Question 1

When the Volcker disinflation began,

Accepted Answer

A) the rate of inflation rose to over 20 percent. 
B) the rate of inflation fell to 1 percent. 
C) the federal funds rate had risen above 20 percent. 
D) the federal funds rate fell to 2 percent. 
E) the rate of inflation became negative. 
A) the rate of inflation rose to over 20 percent. 
B) the rate of inflation fell to 1 percent. 
C) the federal funds rate had risen above 20 percent. 
D) the federal funds rate fell to 2 percent. 
E) the rate of inflation became negative.

Question 2

Disinflation refers to a situation in which the overall price level falls.

Accepted Answer

A) True 
 B)False

Question 3

Changes in monetary policy can immediately affect the inflation rate in the economy.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Suppose the central bank lowers its target inflation rate from 3 percent to 1.5 percent.Use the aggregate demand/inflation curve and the price adjustment line to show the short-run,medium-run,and long-run effects of this policy change.Assume the economy is initially at the point of long-run equilibrium.

Accepted Answer

The real rate of interest will rise beca

Question 6

If real GDP stays below potential GDP,

Accepted Answer

A) the AD curve will begin to shift to the left. 
B) the IA line will shift down. 
C) potential GDP will decline. 
D) the IA line will shift up. 
E) the AD curve will begin to shift to the right. 
A) the AD curve will begin to shift to the left. 
B) the IA line will shift down. 
C) potential GDP will decline. 
D) the IA line will shift up. 
E) the AD curve will begin to shift to the right.

Question 7

Suppose government purchases have decreased.Which of the following is true?

Accepted Answer

A) If inflation is lower in the new equilibrium,the Fed has allowed the target rate of inflation to drift up. 
B) If inflation is constant in the new equilibrium,the Fed has decreased the target rate of inflation. 
C) If inflation is lower in the new equilibrium,the Fed has allowed the target rate of inflation to drift down. 
D) If inflation is lower in the new equilibrium,there has been no change in the target rate of inflation. 
E) If inflation is constant in the new equilibrium,the Fed has increased the target rate of inflation. 
A) If inflation is lower in the new equilibrium,the Fed has allowed the target rate of inflation to drift up. 
B) If inflation is constant in the new equilibrium,the Fed has decreased the target rate of inflation. 
C) If inflation is lower in the new equilibrium,the Fed has allowed the target rate of inflation to drift down. 
D) If inflation is lower in the new equilibrium,there has been no change in the target rate of inflation. 
E) If inflation is constant in the new equilibrium,the Fed has increased the target rate of inflation.

Question 8

Suppose government purchases have decreased and the economy has reached a new long-run equilibrium.Which of the following best describes the new equilibrium?

Accepted Answer

A) Nothing has changed because real GDP is again equal to potential GDP. 
B) Consumers are better off because taxes are lower. 
C) The economy is growing more rapidly because investment is higher. 
D) The economy is better off because consumption is higher. 
E) The economy is growing more slowly because consumption is higher. 
A) Nothing has changed because real GDP is again equal to potential GDP. 
B) Consumers are better off because taxes are lower. 
C) The economy is growing more rapidly because investment is higher. 
D) The economy is better off because consumption is higher. 
E) The economy is growing more slowly because consumption is higher.

Question 9

Which of the following would lead to lower inflation in the long run?

Accepted Answer

A) An increase in business confidence 
B) An increase in government spending 
C) An increase in oil prices 
D) A decrease in imports 
E) A decrease in consumer confidence 
A) An increase in business confidence 
B) An increase in government spending 
C) An increase in oil prices 
D) A decrease in imports 
E) A decrease in consumer confidence

Question 10

Disinflation most likely occurs when

Accepted Answer

A) output grows at an increasing rate over time.. 
B) output grows at a decreasing rate over time. 
C) output growth becomes negative. 
D) the overall price level declines over time. 
E) the overall price level is negative. 
A) output grows at an increasing rate over time.. 
B) output grows at a decreasing rate over time. 
C) output growth becomes negative. 
D) the overall price level declines over time. 
E) the overall price level is negative.

Question 11

Explain how two shifts in the aggregate demand curve help explain economic fluctuations in the United States from early 2000s through early 2009.

Accepted Answer

The rapid increase in housing prices dur

Question 12

What is the difference between a price shock and a supply shock?

Accepted Answer

A price shock arises from a sh

Question 13

Explain why the Fed would ever pursue a policy to cause reinflation.

Accepted Answer

It seems unlikely the Fed would willingl

Question 14

The medium run is usually

Accepted Answer

A) two to three years. 
B) four to five years. 
C) more than five years. 
D) one-half to one year. 
E) one year. 
A) two to three years. 
B) four to five years. 
C) more than five years. 
D) one-half to one year. 
E) one year.

Question 15

According to the economic fluctuations model,what would happen if real GDP went above potential GDP?

Accepted Answer

This situation is sometimes known as an

Question 16

A price shock occurs when

Accepted Answer

A) the monetary policy rule changes. 
B) the Fed acts to raise interest rates. 
C) the spending balance changes. 
D) key commodity prices change. 
E) the AD curve shifts to the right. 
A) the monetary policy rule changes. 
B) the Fed acts to raise interest rates. 
C) the spending balance changes. 
D) key commodity prices change. 
E) the AD curve shifts to the right.

Question 17

Suppose the Fed engages in a policy to reduce the inflation rate for any given level of real GDP.This would be depicted by a(n)

Accepted Answer

A) downward movement along the monetary policy line. 
B) leftward shift of the monetary policy line. 
C) upward movement along the monetary policy line. 
D) rightward shift of the monetary policy line. 
E) rightward shift of the AD curve. 
A) downward movement along the monetary policy line. 
B) leftward shift of the monetary policy line. 
C) upward movement along the monetary policy line. 
D) rightward shift of the monetary policy line. 
E) rightward shift of the AD curve.

Question 18

A decrease in government purchases causes the interest-sensitive components of GDP to increase in the long run.

Accepted Answer

A) True 
 B)False

Question 19

Between 1979 and 1985 the rate of inflation

Accepted Answer

A) fell from over 20 percent to around 2 percent. 
B) rose from around 2 percent to over 20 percent. 
C) remained constant. 
D) fell from over 10 percent to around 4 percent. 
E) rose from around 4 percent to over 10 percent. 
A) fell from over 20 percent to around 2 percent. 
B) rose from around 2 percent to over 20 percent. 
C) remained constant. 
D) fell from over 10 percent to around 4 percent. 
E) rose from around 4 percent to over 10 percent.

Question 20

The most recent recession of the United States occurred

Accepted Answer

A) between 2001 and 2006. 
B) between the end of 2007 and the middle of 2009. 
C) between 2005 and the present. 
D) between 1929 and 1933. 
E) in 2001. 
A) between 2001 and 2006. 
B) between the end of 2007 and the middle of 2009. 
C) between 2005 and the present. 
D) between 1929 and 1933. 
E) in 2001.

Exam 25: Using the Economic Fluctuations Model

When the Volcker disinflation began,

Disinflation refers to a situation in which the overall price level falls.

Changes in monetary policy can immediately affect the inflation rate in the economy.

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

If real GDP stays below potential GDP,

Suppose government purchases have decreased.Which of the following is true?

Suppose government purchases have decreased and the economy has reached a new long-run equilibrium.Which of the following best describes the new equilibrium?

Which of the following would lead to lower inflation in the long run?

Disinflation most likely occurs when

Explain how two shifts in the aggregate demand curve help explain economic fluctuations in the United States from early 2000s through early 2009.

What is the difference between a price shock and a supply shock?

Explain why the Fed would ever pursue a policy to cause reinflation.

The medium run is usually

According to the economic fluctuations model,what would happen if real GDP went above potential GDP?

A price shock occurs when

Suppose the Fed engages in a policy to reduce the inflation rate for any given level of real GDP.This would be depicted by a(n)

A decrease in government purchases causes the interest-sensitive components of GDP to increase in the long run.

Between 1979 and 1985 the rate of inflation

The most recent recession of the United States occurred

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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