Question 1

According to the rational expectations view, the government has the ability to control the level of real output and unemployment:

Accepted Answer

A) only in the short run if it makes unexpected changes in aggregate demand 
B) only in the short run if it announces policies well in advance so that expectations are affected 
C) only in the long run if it shifts aggregate supply instead of aggregate demand 
D) only in the long run if it uses monetary policy instead of fiscal policy 
E) only in the long run when the aggregate supply curve is vertical 
A) only in the short run if it makes unexpected changes in aggregate demand 
B) only in the short run if it announces policies well in advance so that expectations are affected 
C) only in the long run if it shifts aggregate supply instead of aggregate demand 
D) only in the long run if it uses monetary policy instead of fiscal policy 
E) only in the long run when the aggregate supply curve is vertical A

Question 2

It is easier to adopt an economic policy when a recession is caused by a supply shock rather than a demand shock.

Accepted Answer

A) True 
 B)False  False

Question 3

Can monetary policy be used to successfully fine-tune the economy?

Accepted Answer

Answers will vary. As a fine-tuning strategy, monetary policy is unlikely to be effective; there are too many other variables in the marketplace, and our predictive models are not accurate enough to forecasting the future of the economy.

Question 4

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

Accepted Answer

A) higher inflation and lower unemployment in the long run. 
B) higher inflation and higher unemployment in the short run. 
C) higher inflation and no change in unemployment in the short run. 
D) lower inflation and lower unemployment in the short run. 
E) higher inflation and higher unemployment in the long run. 
A) higher inflation and lower unemployment in the long run. 
B) higher inflation and higher unemployment in the short run. 
C) higher inflation and no change in unemployment in the short run. 
D) lower inflation and lower unemployment in the short run. 
E) higher inflation and higher unemployment in the long run.

Question 5

Expansionary fiscal policy, other things being equal, will tend to:

Accepted Answer

A) increase interest rates. 
B) increase private investment. 
C) increase net exports. 
D) increase consumer spending. 
E) increase the marginal propensity to consume. 
A) increase interest rates. 
B) increase private investment. 
C) increase net exports. 
D) increase consumer spending. 
E) increase the marginal propensity to consume.

Question 6

Which of the following is true?

Accepted Answer

A) When increased government purchases or expansionary monetary policy does give the economy a boost, no one knows precisely how long it will take to do so. 
B) Given the difficulties of timing stabilization policy, a contractionary monetary policy intended to reduce the severity of a recession may instead add inflationary pressures to an economy that is already overheating. 
C) If velocity changes but moves in a fairly predictable pattern, the connection between the money supply and GDP is still unpredictable. 
D) When the economy is operating at levels significantly lower than the full-employment output, input prices are flexible. 
E) Government estimates of the real GDP and the value of the multiplier are always correct. 
A) When increased government purchases or expansionary monetary policy does give the economy a boost, no one knows precisely how long it will take to do so. 
B) Given the difficulties of timing stabilization policy, a contractionary monetary policy intended to reduce the severity of a recession may instead add inflationary pressures to an economy that is already overheating. 
C) If velocity changes but moves in a fairly predictable pattern, the connection between the money supply and GDP is still unpredictable. 
D) When the economy is operating at levels significantly lower than the full-employment output, input prices are flexible. 
E) Government estimates of the real GDP and the value of the multiplier are always correct.

Question 7

Critics of inflation targeting argue that central banks need flexibility.

Accepted Answer

A) True 
 B)False

Question 8

The crowding-out effect:

Accepted Answer

A) increases the demand for money and increases private investment. 
B) increases the demand for money and increases consumption expenditure. 
C) increases the demand for money and decreases consumption expenditure. 
D) decreases the demand for money and increases private investment. 
E) decreases the demand for money and increases consumption expenditure. 
A) increases the demand for money and increases private investment. 
B) increases the demand for money and increases consumption expenditure. 
C) increases the demand for money and decreases consumption expenditure. 
D) decreases the demand for money and increases private investment. 
E) decreases the demand for money and increases consumption expenditure.

Question 9

Automatic stabilizers are not regarded as important fiscal policies.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is a problem associated with monetary policy?

Accepted Answer

A) The Fed cannot control deposit expansion at member banks. 
B) The Fed is not able to predict the impact of its monetary policies on the loans issued by member banks. 
C) The Fed is not able to predict the impact of its policies on the loans issued by global banks. 
D) Monetary policies are subject to excessive implementation lags. 
E) Monetary policies are subject to several governmental regulations. 
A) The Fed cannot control deposit expansion at member banks. 
B) The Fed is not able to predict the impact of its monetary policies on the loans issued by member banks. 
C) The Fed is not able to predict the impact of its policies on the loans issued by global banks. 
D) Monetary policies are subject to excessive implementation lags. 
E) Monetary policies are subject to several governmental regulations.

Question 11

The belief that workers and consumers incorporate the likely consequences of government policy changes into their expectations by quickly adjusting wages and prices is known as _____.

Accepted Answer

A) the theory of supply and demand 
B) the rational choice theory 
C) the prospect theory 
D) the new trade theory 
E) the theory of rational expectations 
A) the theory of supply and demand 
B) the rational choice theory 
C) the prospect theory 
D) the new trade theory 
E) the theory of rational expectations

Question 12

The Taylor rule is a complete discretionary policy.

Accepted Answer

A) True 
 B)False

Question 13

The crowding-out effect occurs when household consumption and investment spending increase as a result of a decrease in the demand for money.

Accepted Answer

A) True 
 B)False

Question 14

The problem of time lags in making policy changes is less acute for monetary policy than it is for fiscal policy.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Monetary policy is more effective at closing an expansionary gap than a recessionary gap because:

Accepted Answer

A) banks may be unwilling to lend and seeking more liquidity, thereby offsetting any expansionary policy. 
B) households and firms make situations worse by borrowing too much from the excess reserves. 
C) the implementation lag for an expansionary policy is longer than that for a contractionary policy. 
D) most expansionary monetary policies get delayed due to several governmental regulations. 
E) expansionary monetary policies aggravate the crowding-out effect that might render them ineffective. 
A) banks may be unwilling to lend and seeking more liquidity, thereby offsetting any expansionary policy. 
B) households and firms make situations worse by borrowing too much from the excess reserves. 
C) the implementation lag for an expansionary policy is longer than that for a contractionary policy. 
D) most expansionary monetary policies get delayed due to several governmental regulations. 
E) expansionary monetary policies aggravate the crowding-out effect that might render them ineffective.

Question 17

Which of the following was believed to have started the global economic crisis of 2008?

Accepted Answer

A) The absence of depositor insurance 
B) Excessive transfer payments made by the government 
C) A sudden and sharp increase in oil prices 
D) Lack of financial aids to banks 
E) A sudden fall in housing prices 
A) The absence of depositor insurance 
B) Excessive transfer payments made by the government 
C) A sudden and sharp increase in oil prices 
D) Lack of financial aids to banks 
E) A sudden fall in housing prices

Question 18

The crowding-out effect:

Accepted Answer

A) increases interest rates and decreases private investment. 
B) decreases both interest rates and decreases private investment. 
C) increases both interest rates and private investment. 
D) increases both interest rates and consumption expenditure. 
E) decreases interest rates and increases consumption expenditure. 
A) increases interest rates and decreases private investment. 
B) decreases both interest rates and decreases private investment. 
C) increases both interest rates and private investment. 
D) increases both interest rates and consumption expenditure. 
E) decreases interest rates and increases consumption expenditure.

Question 19

The financial crisis of 2008-2009 led to a decline in confidence and a credit crunch in the U.S. economy.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following would cause the U.S. money supply to expand?

Accepted Answer

A) A commercial bank using excess reserves to extend a loan to a customer 
B) A commercial bank purchasing U.S. securities from the Fed as an investment 
C) An increase in reserve requirements by the Fed 
D) An increase in the discount rate by the Fed 
E) An increase in the tax rate by the government 
A) A commercial bank using excess reserves to extend a loan to a customer 
B) A commercial bank purchasing U.S. securities from the Fed as an investment 
C) An increase in reserve requirements by the Fed 
D) An increase in the discount rate by the Fed 
E) An increase in the tax rate by the government

According to the rational expectations view, the government has the ability to control the level of real output and unemployment:

It is easier to adopt an economic policy when a recession is caused by a supply shock rather than a demand shock.

Can monetary policy be used to successfully fine-tune the economy?

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

Expansionary fiscal policy, other things being equal, will tend to:

Which of the following is true?

Critics of inflation targeting argue that central banks need flexibility.

The crowding-out effect:

Automatic stabilizers are not regarded as important fiscal policies.

Which of the following is a problem associated with monetary policy?

The belief that workers and consumers incorporate the likely consequences of government policy changes into their expectations by quickly adjusting wages and prices is known as _____.

The Taylor rule is a complete discretionary policy.

The crowding-out effect occurs when household consumption and investment spending increase as a result of a decrease in the demand for money.

The problem of time lags in making policy changes is less acute for monetary policy than it is for fiscal policy.

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.

Monetary policy is more effective at closing an expansionary gap than a recessionary gap because:

Which of the following was believed to have started the global economic crisis of 2008?

The crowding-out effect:

The financial crisis of 2008-2009 led to a decline in confidence and a credit crunch in the U.S. economy.

Which of the following would cause the U.S. money supply to expand?

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Firms in Perfectly Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

Monetary Institutions

The Federal Reserve and Monetary Policy

International Economics

Filters

Exam 17: Issues in Macroeconomic Theory and Policy

According to the rational expectations view, the government has the ability to control the level of real output and unemployment:

It is easier to adopt an economic policy when a recession is caused by a supply shock rather than a demand shock.

Can monetary policy be used to successfully fine-tune the economy?

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

Expansionary fiscal policy, other things being equal, will tend to:

Which of the following is true?

Critics of inflation targeting argue that central banks need flexibility.

The crowding-out effect:

Automatic stabilizers are not regarded as important fiscal policies.

Which of the following is a problem associated with monetary policy?

The belief that workers and consumers incorporate the likely consequences of government policy changes into their expectations by quickly adjusting wages and prices is known as _____.

The Taylor rule is a complete discretionary policy.

The crowding-out effect occurs when household consumption and investment spending increase as a result of a decrease in the demand for money.

The problem of time lags in making policy changes is less acute for monetary policy than it is for fiscal policy.

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.

Monetary policy is more effective at closing an expansionary gap than a recessionary gap because:

Which of the following was believed to have started the global economic crisis of 2008?

The crowding-out effect:

The financial crisis of 2008-2009 led to a decline in confidence and a credit crunch in the U.S. economy.

Which of the following would cause the U.S. money supply to expand?

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Firms in Perfectly Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

Monetary Institutions

The Federal Reserve and Monetary Policy

International Economics

Filters