Question 1

Although the possibility exists for an economy to experience stagflation,it has never actually happened in the United States.

Accepted Answer

A) True 
 B)False

Question 2

As the price level rises,real wage ____________and people choose to work ___________.

Accepted Answer

A) rises;more 
B) rises;less 
C) falls;more 
D) falls;less 
A) rises;more 
B) rises;less 
C) falls;more 
D) falls;less

Question 3

New classical economists believe that it is possible under certain circumstances for an increase in the money supply to lead to a decrease in Real GDP in the short run.

Accepted Answer

A) True 
 B)False

Question 4

The original Phillips curve depicted an inverse relationship between wage inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 5

In the real business cycle theory,business cycle contractions begin as a result of changes in

Accepted Answer

A) aggregate GDP. 
B) aggregate spending. 
C) aggregate demand. 
D) aggregate consumption. 
E) long-run aggregate supply. 
A) aggregate GDP. 
B) aggregate spending. 
C) aggregate demand. 
D) aggregate consumption. 
E) long-run aggregate supply.

Question 6

According to new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

Accepted Answer

A) the short run or the long run. 
B) neither the short run nor the long run. 
C) the short run,but not in the long run. 
D) the long run,but not in the short run. 
A) the short run or the long run. 
B) neither the short run nor the long run. 
C) the short run,but not in the long run. 
D) the long run,but not in the short run.

Question 7

A fall in the expected price level leads to an expectation that real wages will ____________,which will cause people to work __________,shifting the SRAS curve _______________.

Accepted Answer

A) rise;more;rightward 
B) rise;less;leftward 
C) fall;more;rightward 
D) fall;less;leftward 
A) rise;more;rightward 
B) rise;less;leftward 
C) fall;more;rightward 
D) fall;less;leftward

Question 8

The concept of rational expectations first appeared on the economic scene in _______,but it wasn't until the _____________ that it received more significant notice in the economics profession.

Accepted Answer

A) 1931;early 1970s 
B) 1961;early 1970s 
C) 1981;early 1990s 
D) 1991;early 2000s 
E) 1921;early 1980s 
A) 1931;early 1970s 
B) 1961;early 1970s 
C) 1981;early 1990s 
D) 1991;early 2000s 
E) 1921;early 1980s

Question 9

The original (1958)Phillips curve differed from the Samuelson-Solow Phillips curve in that

Accepted Answer

A) the former was based on American data,while the latter was based on British data. 
B) the former measured price inflation rates,while the latter used wage inflation rates. 
C) the former was based on British data,while the latter was based on American data. 
D) the former measured nominal GDP,while the latter used Real GDP. 
E) a and b 
A) the former was based on American data,while the latter was based on British data. 
B) the former measured price inflation rates,while the latter used wage inflation rates. 
C) the former was based on British data,while the latter was based on American data. 
D) the former measured nominal GDP,while the latter used Real GDP. 
E) a and b

Question 10

The economy is in long-run equilibrium when there is an incorrectly anticipated increase in aggregate demand brought about by expansionary monetary policy.Specifically,aggregate demand increases by more than people anticipate (bias downward).According to new classical theory,the price level will __________ and Real GDP will __________ in the short run.In the long run,the price level will be __________ than it was before aggregate demand increased.

Accepted Answer

A) rise;fall;higher 
B) rise;rise;higher 
C) fall;rise;lower 
D) fall;rise;higher 
E) rise;rise;lower 
A) rise;fall;higher 
B) rise;rise;higher 
C) fall;rise;lower 
D) fall;rise;higher 
E) rise;rise;lower

Question 11

The short-run Phillips curve holds that

Accepted Answer

A) high inflation and high unemployment can occur together. 
B) low inflation and low unemployment can occur together. 
C) high inflation and low unemployment can occur together. 
D) b and c 
A) high inflation and high unemployment can occur together. 
B) low inflation and low unemployment can occur together. 
C) high inflation and low unemployment can occur together. 
D) b and c

Question 12

Exhibit 16-5  
-Refer to Exhibit 16-5.If the economy is at point 3,and the natural unemployment rate exists at points 1,4,and 5,it follows that

Accepted Answer

A) Real GDP is greater than Natural Real GDP. 
B) Real GDP is less than Natural Real GDP. 
C) Real GDP is the same as Natural Real GDP. 
D) the economy is in a recessionary gap. 
E) b and d 
A) Real GDP is greater than Natural Real GDP. 
B) Real GDP is less than Natural Real GDP. 
C) Real GDP is the same as Natural Real GDP. 
D) the economy is in a recessionary gap. 
E) b and d

Question 13

In real business cycle theory,business cycle expansions begin as a result of changes in

Accepted Answer

A) GDP. 
B) long-run aggregate supply. 
C) aggregate demand. 
D) consumption. 
E) investment demand. 
A) GDP. 
B) long-run aggregate supply. 
C) aggregate demand. 
D) consumption. 
E) investment demand.

Question 14

Describe the sequence of events that real business cycle theorists would use to explain how an adverse supply shock would impact the economy.Use your answer to explain why it is easy to confuse cause and effect between changes originating on the supply side and those that begin on the demand side.

Accepted Answer

An adverse supply shock would reduce the

Question 15

Stagflation is the simultaneous occurrence of

Accepted Answer

A) low inflation and high unemployment. 
B) high inflation and low unemployment. 
C) low inflation and low unemployment. 
D) high inflation and high unemployment. 
A) low inflation and high unemployment. 
B) high inflation and low unemployment. 
C) low inflation and low unemployment. 
D) high inflation and high unemployment.

Question 16

The main difference between new classical and new Keynesian theory is with respect to the assumption of

Accepted Answer

A) how expectations are formed. 
B) how flexible wages and prices are. 
C) the slope of the SRAS curve. 
D) the slope of the AD curve. 
A) how expectations are formed. 
B) how flexible wages and prices are. 
C) the slope of the SRAS curve. 
D) the slope of the AD curve.

Question 17

Milton Friedman argued that there

Accepted Answer

A) are two Phillips curves,a short-run one and a long-run one. 
B) are three Phillips curves,a short-run one,a long-run one,and one in stagflation. 
C) is one Phillips curve,and it is vertical. 
D) is one Phillips curve,and it is nearly flat or horizontal. 
A) are two Phillips curves,a short-run one and a long-run one. 
B) are three Phillips curves,a short-run one,a long-run one,and one in stagflation. 
C) is one Phillips curve,and it is vertical. 
D) is one Phillips curve,and it is nearly flat or horizontal.

Question 18

An unexpected decrease in aggregate demand will cause

Accepted Answer

A) a movement up the short-run Phillips curve. 
B) a movement down the short-run Phillips curve. 
C) an upward shift in the short-run Phillips curve. 
D) a downward shift in the short-run Phillips curve. 
A) a movement up the short-run Phillips curve. 
B) a movement down the short-run Phillips curve. 
C) an upward shift in the short-run Phillips curve. 
D) a downward shift in the short-run Phillips curve.

Question 19

The economy is in long-run equilibrium when government unexpectedly increases aggregate demand.The expected inflation rate is slow to adjust to the higher (actual)inflation rate.If follows that in the short run,according to the Friedman natural rate theory,__________ rises and the __________ falls.

Accepted Answer

A) the unemployment rate,price level 
B) Real GDP rises,unemployment rate 
C) nominal interest rate,real interest rate 
D) the unemployment rate,Real GDP level 
E) none of the above 
A) the unemployment rate,price level 
B) Real GDP rises,unemployment rate 
C) nominal interest rate,real interest rate 
D) the unemployment rate,Real GDP level 
E) none of the above

Question 20

A person's real wage will fall if the nominal wage falls,the price level rises,or both.

Accepted Answer

A) True 
 B)False

Exam 16: Expectations Theory and the Economy

Although the possibility exists for an economy to experience stagflation,it has never actually happened in the United States.

As the price level rises,real wage ____________and people choose to work ___________.

New classical economists believe that it is possible under certain circumstances for an increase in the money supply to lead to a decrease in Real GDP in the short run.

The original Phillips curve depicted an inverse relationship between wage inflation and unemployment.

In the real business cycle theory,business cycle contractions begin as a result of changes in

According to new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

A fall in the expected price level leads to an expectation that real wages will ____________,which will cause people to work __________,shifting the SRAS curve _______________.

The concept of rational expectations first appeared on the economic scene in _______,but it wasn't until the _____________ that it received more significant notice in the economics profession.

The original (1958)Phillips curve differed from the Samuelson-Solow Phillips curve in that

The short-run Phillips curve holds that

Exhibit 16-5 -Refer to Exhibit 16-5.If the economy is at point 3,and the natural unemployment rate exists at points 1,4,and 5,it follows that

In real business cycle theory,business cycle expansions begin as a result of changes in

Describe the sequence of events that real business cycle theorists would use to explain how an adverse supply shock would impact the economy.Use your answer to explain why it is easy to confuse cause and effect between changes originating on the supply side and those that begin on the demand side.

Stagflation is the simultaneous occurrence of

The main difference between new classical and new Keynesian theory is with respect to the assumption of

Milton Friedman argued that there

An unexpected decrease in aggregate demand will cause

The economy is in long-run equilibrium when government unexpectedly increases aggregate demand.The expected inflation rate is slow to adjust to the higher (actual)inflation rate.If follows that in the short run,according to the Friedman natural rate theory,__________ rises and the __________ falls.

A person's real wage will fall if the nominal wage falls,the price level rises,or both.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, controlled, and Relative

Supply,demand,and Price: Applications

Macroeconomic Measurements, part I: Prices and Unemployment

Macroeconomic Measurements, part II: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self-Regulating Economy

Keynesian Macroeconomics and Economic Instability: a Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money,banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Economic Growth: Resources, technology, ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case for and Against Government: Five Topics Considered

Stocks, bonds, futures, and Options

Filters

As the price level rises,real wage __and people choose to work _.

A fall in the expected price level leads to an expectation that real wages will ,which will cause people to work ,shifting the SRAS curve _____.

The concept of rational expectations first appeared on the economic scene in _,but it wasn't until the _______ that it received more significant notice in the economics profession.

The economy is in long-run equilibrium when government unexpectedly increases aggregate demand.The expected inflation rate is slow to adjust to the higher (actual)inflation rate.If follows that in the short run,according to the Friedman natural rate theory, rises and the falls.