible implies that the:

An increase in potential output will result in:

Real business cycle theory seeks to explain business cycle fluctuations by focusing on:

Which of the following is true?

The key part of the real business cycle theory model is:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Modern Monetary Policy and the Challenges Facing Central Bankers

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