Question 1

The long-run effect of a change in expenditures occurs when

Accepted Answer

A) a spending balance is achieved. 
B) the recovery period begins. 
C) interest rates begin to adjust. 
D) real GDP is nearly back to equaling potential GDP. 
E) the AD line intersects the IA line. 
A) a spending balance is achieved. 
B) the recovery period begins. 
C) interest rates begin to adjust. 
D) real GDP is nearly back to equaling potential GDP. 
E) the AD line intersects the IA line.

Question 2

If real GDP is below potential GDP,

Accepted Answer

A) long-run equilibrium will be achieved once the aggregate demand curve shifts to the right. 
B) the economy is in a short-run equilibrium. 
C) long-run equilibrium will be achieved once inflation has stopped declining. 
D) the economy is in a medium-run equilibrium. 
E) long-run equilibrium will be achieved once prices have stopped declining. 
A) long-run equilibrium will be achieved once the aggregate demand curve shifts to the right. 
B) the economy is in a short-run equilibrium. 
C) long-run equilibrium will be achieved once inflation has stopped declining. 
D) the economy is in a medium-run equilibrium. 
E) long-run equilibrium will be achieved once prices have stopped declining.

Question 3

In the short run,when government purchases fall,income and hence consumption fall,so

Accepted Answer

A) real GDP falls by more than the fall in government purchases. 
B) both real GDP and potential GDP fall by the same amount as the fall in government purchases. 
C) real GDP falls by the same amount as the fall in government purchases. 
D) real GDP falls by less than the fall in government purchases. 
E) both real GDP and potential GDP fall by more than the fall in government purchases. 
A) real GDP falls by more than the fall in government purchases. 
B) both real GDP and potential GDP fall by the same amount as the fall in government purchases. 
C) real GDP falls by the same amount as the fall in government purchases. 
D) real GDP falls by less than the fall in government purchases. 
E) both real GDP and potential GDP fall by more than the fall in government purchases.

Question 4

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 medium 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 5

A sharp increase in oil prices will result in

Accepted Answer

A) a deflation. 
B) a decline in potential GDP. 
C) stagflation. 
D) disinflation. 
E) hyperinflation. 
A) a deflation. 
B) a decline in potential GDP. 
C) stagflation. 
D) disinflation. 
E) hyperinflation.

Question 6

Which of the following was not a factor that led to the recession that began at the end of 2007?

Accepted Answer

A) Commodity price inflation. 
B) Increased government expenditure due to a war. 
C) Financial crisis. 
D) Collapse of the housing bubble. 
E) Stock market collapse. 
A) Commodity price inflation. 
B) Increased government expenditure due to a war. 
C) Financial crisis. 
D) Collapse of the housing bubble. 
E) Stock market collapse.

Question 7

What is the difference between deflation and disinflation?

Accepted Answer

A) Deflation is used in microeconomics,whereas disinflation is used in macroeconomics. 
B) Deflation refers to changes in expected inflation,while disinflation refers to changes in the actual rate of inflation. 
C) Deflation refers to a decrease in the overall price level,or negative inflation,while disinflation simply refers to a decrease in the inflation rate. 
D) There is no difference between these two concepts; they are synonyms. 
A) Deflation is used in microeconomics,whereas disinflation is used in macroeconomics. 
B) Deflation refers to changes in expected inflation,while disinflation refers to changes in the actual rate of inflation. 
C) Deflation refers to a decrease in the overall price level,or negative inflation,while disinflation simply refers to a decrease in the inflation rate. 
D) There is no difference between these two concepts; they are synonyms.

Question 8

In economics,the short run is an expression used to describe events that take at least two to three weeks to unfold.

Accepted Answer

A) True 
 B)False

Question 9

Suppose,for a certain economy,real and potential GDP are initially equal.Then government purchases permanently increase.Compared to the baseline,we would expect to see,in the long run,

Accepted Answer

A) an increase in consumption,a decrease in net exports,and no change in investment. 
B) no change in consumption,investment,or net exports. 
C) no change in consumption and a decrease in both net exports and investment. 
D) a decrease in the sum of consumption,investment,and net exports. 
E) an increase in consumption,a decrease in investment,and a decrease in net exports. 
A) an increase in consumption,a decrease in net exports,and no change in investment. 
B) no change in consumption,investment,or net exports. 
C) no change in consumption and a decrease in both net exports and investment. 
D) a decrease in the sum of consumption,investment,and net exports. 
E) an increase in consumption,a decrease in investment,and a decrease in net exports.

Question 10

Stagflation refers to the situation in which inflation is up and real GDP is down.

Accepted Answer

A) True 
 B)False

Question 11

The long-run effects of an increase in government purchases are that interest rates will ____,inflation will ____,and real GDP will ____.

Accepted Answer

A) decrease; decrease; remain unchanged 
B) increase; increase; remain unchanged 
C) remain unchanged; increase; remain unchanged 
D) increase; increase; increase 
E) decrease; increase; remain unchanged 
A) decrease; decrease; remain unchanged 
B) increase; increase; remain unchanged 
C) remain unchanged; increase; remain unchanged 
D) increase; increase; increase 
E) decrease; increase; remain unchanged

Question 12

All of the inflation that occurred in the 1970s can be explained by reinflation policies.

Accepted Answer

A) True 
 B)False

Question 13

If the Fed raises interest rates because it believes inflation is too high,this may cause a recession.

Accepted Answer

A) True 
 B)False

Question 14

During the period known as the Volcker disinflation

Accepted Answer

A) the unemployment rate rose to 10.8 percent. 
B) real GDP fell below potential GDP. 
C) investment and net exports declined. 
D) the real interest rate rose. 
E) All of these 
A) the unemployment rate rose to 10.8 percent. 
B) real GDP fell below potential GDP. 
C) investment and net exports declined. 
D) the real interest rate rose. 
E) All of these

Question 15

The recession in the United States during the period 2007-09 are best explained by changes in fiscal policy.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is the best definition of disinflation?

Accepted Answer

A) A reduction in the inflation rate 
B) A reduction in the overall price level of the economy 
C) A surprisingly high rate of inflation 
D) None of these 
A) A reduction in the inflation rate 
B) A reduction in the overall price level of the economy 
C) A surprisingly high rate of inflation 
D) None of these

Question 17

Discuss the difference in the short-run and long-run effects of a decrease in government purchases and a monetary policy change designed to lower inflation.Comment specifically on the four components of aggregate demand,interest rates,and inflation.

Accepted Answer

If government purchases decrease,the AD

Question 18

In the long run,a price shock results in

Accepted Answer

A) an inflation rate greater than the baseline. 
B) an inflation rate the same as the baseline. 
C) an inflation rate lower than the baseline. 
D) a permanent decline in potential GDP. 
E) real GDP being less than potential GDP. 
A) an inflation rate greater than the baseline. 
B) an inflation rate the same as the baseline. 
C) an inflation rate lower than the baseline. 
D) a permanent decline in potential GDP. 
E) real GDP being less than potential GDP.

Question 19

Recent economic fluctuations in the U.S.economy are best explained by

Accepted Answer

A) shifts of the aggregate demand curve. 
B) changes in potential GDP. 
C) shifts of the inflation adjustment line. 
D) price shocks. 
E) changes in aggregate supply. 
A) shifts of the aggregate demand curve. 
B) changes in potential GDP. 
C) shifts of the inflation adjustment line. 
D) price shocks. 
E) changes in aggregate supply.

Question 20

Assume that real and potential GDP are initially equal.If government purchases permanently increase,we would expect that in the short run

Accepted Answer

A) consumption and investment will be higher than baseline,and net exports will be lower. 
B) consumption will be higher than baseline,and net exports and investment will be the same. 
C) consumption,investment,and net exports will be higher than baseline. 
D) consumption and net exports will be higher than baseline,and investment will be the same. 
E) consumption will be higher than baseline,net exports will be lower,and investment will be the same. 
A) consumption and investment will be higher than baseline,and net exports will be lower. 
B) consumption will be higher than baseline,and net exports and investment will be the same. 
C) consumption,investment,and net exports will be higher than baseline. 
D) consumption and net exports will be higher than baseline,and investment will be the same. 
E) consumption will be higher than baseline,net exports will be lower,and investment will be the same.

Exam 25: Using the Economic Fluctuations Model

The long-run effect of a change in expenditures occurs when

If real GDP is below potential GDP,

In the short run,when government purchases fall,income and hence consumption fall,so

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 medium run as a result of the change in spending?

A sharp increase in oil prices will result in

Which of the following was not a factor that led to the recession that began at the end of 2007?

What is the difference between deflation and disinflation?

In economics,the short run is an expression used to describe events that take at least two to three weeks to unfold.

Suppose,for a certain economy,real and potential GDP are initially equal.Then government purchases permanently increase.Compared to the baseline,we would expect to see,in the long run,

Stagflation refers to the situation in which inflation is up and real GDP is down.

The long-run effects of an increase in government purchases are that interest rates will ____,inflation will ____,and real GDP will ____.

All of the inflation that occurred in the 1970s can be explained by reinflation policies.

If the Fed raises interest rates because it believes inflation is too high,this may cause a recession.

During the period known as the Volcker disinflation

The recession in the United States during the period 2007-09 are best explained by changes in fiscal policy.

Which of the following is the best definition of disinflation?

Discuss the difference in the short-run and long-run effects of a decrease in government purchases and a monetary policy change designed to lower inflation.Comment specifically on the four components of aggregate demand,interest rates,and inflation.

In the long run,a price shock results in

Recent economic fluctuations in the U.S.economy are best explained by

Assume that real and potential GDP are initially equal.If government purchases permanently increase,we would expect that in the short run

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

Filters

The long-run effects of an increase in government purchases are that interest rates will ,inflation will ,and real GDP will .