Question 1

What is the name commonly given to the situation in which inflation is up and real GDP is down?

Accepted Answer

A) Stagflation 
B) Reinflation 
C) Disinflation 
D) Backward recession 
E) None of these 
A) Stagflation 
B) Reinflation 
C) Disinflation 
D) Backward recession 
E) None of these A

Question 2

During the early 1980s the Federal Reserve increased the target rate of inflation.

Accepted Answer

A) True 
 B)False  False

Question 3

The head of the Federal Reserve from 1979 through 1987 was

Accepted Answer

A) Alan Greenspan. 
B) Ben Bernanke. 
C) Paul Volcker. 
D) Robert Lucas. 
E) Milton Friedman. 
A) Alan Greenspan. 
B) Ben Bernanke. 
C) Paul Volcker. 
D) Robert Lucas. 
E) Milton Friedman. C

Question 4

The inflationary experience of the United States during the 1970s can be interpreted as a time when the Fed increased the target rate of inflation.

Accepted Answer

A) True 
 B)False

Question 5

Between 1929 and 1933 real GDP declined

Accepted Answer

A) 3.5 percent. 
B) 35 percent. 
C) 10 percent. 
D) 23 percent. 
E) 2.3 percent. 
A) 3.5 percent. 
B) 35 percent. 
C) 10 percent. 
D) 23 percent. 
E) 2.3 percent.

Question 6

If government purchases change,which variable is fixed in the short run as a result of the change?

Accepted Answer

A) Saving 
B) All of these 
C) Consumption 
D) Net exports 
E) Inflation 
A) Saving 
B) All of these 
C) Consumption 
D) Net exports 
E) Inflation

Question 7

Why do net exports increase when government purchases decline?

Accepted Answer

The fall in income reduces imp

Question 8

The economic fluctuations model is used by economists to determine the path the economy takes after a shift in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 9

The long-run effect of an increase in oil prices is a

Accepted Answer

A) fall in potential GDP. 
B) lengthy recession until circumstances change and the aggregate demand curve shifts to the right. 
C) permanent increase in inflation. 
D) lengthy recession until the Fed changes monetary policy and the aggregate demand curve shifts to the right. 
E) downward movement of the inflation adjustment line until the rate of inflation returns to the baseline rate. 
A) fall in potential GDP. 
B) lengthy recession until circumstances change and the aggregate demand curve shifts to the right. 
C) permanent increase in inflation. 
D) lengthy recession until the Fed changes monetary policy and the aggregate demand curve shifts to the right. 
E) downward movement of the inflation adjustment line until the rate of inflation returns to the baseline rate.

Question 10

Exhibit 25-1  
-Suppose the economy is initially at point A in Exhibit 25-1.If government purchases increase,which point best depicts where the economy will be in the short run as a result of the change in spending?

Accepted Answer

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

Question 11

A fall in the overall price level is called

Accepted Answer

A) a price shock. 
B) reinflation. 
C) a recession. 
D) deflation. 
E) disinflation. 
A) a price shock. 
B) reinflation. 
C) a recession. 
D) deflation. 
E) disinflation.

Question 12

Which of the following would be a direct result of real GDP being above potential GDP?

Accepted Answer

A) Firms would raise their prices and there would be a subsequent rise in inflation. 
B) Firms would lower their prices and there would be a subsequent decrease in inflation. 
C) Government spending would decline. 
D) None of the above would be a result. 
E) Real GDP can never be above potential GDP. 
A) Firms would raise their prices and there would be a subsequent rise in inflation. 
B) Firms would lower their prices and there would be a subsequent decrease in inflation. 
C) Government spending would decline. 
D) None of the above would be a result. 
E) Real GDP can never be above potential GDP.

Question 13

The long-run effect of a decrease in government purchases can be described as the period of time when

Accepted Answer

A) the inflation adjustment line intersects the aggregate demand curve at the level of potential GDP. 
B) firms are adjusting their prices and inflation is increasing to its new level. 
C) real GDP is below potential GDP. 
D) there is no spending balance. 
E) firms are adjusting their prices and inflation is decreasing to its new level. 
A) the inflation adjustment line intersects the aggregate demand curve at the level of potential GDP. 
B) firms are adjusting their prices and inflation is increasing to its new level. 
C) real GDP is below potential GDP. 
D) there is no spending balance. 
E) firms are adjusting their prices and inflation is decreasing to its new level.

Question 14

A price shock is

Accepted Answer

A) a shift in the aggregate demand curve. 
B) the same as a demand shock. 
C) a change in potential GDP. 
D) the same as a supply shock. 
E) a shift in the inflation adjustment line. 
A) a shift in the aggregate demand curve. 
B) the same as a demand shock. 
C) a change in potential GDP. 
D) the same as a supply shock. 
E) a shift in the inflation adjustment line.

Question 15

Why is the Great Depression,even though it occurred over 70 years ago,a valid topic in macroeconomics?
What explanations are offered as to what caused the Great Depression?
What caused the end of the Great Depression?

Accepted Answer

Over one-third of the nation's income wa

Question 16

A price shock causes the AD curve to shift.

Accepted Answer

A) True 
 B)False

Question 17

The short-run effect of an oil price increase is

Accepted Answer

A) an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed raises interest rates. 
B) an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed lowers the target inflation rate. 
C) an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as spending falls. 
D) a downward shift of the inflation adjustment line. 
E) an upward shift of the inflation adjustment line. 
A) an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed raises interest rates. 
B) an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed lowers the target inflation rate. 
C) an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as spending falls. 
D) a downward shift of the inflation adjustment line. 
E) an upward shift of the inflation adjustment line.

Question 18

If ever real GDP is above potential real GDP,the inflation adjustment line (IA)must

Accepted Answer

A) remain the same,as this represents a movement along the IA line. 
B) shift upward. 
C) shift downward. 
D) That could never happen. 
E) None of these 
A) remain the same,as this represents a movement along the IA line. 
B) shift upward. 
C) shift downward. 
D) That could never happen. 
E) None of these

Question 19

Suppose that,at any given level of income,people decide to import more.
(A)Using the aggregate demand curve and the inflation adjustment line,describe how this affects real GDP,consumption,investment,net exports,interest rates,and inflation in the short run,the medium run,and the long run.Provide an economic explanation of your results.Assume the economy is initially at the point of long-run equilibrium.
(B)Now,suppose the central bank wants to revert to the inflation rate that prevailed prior to the increase in import spending.How can it achieve its objective? Describe the short-run,medium-run,and long-run effects of its policy on real GDP and inflation.

Accepted Answer

(A) Initially the economy is at point I

Question 20

An increase in the target inflation rate by the central bank is referred to as

Accepted Answer

A) disinflation. 
B) deflation. 
C) reinflation. 
D) accommodation. 
E) stagflation. 
A) disinflation. 
B) deflation. 
C) reinflation. 
D) accommodation. 
E) stagflation.

Exam 25: Using the Economic Fluctuations Model

What is the name commonly given to the situation in which inflation is up and real GDP is down?

During the early 1980s the Federal Reserve increased the target rate of inflation.

The head of the Federal Reserve from 1979 through 1987 was

The inflationary experience of the United States during the 1970s can be interpreted as a time when the Fed increased the target rate of inflation.

Between 1929 and 1933 real GDP declined

If government purchases change,which variable is fixed in the short run as a result of the change?

Why do net exports increase when government purchases decline?

The economic fluctuations model is used by economists to determine the path the economy takes after a shift in aggregate demand.

The long-run effect of an increase in oil prices is a

Exhibit 25-1 -Suppose the economy is initially at point A in Exhibit 25-1.If government purchases increase,which point best depicts where the economy will be in the short run as a result of the change in spending?

A fall in the overall price level is called

Which of the following would be a direct result of real GDP being above potential GDP?

The long-run effect of a decrease in government purchases can be described as the period of time when

A price shock is

Why is the Great Depression,even though it occurred over 70 years ago,a valid topic in macroeconomics? What explanations are offered as to what caused the Great Depression? What caused the end of the Great Depression?

A price shock causes the AD curve to shift.

The short-run effect of an oil price increase is

If ever real GDP is above potential real GDP,the inflation adjustment line (IA)must

An increase in the target inflation rate by the central bank is referred to as

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, transfers, and Income Distribution

Public Goods, externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth and Globalization

International Trade

International Finance

Reading,understanding,and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Present Discounted Value

The Miracle of Compound Growth

Deriving the Growth Accounting Formula

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

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