Question 1

The rational expectations hypothesis argues that a monetary policy designed to stabilize the economy will succeed only when

Accepted Answer

A) changes in the money supply are unexpected. 
B) the government's budget is not in deficit. 
C) labour unions have long-term contracts. 
D) changes in the money supply are completely anticipated. 
A) changes in the money supply are unexpected. 
B) the government's budget is not in deficit. 
C) labour unions have long-term contracts. 
D) changes in the money supply are completely anticipated.

Question 2

If the economy is in a strong expansion and moved beyond its long-run equilibrium real national output,then the

Accepted Answer

A) natural rate of unemployment has fallen. 
B) cyclical rate of unemployment is positive. 
C) cyclical rate of unemployment is zero. 
D) cyclical rate of unemployment is negative. 
A) natural rate of unemployment has fallen. 
B) cyclical rate of unemployment is positive. 
C) cyclical rate of unemployment is zero. 
D) cyclical rate of unemployment is negative.

Question 3

Explain the rational expectations hypothesis.

Accepted Answer

The rational expectations hypothesis ass

Question 4

New classical models of economics are often associated with

Accepted Answer

A) inflation. 
B) the rational expectations hypothesis. 
C) real business cycle theories.. 
D) the policy irrelevance proposition. 
A) inflation. 
B) the rational expectations hypothesis. 
C) real business cycle theories.. 
D) the policy irrelevance proposition.

Question 5

According to real business cycle theory,money

Accepted Answer

A) is unnecessary. 
B) is neutral. 
C) is an important determinant of both short-run and long-run real GDP. 
D) affects long-run real GDP only. 
A) is unnecessary. 
B) is neutral. 
C) is an important determinant of both short-run and long-run real GDP. 
D) affects long-run real GDP only.

Question 6

According to the real business cycle theory,an increase in an input price,such as oil,will

Accepted Answer

A) increase both real income and the price level. 
B) increase real income but not change the price level. 
C) decrease real income but increase the price level. 
D) decrease both real income and the price level. 
A) increase both real income and the price level. 
B) increase real income but not change the price level. 
C) decrease real income but increase the price level. 
D) decrease both real income and the price level.

Question 7

An unexpected increase in aggregate demand typically causes

Accepted Answer

A) frictional unemployment to increase but structural unemployment to decrease. 
B) the price level to increase but has no effect on the unemployment rate. 
C) the price level to increase and the unemployment rate to fall. 
D) the price level to increase and the unemployment rate to increase. 
A) frictional unemployment to increase but structural unemployment to decrease. 
B) the price level to increase but has no effect on the unemployment rate. 
C) the price level to increase and the unemployment rate to fall. 
D) the price level to increase and the unemployment rate to increase.

Question 8

According to the rational expectations hypothesis,an individual's view of future economic performance

Accepted Answer

A) does not consider past performance. 
B) does not consider the impact of inflation. 
C) only considers past performance. 
D) considers both past performance and current monetary and fiscal policy. 
A) does not consider past performance. 
B) does not consider the impact of inflation. 
C) only considers past performance. 
D) considers both past performance and current monetary and fiscal policy.

Question 9

The rational expectations hypothesis argues that a monetary policy designed to stabilize the economy will fail unless

Accepted Answer

A) changes in the money supply are unexpected. 
B) the government's budget is not in deficit. 
C) labour unions have long-term contracts. 
D) changes in the money supply are completely anticipated. 
A) changes in the money supply are unexpected. 
B) the government's budget is not in deficit. 
C) labour unions have long-term contracts. 
D) changes in the money supply are completely anticipated.

Question 10

Figure 15-2  
-In Figure 15-2,suppose the economy is at a short run equilibrium at point C and the Bank of Canada announces that the money supply will be decreased 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

Question 11

What is meant by the natural rate of unemployment?

Accepted Answer

The rate of unemployment that

Question 12

Figure 15-4  
-In Figure 15-4,if initial equilibrium is at point C and there is an anticipated decrease in aggregate demand from A D₂ to A D₁ due to an anticipated decrease in the money supply,then

Accepted Answer

A) the economy will move directly from point C to point A without passing through point D. 
B) the economy will move directly from point C to point D,and will remain at point D in the long run. 
C) the price level will shift to P₂ in the short run. 
D) the price level will shift to P₂ in the long run. 
A) the economy will move directly from point C to point A without passing through point D. 
B) the economy will move directly from point C to point D,and will remain at point D in the long run. 
C) the price level will shift to P₂ in the short run. 
D) the price level will shift to P₂ in the long run.

Question 13

During the 1960s many Keynesian economists felt that,by studying the Phillips curve,

Accepted Answer

A) policymakers could dispense with the Bank of Canada's open market operations. 
B) policymakers could fine-tune the economy by selecting policies that would produce the exact mix of unemployment and inflation that suited current government objectives. 
C) the Prime Minister and Parliament did not need to attempt to balance the budget. 
D) policymakers could eliminate even frictional unemployment in the economy. 
A) policymakers could dispense with the Bank of Canada's open market operations. 
B) policymakers could fine-tune the economy by selecting policies that would produce the exact mix of unemployment and inflation that suited current government objectives. 
C) the Prime Minister and Parliament did not need to attempt to balance the budget. 
D) policymakers could eliminate even frictional unemployment in the economy.

Question 14

The notion that tax revenues initially increase with a higher tax rate but eventually decline as the tax rate increases is called

Accepted Answer

A) Laffer curve. 
B) real business cycle theory. 
C) policy irrelevance proposition. 
D) small-menu cost theory. 
A) Laffer curve. 
B) real business cycle theory. 
C) policy irrelevance proposition. 
D) small-menu cost theory.

Question 15

Real business cycle theory is an extension of

Accepted Answer

A) Keynesian theory. 
B) monetary theory. 
C) new Keynesian theory. 
D) new classical theory. 
A) Keynesian theory. 
B) monetary theory. 
C) new Keynesian theory. 
D) new classical theory.

Question 16

When workers and employers correctly anticipate the rate of inflation,

Accepted Answer

A) there will be no unemployment. 
B) there will be only involuntary unemployment. 
C) unemployment will be at the natural rate. 
D) workers will underestimate the real wage. 
A) there will be no unemployment. 
B) there will be only involuntary unemployment. 
C) unemployment will be at the natural rate. 
D) workers will underestimate the real wage.

Question 17

According to the new classical model,government fiscal and monetary policy changes are effective

Accepted Answer

A) all of the time. 
B) only when the short-run aggregate supply curve is upward sloping. 
C) only when the policy changes affect aggregate demand. 
D) only when the policy changes are unanticipated. 
A) all of the time. 
B) only when the short-run aggregate supply curve is upward sloping. 
C) only when the policy changes affect aggregate demand. 
D) only when the policy changes are unanticipated.

Question 18

An example of nondiscretionary policymaking is

Accepted Answer

A) the monetary rule. 
B) expansionary fiscal policy. 
C) changes in the interest rate initiated by the Federal Government. 
D) a tax cut to stimulate the economy. 
A) the monetary rule. 
B) expansionary fiscal policy. 
C) changes in the interest rate initiated by the Federal Government. 
D) a tax cut to stimulate the economy.

Question 19

Suppose the job market improved and workers didn't realize it.We would expect to observe

Accepted Answer

A) frictional unemployment to increase. 
B) the duration of unemployment and the amount of unemployment to decrease. 
C) higher wages,with the duration of unemployment and the amount of unemployment unchanged. 
D) a decrease in aggregate demand. 
A) frictional unemployment to increase. 
B) the duration of unemployment and the amount of unemployment to decrease. 
C) higher wages,with the duration of unemployment and the amount of unemployment unchanged. 
D) a decrease in aggregate demand.

Question 20

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

Accepted Answer

A) the price level to fall from P₁ to P₂,real GDP to fall from Q₁ to Q₂,and the rate of unemployment to increase. 
B) the price level to move from P₁ to P₂,but real GDP would stay at Q₁. 
C) the price level to fall 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 fall from P₁ to P₂,real GDP to fall from Q₁ to Q₂,and the rate of unemployment to increase. 
B) the price level to move from P₁ to P₂,but real GDP would stay at Q₁. 
C) the price level to fall 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.

The rational expectations hypothesis argues that a monetary policy designed to stabilize the economy will succeed only when

If the economy is in a strong expansion and moved beyond its long-run equilibrium real national output,then the

Explain the rational expectations hypothesis.

New classical models of economics are often associated with

According to real business cycle theory,money

According to the real business cycle theory,an increase in an input price,such as oil,will

An unexpected increase in aggregate demand typically causes

According to the rational expectations hypothesis,an individual's view of future economic performance

The rational expectations hypothesis argues that a monetary policy designed to stabilize the economy will fail unless

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

What is meant by the natural rate of unemployment?

Figure 15-4 -In Figure 15-4,if initial equilibrium is at point C and there is an anticipated decrease in aggregate demand from A D₂ to A D₁ due to an anticipated decrease in the money supply,then

During the 1960s many Keynesian economists felt that,by studying the Phillips curve,

The notion that tax revenues initially increase with a higher tax rate but eventually decline as the tax rate increases is called

Real business cycle theory is an extension of

When workers and employers correctly anticipate the rate of inflation,

According to the new classical model,government fiscal and monetary policy changes are effective

An example of nondiscretionary policymaking is

Suppose the job market improved and workers didn't realize it.We would expect to observe

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

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

Exam 15: Issues in Stabilization Policy

The rational expectations hypothesis argues that a monetary policy designed to stabilize the economy will succeed only when

If the economy is in a strong expansion and moved beyond its long-run equilibrium real national output,then the

Explain the rational expectations hypothesis.

New classical models of economics are often associated with

According to real business cycle theory,money

According to the real business cycle theory,an increase in an input price,such as oil,will

An unexpected increase in aggregate demand typically causes

According to the rational expectations hypothesis,an individual's view of future economic performance

The rational expectations hypothesis argues that a monetary policy designed to stabilize the economy will fail unless

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

What is meant by the natural rate of unemployment?

Figure 15-4 -In Figure 15-4,if initial equilibrium is at point C and there is an anticipated decrease in aggregate demand from A D₂ to A D₁ due to an anticipated decrease in the money supply,then

During the 1960s many Keynesian economists felt that,by studying the Phillips curve,

The notion that tax revenues initially increase with a higher tax rate but eventually decline as the tax rate increases is called

Real business cycle theory is an extension of

When workers and employers correctly anticipate the rate of inflation,

According to the new classical model,government fiscal and monetary policy changes are effective

An example of nondiscretionary policymaking is

Suppose the job market improved and workers didn't realize it.We would expect to observe

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

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