Question 1

With rational expectations,a policy that would decrease AD would certainly lead to:

Accepted Answer

A)  higher inflation and lower unemployment in the short run. 
B)  lower inflation and higher unemployment in the short run. 
C)  higher inflation and no change in unemployment in the short run, if people's expectations were correct. 
D)  none of the above. 
A)  higher inflation and lower unemployment in the short run. 
B)  lower inflation and higher unemployment in the short run. 
C)  higher inflation and no change in unemployment in the short run, if people's expectations were correct. 
D)  none of the above.

Question 2

The Taylor rule is an example of:

Accepted Answer

A)  a non-discretionary rule. 
B)  a discretionary policy. 
C)  a hybrid - part rule, part discretion. 
D)  neither a rule nor a discretionary policy. 
A)  a non-discretionary rule. 
B)  a discretionary policy. 
C)  a hybrid - part rule, part discretion. 
D)  neither a rule nor a discretionary policy.

Question 3

If the short-run aggregate supply curve is shifting right:

Accepted Answer

A)  the short-run Phillips curve is shifting left. 
B)  the short-run Phillips curve is shifting right. 
C)  the long-run Phillips curve is shifting right. 
D)  the long-run Phillips curve is shifting left. 
A)  the short-run Phillips curve is shifting left. 
B)  the short-run Phillips curve is shifting right. 
C)  the long-run Phillips curve is shifting right. 
D)  the long-run Phillips curve is shifting left.

Question 4

Some economists believe that inflation could actually help reduce unemployment in the short-run.

Accepted Answer

A) True 
 B)False

Question 5

If the public has correct rational expectations and the Fed increases both reserve requirements and the discount rate,it would be expected to result in:

Accepted Answer

A)  a higher level of real output and a lower price level. 
B)  a lower price level but no change in real output. 
C)  a higher price level and a reduced level of real output. 
D)  a higher price level but no change in real output. 
A)  a higher level of real output and a lower price level. 
B)  a lower price level but no change in real output. 
C)  a higher price level and a reduced level of real output. 
D)  a higher price level but no change in real output.

Question 6

Assuming wages are indexed to inflation,if prices rose by 1.4 percent this month and your last month's wage was $1,000,your wage this month would be $1,014.

Accepted Answer

A) True 
 B)False

Question 7

If the inflation rate is decreasing while unemployment is decreasing:

Accepted Answer

A)  the short-run Phillips curve must have shifted right. 
B)  the short-run Phillips curve must have shifted left. 
C)  it involved a movement along the short-run Phillips curve 
D)  it would be inconsistent with any possible Phillips curve scenario. 
A)  the short-run Phillips curve must have shifted right. 
B)  the short-run Phillips curve must have shifted left. 
C)  it involved a movement along the short-run Phillips curve 
D)  it would be inconsistent with any possible Phillips curve scenario.

Question 8

If the short-run aggregate supply curve is shifting left:

Accepted Answer

A)  the short-run Phillips curve is shifting left. 
B)  the short-run Phillips curve is shifting right. 
C)  the long-run Phillips curve is shifting right. 
D)  the long-run Phillips curve is shifting left. 
A)  the short-run Phillips curve is shifting left. 
B)  the short-run Phillips curve is shifting right. 
C)  the long-run Phillips curve is shifting right. 
D)  the long-run Phillips curve is shifting left.

Question 9

According to Milton Friedman,the short-run trade-off between unemployment and inflation comes from unanticipated inflation.

Accepted Answer

A) True 
 B)False

Question 10

With rational expectations,a policy that would increase AD would lead to:

Accepted Answer

A)  higher inflation and higher real output in the short run. 
B)  higher inflation and lower real output in the short run. 
C)  higher inflation and an indeterminate effect on real output in the short run, if people's expectations were correct. 
D)  higher inflation and no change in real output, if people's expectations were correct in the short-run. 
A)  higher inflation and higher real output in the short run. 
B)  higher inflation and lower real output in the short run. 
C)  higher inflation and an indeterminate effect on real output in the short run, if people's expectations were correct. 
D)  higher inflation and no change in real output, if people's expectations were correct in the short-run.

Question 11

How do you think each of the following would affect the unemployment rate?
a.The Fed increases the money supply and engineers an unexpected increase in the rate of inflation from 2 percent to 5 percent.
b.The rate of inflation remains stable at 2 percent over a five-year period,as expected.
c.There is an unexpected decrease in the rate of inflation from 10 percent to 3 percent.

Accepted Answer

a.An unanticipated increase in the rate

Question 12

In the 1960s and early 70s,economists believed that the Phillips curve indicated:

Accepted Answer

A)  a menu of macroeconomic choices available to policy makers. 
B)  that higher levels of employment could be achieved with lower inflation. 
C)  that higher inflation was the price for more unemployment. 
D)  all of the above. 
A)  a menu of macroeconomic choices available to policy makers. 
B)  that higher levels of employment could be achieved with lower inflation. 
C)  that higher inflation was the price for more unemployment. 
D)  all of the above.

Question 13

If inflationary expectations are stable and there is no current inflation,the short-run Phillips curve will intersect the long-run Phillips curve at:

Accepted Answer

A)  a 0 percent unemployment rate. 
B)  a 2 percent unemployment rate. 
C)  a 4 percent unemployment rate. 
D)  the natural rate of unemployment. 
A)  a 0 percent unemployment rate. 
B)  a 2 percent unemployment rate. 
C)  a 4 percent unemployment rate. 
D)  the natural rate of unemployment.

Question 14

Critics of the extreme rational expectations theory argue that wages and input prices do not adjust instantaneously.

Accepted Answer

A) True 
 B)False

Question 15

If inflation is underestimated by decision makers in the economy when it is rising,the SRAS curve will tend to be:

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  downward sloping. 
D)  upward sloping. 
A)  vertical. 
B)  horizontal. 
C)  downward sloping. 
D)  upward sloping.

Question 16

If the short-run Phillips curve was a straight line with a very steep slope,the inflation costs of reducing unemployment:

Accepted Answer

A)  are fairly low. 
B)  are fairly high. 
C)  depend on the current rate of inflation. 
D)  rises as the economy approaches full employment. 
A)  are fairly low. 
B)  are fairly high. 
C)  depend on the current rate of inflation. 
D)  rises as the economy approaches full employment.

Question 17

What do rational expectations theorists believe? What is their critics' point of view?

Accepted Answer

Rational expectation economists believe

Question 18

When expectations of inflation are revised upward,the short-run Phillips curve:

Accepted Answer

A)  shifts rightward. 
B)  becomes steeper. 
C)  shifts leftward. 
D)  becomes flatter. 
A)  shifts rightward. 
B)  becomes steeper. 
C)  shifts leftward. 
D)  becomes flatter.

Question 19

Exhibit 27-1   Refer to Exhibit 27-1.If an increase in aggregate demand AD0 to AD1 is unanticipated,the economy will move from point A to point ____ in the short run.

Accepted Answer

A)  A 
B)  B 
C)  E 
D)  F 
A)  A 
B)  B 
C)  E 
D)  F

Question 20

If the Phillips curve was nearly horizontal,a:

Accepted Answer

A)  substantial increase in inflation would be caused by a decrease in unemployment. 
B)  substantial decrease in inflation would be caused by a decrease in unemployment. 
C)  substantial decrease in unemployment could be achieved with only a small increase in inflation. 
D)  substantial increase in unemployment could be achieved with only a small increase in inflation. 
A)  substantial increase in inflation would be caused by a decrease in unemployment. 
B)  substantial decrease in inflation would be caused by a decrease in unemployment. 
C)  substantial decrease in unemployment could be achieved with only a small increase in inflation. 
D)  substantial increase in unemployment could be achieved with only a small increase in inflation.

Exam 27: Issues in Macroeconomic Theory and Policy

With rational expectations,a policy that would decrease AD would certainly lead to:

The Taylor rule is an example of:

If the short-run aggregate supply curve is shifting right:

Some economists believe that inflation could actually help reduce unemployment in the short-run.

If the public has correct rational expectations and the Fed increases both reserve requirements and the discount rate,it would be expected to result in:

Assuming wages are indexed to inflation,if prices rose by 1.4 percent this month and your last month's wage was $1,000,your wage this month would be $1,014.

If the inflation rate is decreasing while unemployment is decreasing:

If the short-run aggregate supply curve is shifting left:

According to Milton Friedman,the short-run trade-off between unemployment and inflation comes from unanticipated inflation.

With rational expectations,a policy that would increase AD would lead to:

In the 1960s and early 70s,economists believed that the Phillips curve indicated:

If inflationary expectations are stable and there is no current inflation,the short-run Phillips curve will intersect the long-run Phillips curve at:

Critics of the extreme rational expectations theory argue that wages and input prices do not adjust instantaneously.

If inflation is underestimated by decision makers in the economy when it is rising,the SRAS curve will tend to be:

If the short-run Phillips curve was a straight line with a very steep slope,the inflation costs of reducing unemployment:

What do rational expectations theorists believe? What is their critics' point of view?

When expectations of inflation are revised upward,the short-run Phillips curve:

Exhibit 27-1 Refer to Exhibit 27-1.If an increase in aggregate demand AD0 to AD1 is unanticipated,the economy will move from point A to point ____ in the short run.

If the Phillips curve was nearly horizontal,a:

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

International Trade

International Finance

Filters

Exhibit 27-1 Refer to Exhibit 27-1.If an increase in aggregate demand AD₀ to AD₁ is unanticipated,the economy will move from point A to point ____ in the short run.