Question 1

If expectations are rational,the difference between the actual inflation rate and the forecast for inflation is:

Accepted Answer

A)  positive when inflation is increasing. 
B)  negative when inflation is increasing. 
C)  random. 
D)  greater, the more accurately people anticipate the effects of government policy. 
A)  positive when inflation is increasing. 
B)  negative when inflation is increasing. 
C)  random. 
D)  greater, the more accurately people anticipate the effects of government policy.

Question 2

If the public has rational expectations,an attempt to increase aggregate demand to stimulate the economy will:

Accepted Answer

A)  be less inflationary in the short run than if the public alters their expectations slowly in response to changes in government policy. 
B)  be more effective if the public alters their expectations quickly in response to changes in government policy. 
C)  be ineffective if the shift in aggregate demand is predictable. 
D)  all of the above. 
A)  be less inflationary in the short run than if the public alters their expectations slowly in response to changes in government policy. 
B)  be more effective if the public alters their expectations quickly in response to changes in government policy. 
C)  be ineffective if the shift in aggregate demand is predictable. 
D)  all of the above.

Question 3

If policy makers expand aggregate demand,they can lower unemployment ____,but only by ____.

Accepted Answer

A)  temporarily; decreasing inflation 
B)  temporarily; increasing inflation 
C)  permanently; decreasing inflation 
D)  permanently; increasing inflation 
A)  temporarily; decreasing inflation 
B)  temporarily; increasing inflation 
C)  permanently; decreasing inflation 
D)  permanently; increasing inflation

Question 4

The short-run Phillips curve is based on the assumption of:

Accepted Answer

A)  a direct relationship between the inflation rate and unemployment. 
B)  an inverse relationship between the inflation rate and unemployment. 
C)  no relationship between the inflation rate and unemployment. 
D)  a permanent trade-off between the inflation rate and unemployment. 
A)  a direct relationship between the inflation rate and unemployment. 
B)  an inverse relationship between the inflation rate and unemployment. 
C)  no relationship between the inflation rate and unemployment. 
D)  a permanent trade-off between the inflation rate and unemployment.

Question 5

The Phillips Curve is steeper at higher rates of inflation and lower levels of unemployment.

Accepted Answer

A) True 
 B)False

Question 6

A common example of indexing in the United States is:

Accepted Answer

A)  annual bonuses to workers. 
B)  wage increases with seniority. 
C)  30-year fixed-rate mortgage loans. 
D)  escalator clauses tied to the CPI in wage agreements. 
A)  annual bonuses to workers. 
B)  wage increases with seniority. 
C)  30-year fixed-rate mortgage loans. 
D)  escalator clauses tied to the CPI in wage agreements.

Question 7

Using Taylor rule,the federal funds rate is increased or decreased according to what is happening to both real GDP and inflation.

Accepted Answer

A) True 
 B)False

Question 8

In the short run,the Phillips Curve indicates a(n):

Accepted Answer

A)  inverse relationship between inflation and unemployment. 
B)  direct relationship between inflation and unemployment. 
C)  inverse relationship between GDP and unemployment. 
D)  direct relationship between GDP and unemployment. 
A)  inverse relationship between inflation and unemployment. 
B)  direct relationship between inflation and unemployment. 
C)  inverse relationship between GDP and unemployment. 
D)  direct relationship between GDP and unemployment.

Question 9

If the economy has substantial unemployment,then the inflationary costs of expansionary policy are likely to be:

Accepted Answer

A)  low, and the unemployment gains minimal. 
B)  low, and the unemployment gains large. 
C)  high, and the unemployment gains minimal. 
D)  high, and the unemployment gains large. 
A)  low, and the unemployment gains minimal. 
B)  low, and the unemployment gains large. 
C)  high, and the unemployment gains minimal. 
D)  high, and the unemployment gains large.

Question 10

A main argument against indexing is that:

Accepted Answer

A)  it can worsen inflation. 
B)  it can reduce asset prices. 
C)  transaction costs are too high. 
D)  it could lead to deflation. 
A)  it can worsen inflation. 
B)  it can reduce asset prices. 
C)  transaction costs are too high. 
D)  it could lead to deflation.

Question 11

If the rational expectation theory is accurate,equilibrium real GDP will change in the short run:

Accepted Answer

A)  whenever the aggregate demand curve shifts. 
B)  only if discretionary fiscal policy is used. 
C)  only if there is a shift in aggregate demand that could not have been predicted from the information available to the public. 
D)  only if discretionary monetary policy is used. 
A)  whenever the aggregate demand curve shifts. 
B)  only if discretionary fiscal policy is used. 
C)  only if there is a shift in aggregate demand that could not have been predicted from the information available to the public. 
D)  only if discretionary monetary policy is used.

Question 12

A positive supply shock causes a leftward shift in the SRAS curve.

Accepted Answer

A) True 
 B)False

Question 13

As the economy moves down and to the left along a short-run aggregate supply curve,it:

Accepted Answer

A)  moves up and to the right along the short-run Phillips curve. 
B)  moves up and to the left along the short-run Phillips curve. 
C)  moves down and to the left along the short-run Phillips curve. 
D)  moves down and to the right along the short-run Phillips curve. 
A)  moves up and to the right along the short-run Phillips curve. 
B)  moves up and to the left along the short-run Phillips curve. 
C)  moves down and to the left along the short-run Phillips curve. 
D)  moves down and to the right along the short-run Phillips curve.

Question 14

According to the rational expectation view,the government can change real output:

Accepted Answer

A)  with appropriate, well-publicized fiscal and monetary policies. 
B)  with appropriate, well-publicized fiscal and monetary policies in the short run, but not in the long run. 
C)  only by making unexpected changes in aggregate demand. 
D)  without ever affecting the price level. 
A)  with appropriate, well-publicized fiscal and monetary policies. 
B)  with appropriate, well-publicized fiscal and monetary policies in the short run, but not in the long run. 
C)  only by making unexpected changes in aggregate demand. 
D)  without ever affecting the price level.

Question 15

Indexing reduces the ability for relative price changes to allocate resources where they are more valuable.

Accepted Answer

A) True 
 B)False

Question 16

If the public has correct rational expectations and the Fed reduces the level of banking reserves,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 17

If expectations are rational,how can government influence unemployment in a predictable way?

Accepted Answer

A)  with the normal tools, used in the normal fashion 
B)  with fiscal policy; monetary policy will not work 
C)  with monetary policy; fiscal policy will not work 
D)  with surprise changes in policy only 
A)  with the normal tools, used in the normal fashion 
B)  with fiscal policy; monetary policy will not work 
C)  with monetary policy; fiscal policy will not work 
D)  with surprise changes in policy only

Question 18

Rules advocates believe that the central bank should change interest rates in an attempt to fine tune the economy.

Accepted Answer

A) True 
 B)False

Question 19

A conclusion of the theory of rational expectations is that,in the short run,the impact of a correctly anticipated fiscal policy designed to decrease AD will:

Accepted Answer

A)  result in no net change in AD once people's expectations adjustments have been accounted for. 
B)  shift AD in the opposite direction intended once people's expectations adjustments have been accounted for. 
C)  decrease the price level. 
D)  result in no change in the price level. 
A)  result in no net change in AD once people's expectations adjustments have been accounted for. 
B)  shift AD in the opposite direction intended once people's expectations adjustments have been accounted for. 
C)  decrease the price level. 
D)  result in no change in the price level.

Question 20

The Phillips curve relationship can also be seen indirectly from the AD/AS model.

Accepted Answer

A) True 
 B)False

Exam 27: Issues in Macroeconomic Theory and Policy

If expectations are rational,the difference between the actual inflation rate and the forecast for inflation is:

If the public has rational expectations,an attempt to increase aggregate demand to stimulate the economy will:

If policy makers expand aggregate demand,they can lower unemployment ____,but only by ____.

The short-run Phillips curve is based on the assumption of:

The Phillips Curve is steeper at higher rates of inflation and lower levels of unemployment.

A common example of indexing in the United States is:

Using Taylor rule,the federal funds rate is increased or decreased according to what is happening to both real GDP and inflation.

In the short run,the Phillips Curve indicates a(n):

If the economy has substantial unemployment,then the inflationary costs of expansionary policy are likely to be:

A main argument against indexing is that:

If the rational expectation theory is accurate,equilibrium real GDP will change in the short run:

A positive supply shock causes a leftward shift in the SRAS curve.

As the economy moves down and to the left along a short-run aggregate supply curve,it:

According to the rational expectation view,the government can change real output:

Indexing reduces the ability for relative price changes to allocate resources where they are more valuable.

If the public has correct rational expectations and the Fed reduces the level of banking reserves,it would be expected to result in:

If expectations are rational,how can government influence unemployment in a predictable way?

Rules advocates believe that the central bank should change interest rates in an attempt to fine tune the economy.

A conclusion of the theory of rational expectations is that,in the short run,the impact of a correctly anticipated fiscal policy designed to decrease AD will:

The Phillips curve relationship can also be seen indirectly from the AD/AS model.

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

If policy makers expand aggregate demand,they can lower unemployment ,but only by .