Question 1

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 than if the public alters their expectations slowly in response to changes in government policy. 
C) be ineffective if the shift in aggregate demand is predictable. 
D) be 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 than if the public alters their expectations slowly in response to changes in government policy. 
C) be ineffective if the shift in aggregate demand is predictable. 
D) be all of the above.

Question 2

A smaller crowding-out effect:

Accepted Answer

A) increases the magnitude of a given fiscal policy's effect on unemployment in the long run and increases the magnitude of its effects on net exports. 
B) increases the magnitude of a given fiscal policy's effect on unemployment in the long run and decreases the magnitude of its effects on net exports. 
C) decreases the magnitude of a given fiscal policy's effect on unemployment in the long run and increases the magnitude of its effects on net exports. 
D) decreases the magnitude of a given fiscal policy's effect on unemployment in the long run and decreases the magnitude of its effects on net exports. 
E) does not affect the magnitude of a given fiscal policy's effect on unemployment in the long run. 
A) increases the magnitude of a given fiscal policy's effect on unemployment in the long run and increases the magnitude of its effects on net exports. 
B) increases the magnitude of a given fiscal policy's effect on unemployment in the long run and decreases the magnitude of its effects on net exports. 
C) decreases the magnitude of a given fiscal policy's effect on unemployment in the long run and increases the magnitude of its effects on net exports. 
D) decreases the magnitude of a given fiscal policy's effect on unemployment in the long run and decreases the magnitude of its effects on net exports. 
E) does not affect the magnitude of a given fiscal policy's effect on unemployment in the long run.

Question 3

Which of the following is true?

Accepted Answer

A) In 2007, the default rate on fixed rate mortgages was lower than that on ARMs. 
B) From 2006-2008, housing construction decreased by $350 billion in the U.S. 
C) Zero-down mortgages decreased the incentive for homeowners to prevent defaulting on their homes. 
D) all of the above 
A) In 2007, the default rate on fixed rate mortgages was lower than that on ARMs. 
B) From 2006-2008, housing construction decreased by $350 billion in the U.S. 
C) Zero-down mortgages decreased the incentive for homeowners to prevent defaulting on their homes. 
D) all of the above

Question 4

Which assumption is common to the real business cycle theory and the rational expectations model?

Accepted Answer

A) completely flexibility of wages and prices 
B) technological changes resulting in the growth rate of productivity 
C) unexpected changes in the money supply causing fluctuations in RGDP 
D) labor rates are inflexible downward 
A) completely flexibility of wages and prices 
B) technological changes resulting in the growth rate of productivity 
C) unexpected changes in the money supply causing fluctuations in RGDP 
D) labor rates are inflexible downward

Question 5

A larger crowding-out effect:

Accepted Answer

A) increases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effects on net exports. 
B) increases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effects on net exports. 
C) decreases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effects on net exports. 
D) decreases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effects on net exports. 
A) increases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effects on net exports. 
B) increases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effects on net exports. 
C) decreases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effects on net exports. 
D) decreases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effects on net exports.

Question 6

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Accepted Answer

A) will increase RGDP in the long run. 
B) will affect RGDP and inflation only in the long run. 
C) may affect RGDP but not nominal GDP. 
D) will tend to be offset by the actions of input suppliers as they react to their inflation expectations. 
A) will increase RGDP in the long run. 
B) will affect RGDP and inflation only in the long run. 
C) may affect RGDP but not nominal GDP. 
D) will tend to be offset by the actions of input suppliers as they react to their inflation expectations.

Question 7

Adjustable rate mortgages with extremely low initial interest rates which enable high risk buyers to purchase homes are known as:

Accepted Answer

A) upside down mortgages. 
B) ARMs. 
C) sub-prime loans. 
D) mortgage backed securities. 
A) upside down mortgages. 
B) ARMs. 
C) sub-prime loans. 
D) mortgage backed securities.

Question 8

Which of the following is true about time lags and fiscal policy?

Accepted Answer

A) Changes in federal taxes can be implemented easily by the President without the approval of Congress. 
B) Changes in fiscal policy that involves changes in government spending on public works projects do not involve significant time lags. 
C) Once an appropriate fiscal policy has been determined it can be implemented quickly. 
D) The lag time between when a fiscal policy is needed and when it is actually implemented is considerable. 
E) None of the above. 
A) Changes in federal taxes can be implemented easily by the President without the approval of Congress. 
B) Changes in fiscal policy that involves changes in government spending on public works projects do not involve significant time lags. 
C) Once an appropriate fiscal policy has been determined it can be implemented quickly. 
D) The lag time between when a fiscal policy is needed and when it is actually implemented is considerable. 
E) None of the above.

Question 9

The 2008 financial crisis was caused by the decline of real estate values as well as several other factors.

Accepted Answer

A) True 
 B)False

Question 10

Rule advocates believe that the central bank should target the inflation rate.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is false?

Accepted Answer

A) Expansionary fiscal policy will tend to cause net exports to fall. 
B) The larger the crowding out effect, the smaller the actual effect of a given change in fiscal policy. 
C) The crowding out effect does not occur with a tax change. 
D) Starting from an initial recession equilibrium, expansionary fiscal policy could potentially increase employment to the full employment level. 
E) Starting from an initial recession equilibrium, a government tax increase would tend to increase the severity of the recession. 
A) Expansionary fiscal policy will tend to cause net exports to fall. 
B) The larger the crowding out effect, the smaller the actual effect of a given change in fiscal policy. 
C) The crowding out effect does not occur with a tax change. 
D) Starting from an initial recession equilibrium, expansionary fiscal policy could potentially increase employment to the full employment level. 
E) Starting from an initial recession equilibrium, a government tax increase would tend to increase the severity of the recession.

Question 12

Why is indexing not commonly adopted in spite of the fact that it eliminates most of the wealth transfers associated with unexpected inflation?

Accepted Answer

Indexing is not frequently used because

Question 13

Figure 17-A  
-Refer to Figure 17-A.If an increase in aggregate demand AD0 to AD1 is fully anticipated, the economy will move from point A to point ____ in the short run.

Accepted Answer

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

Question 14

The intent of indexing is to:

Accepted Answer

A) reduce inflation gradually. 
B) shift the long-run Phillips curve to the right. 
C) take most of the sting out of inflation. 
D) raise tax revenue automatically during inflation. 
E) do all of the above. 
A) reduce inflation gradually. 
B) shift the long-run Phillips curve to the right. 
C) take most of the sting out of inflation. 
D) raise tax revenue automatically during inflation. 
E) do all of the above.

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

Rational expectations theory suggests that government or central bank policies designed to change aggregate demand will be effective.

Accepted Answer

A) True 
 B)False

Question 17

According to the rational expectation view, does the government have the ability to control the level of real output and unemployment?

Accepted Answer

A) Only in the SR if it makes unexpected changes in aggregate demand. 
B) Only in the SR if it announces plans well in advance, so that expectations are affected. 
C) Only in the LR if it shifts AS instead of AD. 
D) Only in the LR if it uses monetary policy instead of fiscal policy. 
A) Only in the SR if it makes unexpected changes in aggregate demand. 
B) Only in the SR if it announces plans well in advance, so that expectations are affected. 
C) Only in the LR if it shifts AS instead of AD. 
D) Only in the LR if it uses monetary policy instead of fiscal policy.

Question 18

After legislation is signed into law, the time it takes before actual fiscal stimulus is noticed is termed as:

Accepted Answer

A) signal lag. 
B) implementation lag. 
C) impact lag. 
D) recognition lag. 
A) signal lag. 
B) implementation lag. 
C) impact lag. 
D) recognition lag.

Question 19

According to rational expectations theory:

Accepted Answer

A) a large reduction in unemployment can be achieved with a relatively small increase in inflation. 
B) people are not easily fooled by changes in government fiscal policy. 
C) inflation rates that rise 3 percentage points each year will keep unemployment below its natural rate for a sustained period of time. 
D) the Phillips curve will slope downward to the right, if people correctly anticipate the inflation rate. 
E) none of the above is true. 
A) a large reduction in unemployment can be achieved with a relatively small increase in inflation. 
B) people are not easily fooled by changes in government fiscal policy. 
C) inflation rates that rise 3 percentage points each year will keep unemployment below its natural rate for a sustained period of time. 
D) the Phillips curve will slope downward to the right, if people correctly anticipate the inflation rate. 
E) none of the above is true.

Question 20

Which of the following statements is true with regard to the Fed's response to the economic crisis of 2008?

Accepted Answer

A) Although the Fed lowered its interest rates to nearly zero, there are other actions it can take to improve the economy. 
B) Because the Fed lowered its interest rates to nearly zero, there are no other actions it can take to improve the economy. 
C) Since the Fed did not lower its interest rates to near zero, there are still other actions it can take to improve the economy. 
D) none of the above 
A) Although the Fed lowered its interest rates to nearly zero, there are other actions it can take to improve the economy. 
B) Because the Fed lowered its interest rates to nearly zero, there are no other actions it can take to improve the economy. 
C) Since the Fed did not lower its interest rates to near zero, there are still other actions it can take to improve the economy. 
D) none of the above

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

A smaller crowding-out effect:

Which of the following is true?

Which assumption is common to the real business cycle theory and the rational expectations model?

A larger crowding-out effect:

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Adjustable rate mortgages with extremely low initial interest rates which enable high risk buyers to purchase homes are known as:

Which of the following is true about time lags and fiscal policy?

The 2008 financial crisis was caused by the decline of real estate values as well as several other factors.

Rule advocates believe that the central bank should target the inflation rate.

Which of the following is false?

Why is indexing not commonly adopted in spite of the fact that it eliminates most of the wealth transfers associated with unexpected inflation?

Figure 17-A -Refer to Figure 17-A.If an increase in aggregate demand AD₀ to AD₁ is fully anticipated, the economy will move from point A to point ____ in the short run.

The intent of indexing is to:

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

Rational expectations theory suggests that government or central bank policies designed to change aggregate demand will be effective.

According to the rational expectation view, does the government have the ability to control the level of real output and unemployment?

After legislation is signed into law, the time it takes before actual fiscal stimulus is noticed is termed as:

According to rational expectations theory:

Which of the following statements is true with regard to the Fed's response to the economic crisis of 2008?

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 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 System and Monetary Policy

International Economics

Filters

Exam 17: Issues in Macroeconomic Theory and Policy

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

A smaller crowding-out effect:

Which of the following is true?

Which assumption is common to the real business cycle theory and the rational expectations model?

A larger crowding-out effect:

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Adjustable rate mortgages with extremely low initial interest rates which enable high risk buyers to purchase homes are known as:

Which of the following is true about time lags and fiscal policy?

The 2008 financial crisis was caused by the decline of real estate values as well as several other factors.

Rule advocates believe that the central bank should target the inflation rate.

Which of the following is false?

Why is indexing not commonly adopted in spite of the fact that it eliminates most of the wealth transfers associated with unexpected inflation?

Figure 17-A -Refer to Figure 17-A.If an increase in aggregate demand AD0 to AD1 is fully anticipated, the economy will move from point A to point ____ in the short run.

The intent of indexing is to:

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

Rational expectations theory suggests that government or central bank policies designed to change aggregate demand will be effective.

According to the rational expectation view, does the government have the ability to control the level of real output and unemployment?

After legislation is signed into law, the time it takes before actual fiscal stimulus is noticed is termed as:

According to rational expectations theory:

Which of the following statements is true with regard to the Fed's response to the economic crisis of 2008?

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 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 System and Monetary Policy

International Economics

Filters

Figure 17-A -Refer to Figure 17-A.If an increase in aggregate demand AD₀ to AD₁ is fully anticipated, the economy will move from point A to point ____ in the short run.