Question 1

How does the new classical model differ from traditional classical economics? How does the new Keynesian model differ from traditional Keynesianism?

Accepted Answer

The new classical model sees no real effect of monetary policy while the classical economics had changes in the money supply affecting aggregate demand.The classical view was that stabilization policy was unnecessary and the newer view is that it is too difficult to conduct.The traditional Keynesian view focused entirely on aggregate demand and emphasized fiscal policy while the newer view sees a role for monetary policy as well.

Question 2

Figure 15-3  
-In Figure 15-3,if the economy is initially at equilibrium at point B,an unanticipated increase in aggregate demand from A D₁ to A D₂ would cause,in the short run,

Accepted Answer

A) the price level to rise from P₂ to P₁,real GDP to increase from Q₂ to Q₁,and the rate of unemployment to decrease. 
B) the price level to move from P₂ to P₁,but real GDP would stay at Q₁. 
C) the price level to rise by some amount less than P₁ but greater than P₂,and the rate of unemployment would decrease. 
D) no change in either the price level or real GDP,but a decrease in unemployment. 
A) the price level to rise from P₂ to P₁,real GDP to increase from Q₂ to Q₁,and the rate of unemployment to decrease. 
B) the price level to move from P₂ to P₁,but real GDP would stay at Q₁. 
C) the price level to rise by some amount less than P₁ but greater than P₂,and the rate of unemployment would decrease. 
D) no change in either the price level or real GDP,but a decrease in unemployment. A

Question 3

Figure 15-2  
-In Figure 15-2,suppose the economy is at a short run equilibrium at point A and the Bank of Canada announces that the money supply will be increased over the next six months.What point represents the new equilibrium according to the rational expectations theory?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D C

Question 4

Real business cycle theory explains variations in prices,employment and output by focusing on

Accepted Answer

A) changes in real variables such as demand and supply shocks,technological changes,and shifts in the composition of the labour force. 
B) anticipated monetary policies enacted by the Bank of Canada. 
C) the effects of the Phillips curve. 
D) anticipated changes fiscal policy enacted by the government. 
A) changes in real variables such as demand and supply shocks,technological changes,and shifts in the composition of the labour force. 
B) anticipated monetary policies enacted by the Bank of Canada. 
C) the effects of the Phillips curve. 
D) anticipated changes fiscal policy enacted by the government.

Question 5

According to the rational expectations hypothesis,monetary policy can have an effect on real world variable (such as GDP)in the short run

Accepted Answer

A) only when the policy is anticipated. 
B) only when the policy is unsystematic and unanticipated. 
C) regardless of whether the policy is anticipated or unanticipated. 
D) when the Bank of Canada operates as expected in either buying or selling bonds. 
A) only when the policy is anticipated. 
B) only when the policy is unsystematic and unanticipated. 
C) regardless of whether the policy is anticipated or unanticipated. 
D) when the Bank of Canada operates as expected in either buying or selling bonds.

Question 6

According to new classical economists who adhere to the policy irrelevance proposition,

Accepted Answer

A) monetary policy can effectively reduce the rate of unemployment in the short run. 
B) workers are not rational in the long run. 
C) the Phillips curve actually slopes upward,not downward as traditionally assumed. 
D) expansionary monetary policy will only lead to a higher rate of inflation in the long run. 
A) monetary policy can effectively reduce the rate of unemployment in the short run. 
B) workers are not rational in the long run. 
C) the Phillips curve actually slopes upward,not downward as traditionally assumed. 
D) expansionary monetary policy will only lead to a higher rate of inflation in the long run.

Question 7

The idea that anticipated monetary policy changes cannot affect real GDP or employment is known as

Accepted Answer

A) real business cycle theory. 
B) the policy irrelevance theorem. 
C) monetarism. 
D) Keynesianism. 
A) real business cycle theory. 
B) the policy irrelevance theorem. 
C) monetarism. 
D) Keynesianism.

Question 8

In the short run,an unanticipated increase in the rate of inflation would

Accepted Answer

A) increase the unemployment rate. 
B) decrease the unemployment rate. 
C) unambiguously improve the misery index. 
D) lower the natural rate of unemployment. 
A) increase the unemployment rate. 
B) decrease the unemployment rate. 
C) unambiguously improve the misery index. 
D) lower the natural rate of unemployment.

Question 9

The costs associated with changing prices are called

Accepted Answer

A) price costs. 
B) change costs. 
C) menu costs. 
D) efficiency-wage costs. 
A) price costs. 
B) change costs. 
C) menu costs. 
D) efficiency-wage costs.

Question 10

The idea that anticipated monetary policy cannot affect real variables such as real GDP or employment is known as

Accepted Answer

A) the Keynesian hypothesis. 
B) the policy irrelevance proposition. 
C) the job search model. 
D) the monetary velocity theory. 
A) the Keynesian hypothesis. 
B) the policy irrelevance proposition. 
C) the job search model. 
D) the monetary velocity theory.

Question 11

Figure 15-2  
-In Figure 15-2,suppose the economy is initially at a short run equilibrium at point B and there is an unanticipated decrease in the money supply.Which point represents the new short run equilibrium?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 12

Since 1945,the natural rate of unemployment has fluctuated from below 4% to above 10%.What could account for this?

Accepted Answer

The natural rate of unemployment is affe

Question 13

The action of creating incentives to increase productivity which causes the aggregate supply curve to shift outward is referred to as

Accepted Answer

A) policy irrelevance proposition. 
B) supply-side economics. 
C) expansionary policy. 
D) contractionary policy. 
A) policy irrelevance proposition. 
B) supply-side economics. 
C) expansionary policy. 
D) contractionary policy.

Question 14

Describe the Rational Expectations Hypothesis and how it can affect aggregate output.

Accepted Answer

A discussion of the contents o

Question 15

According to the new growth theorists,government macroeconomic policy should focus on

Accepted Answer

A) shifting aggregate demand to the right. 
B) stabilizing prices. 
C) achieving a balanced budget. 
D) shifting the long-run aggregate supply curve to the right. 
A) shifting aggregate demand to the right. 
B) stabilizing prices. 
C) achieving a balanced budget. 
D) shifting the long-run aggregate supply curve to the right.

Question 16

Assume the Bank of Canada initiates an expansionary monetary policy that is correctly anticipated by economic agents in the economy.According to the new classical model,the result is

Accepted Answer

A) increased prices in the short run,but no effect on prices in the long run. 
B) decreased real national income in the short run but increased national income in the long run. 
C) increased real national income and increased employment in the long run. 
D) increased prices but no change in real output or real national income in the long run. 
A) increased prices in the short run,but no effect on prices in the long run. 
B) decreased real national income in the short run but increased national income in the long run. 
C) increased real national income and increased employment in the long run. 
D) increased prices but no change in real output or real national income in the long run.

Question 17

According to the New Keynesian Theory

Accepted Answer

A) only fiscal policy is an effective stabilization policy. 
B) only monetary policy is an effective stabilization policy. 
C) both fiscal and monetary policy can be effective stabilization policies. 
D) neither fiscal nor monetary policy is an effective stabilization policy. 
A) only fiscal policy is an effective stabilization policy. 
B) only monetary policy is an effective stabilization policy. 
C) both fiscal and monetary policy can be effective stabilization policies. 
D) neither fiscal nor monetary policy is an effective stabilization policy.

Question 18

The small-menu cost theory suggests that

Accepted Answer

A) there will be no unemployment. 
B) wages and prices move freely and quickly. 
C) firms find frequent price changes to be costly. 
D) the economy is characterized only by perfect competition. 
A) there will be no unemployment. 
B) wages and prices move freely and quickly. 
C) firms find frequent price changes to be costly. 
D) the economy is characterized only by perfect competition.

Question 19

Describe new Keynesian economics and the arguments used to support the ideas.

Accepted Answer

New Keynesian economics are models based

Question 20

The small-menu cost theory states that

Accepted Answer

A) prices are not fully flexible because it is costly for firms to change prices every time there is a demand change. 
B) economic agents quickly learn the likely responses of the Bank of Canada to changes in unemployment. 
C) wages depend on the productivity of workers. 
D) the economy is characterized by perfect competition. 
A) prices are not fully flexible because it is costly for firms to change prices every time there is a demand change. 
B) economic agents quickly learn the likely responses of the Bank of Canada to changes in unemployment. 
C) wages depend on the productivity of workers. 
D) the economy is characterized by perfect competition.

How does the new classical model differ from traditional classical economics? How does the new Keynesian model differ from traditional Keynesianism?

Figure 15-3 -In Figure 15-3,if the economy is initially at equilibrium at point B,an unanticipated increase in aggregate demand from A D₁ to A D₂ would cause,in the short run,

Figure 15-2 -In Figure 15-2,suppose the economy is at a short run equilibrium at point A and the Bank of Canada announces that the money supply will be increased over the next six months.What point represents the new equilibrium according to the rational expectations theory?

Real business cycle theory explains variations in prices,employment and output by focusing on

According to the rational expectations hypothesis,monetary policy can have an effect on real world variable (such as GDP)in the short run

According to new classical economists who adhere to the policy irrelevance proposition,

The idea that anticipated monetary policy changes cannot affect real GDP or employment is known as

In the short run,an unanticipated increase in the rate of inflation would

The costs associated with changing prices are called

The idea that anticipated monetary policy cannot affect real variables such as real GDP or employment is known as

Figure 15-2 -In Figure 15-2,suppose the economy is initially at a short run equilibrium at point B and there is an unanticipated decrease in the money supply.Which point represents the new short run equilibrium?

Since 1945,the natural rate of unemployment has fluctuated from below 4% to above 10%.What could account for this?

The action of creating incentives to increase productivity which causes the aggregate supply curve to shift outward is referred to as

Describe the Rational Expectations Hypothesis and how it can affect aggregate output.

According to the new growth theorists,government macroeconomic policy should focus on

Assume the Bank of Canada initiates an expansionary monetary policy that is correctly anticipated by economic agents in the economy.According to the new classical model,the result is

According to the New Keynesian Theory

The small-menu cost theory suggests that

Describe new Keynesian economics and the arguments used to support the ideas.

The small-menu cost theory states that

The Nature of Economics

Production Possibilities and Economic Systems

Demand and Supply

Introduction to Macroeconomics

Measuring the Economys Performance

Modelling Real Gdp and the Price Level in the Long Run

Economic Growth and Development

Modelling Real Gdp and the Price Level in the Short Run

Consumption, investment, and the Multiplier

The Public Sector

Fiscal Policy and the Public Debt

Money and the Banking System

Money Creation and Deposit Insurance

The Bank of Canada and Monetary Policy

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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Exam 15: Issues in Stabilization Policy

How does the new classical model differ from traditional classical economics? How does the new Keynesian model differ from traditional Keynesianism?

Figure 15-3 -In Figure 15-3,if the economy is initially at equilibrium at point B,an unanticipated increase in aggregate demand from A D₁ to A D₂ would cause,in the short run,

Figure 15-2 -In Figure 15-2,suppose the economy is at a short run equilibrium at point A and the Bank of Canada announces that the money supply will be increased over the next six months.What point represents the new equilibrium according to the rational expectations theory?

Real business cycle theory explains variations in prices,employment and output by focusing on

According to the rational expectations hypothesis,monetary policy can have an effect on real world variable (such as GDP)in the short run

According to new classical economists who adhere to the policy irrelevance proposition,

The idea that anticipated monetary policy changes cannot affect real GDP or employment is known as

In the short run,an unanticipated increase in the rate of inflation would

The costs associated with changing prices are called

The idea that anticipated monetary policy cannot affect real variables such as real GDP or employment is known as

Figure 15-2 -In Figure 15-2,suppose the economy is initially at a short run equilibrium at point B and there is an unanticipated decrease in the money supply.Which point represents the new short run equilibrium?

Since 1945,the natural rate of unemployment has fluctuated from below 4% to above 10%.What could account for this?

The action of creating incentives to increase productivity which causes the aggregate supply curve to shift outward is referred to as

Describe the Rational Expectations Hypothesis and how it can affect aggregate output.

According to the new growth theorists,government macroeconomic policy should focus on

Assume the Bank of Canada initiates an expansionary monetary policy that is correctly anticipated by economic agents in the economy.According to the new classical model,the result is

According to the New Keynesian Theory

The small-menu cost theory suggests that

Describe new Keynesian economics and the arguments used to support the ideas.

The small-menu cost theory states that

The Nature of Economics

Production Possibilities and Economic Systems

Demand and Supply

Introduction to Macroeconomics

Measuring the Economys Performance

Modelling Real Gdp and the Price Level in the Long Run

Economic Growth and Development

Modelling Real Gdp and the Price Level in the Short Run

Consumption, investment, and the Multiplier

The Public Sector

Fiscal Policy and the Public Debt

Money and the Banking System

Money Creation and Deposit Insurance

The Bank of Canada and Monetary Policy

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters