Question 1

Interest rates typically rise prior to a recession.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

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

Question 3

A price shock causes movement along the monetary policy rule line.

Accepted Answer

A) True 
 B)False

Question 4

In 2008,stock markets in the United States and worldwide registered

Accepted Answer

A) increases of 30-50%. 
B) decreases of 30-50%. 
C) decreases of 5-10%. 
D) increases of 5-10%. 
E) decreases of over 100%. 
A) increases of 30-50%. 
B) decreases of 30-50%. 
C) decreases of 5-10%. 
D) increases of 5-10%. 
E) decreases of over 100%.

Question 5

The long-run effect of increased government purchases is crowding out.

Accepted Answer

A) True 
 B)False

Question 6

In the late 1960s and 1970s inflation decreased around the world.

Accepted Answer

A) True 
 B)False

Question 7

Suppose,for some hypothetical economy,an electric storm causes 90 percent of the CPU chips in the economy to become useless.Trace out the macroeconomic consequence of this phenomenon.Does this event result in stagflation? Why?

Accepted Answer

This will cause a supply shock.Potential

Question 8

Explain what effect a monetary policy designed to bring about disinflation would have on the economy.Be sure to discuss what happens in the short run,the medium run,and the long run.

Accepted Answer

The short-run effect is for the monetary

Question 9

Suppose the economy is initially at potential GDP.
(A)Draw an aggregate demand curve and price adjustment line,and label the initial equilibrium with an A.
(B)Suppose government purchases increase.Illustrate the short-run effect on your diagram.Label the new equilibrium with a B.
(C)Explain the short-run effect on C,I,G,X,R,and inflation,as compared to baseline.
(D)Illustrate the long-run effect on your diagram,and label the long-run equilibrium with a C.
(E)Explain the long-run effect on C,I,G,X,R,and inflation,as compared to baseline.

Accepted Answer

(A) See graph below. @#IMG-DLM& (B) See graph abov

Question 10

In the economic fluctuations model,the so-called short run normally refers to

Accepted Answer

A) the first couple of days after a shock to aggregate demand. 
B) the first month after a shock to aggregate demand. 
C) the initial departure of real GDP from potential GDP after a shock to aggregate demand. 
D) the time it takes for a full recovery to take place after a shock to aggregate demand. 
E) None of these 
A) the first couple of days after a shock to aggregate demand. 
B) the first month after a shock to aggregate demand. 
C) the initial departure of real GDP from potential GDP after a shock to aggregate demand. 
D) the time it takes for a full recovery to take place after a shock to aggregate demand. 
E) None of these

Question 11

A temporary growth slowdown results in a

Accepted Answer

A) disinflation. 
B) deflation. 
C) boom. 
D) fall in the price level. 
E) recession. 
A) disinflation. 
B) deflation. 
C) boom. 
D) fall in the price level. 
E) recession.

Question 12

The initial response of real GDP to a change in aggregate spending is referred to as

Accepted Answer

A) a depression. 
B) a boom. 
C) a recession. 
D) the short run. 
E) a recovery. 
A) a depression. 
B) a boom. 
C) a recession. 
D) the short run. 
E) a recovery.

Question 13

In a diagram that includes both the IA line and the AD curve,the price adjustment resulting from an increase in spending is shown by

Accepted Answer

A) the AD curve shifting to the left. 
B) the AD curve shifting to the right. 
C) the IA line shifting down. 
D) the IA line shifting up. 
E) the movement along the IA line. 
A) the AD curve shifting to the left. 
B) the AD curve shifting to the right. 
C) the IA line shifting down. 
D) the IA line shifting up. 
E) the movement along the IA line.

Question 14

Among the factors that might have led to the outbreak of the 2007-09 recession,which most likely caused a shift of the IA line instead of the AD curve?

Accepted Answer

A) Sharp increases in commodity prices. 
B) Credit crunch. 
C) Financial crisis. 
D) Collapse of the housing bubble. 
E) Stock market collapse. 
A) Sharp increases in commodity prices. 
B) Credit crunch. 
C) Financial crisis. 
D) Collapse of the housing bubble. 
E) Stock market collapse.

Question 15

A supply shock is exactly the opposite of a price shock.

Accepted Answer

A) True 
 B)False

Question 16

Compared to the baseline,the short-run effect of a monetary policy change to lower inflation is for

Accepted Answer

A) consumption and net exports to decline,while investment stays constant. 
B) consumption,investment,net exports,and government purchases to decline. 
C) consumption,investment,and net exports to decline. 
D) consumption and investment to decline while net exports increase. 
E) consumption and net exports to increase while investment falls. 
A) consumption and net exports to decline,while investment stays constant. 
B) consumption,investment,net exports,and government purchases to decline. 
C) consumption,investment,and net exports to decline. 
D) consumption and investment to decline while net exports increase. 
E) consumption and net exports to increase while investment falls.

Question 17

Price shocks are always accompanied by a shift in potential GDP.

Accepted Answer

A) True 
 B)False

Question 18

Suppose there is a sharp decline in oil prices.According to the theory of economic fluctuations,

Accepted Answer

A) real GDP will fall. 
B) real GDP will not change. 
C) its effect on real GDP is uncertain. 
D) real GDP will increase. 
E) potential GDP will fall. 
A) real GDP will fall. 
B) real GDP will not change. 
C) its effect on real GDP is uncertain. 
D) real GDP will increase. 
E) potential GDP will fall.

Question 19

The tendency of prices to adjust over time is shown by an upward movement along the IA line.

Accepted Answer

A) True 
 B)False

Question 20

If government spending decreases,the long-run income effect on net exports and consumption will be the same as in the baseline case.

Accepted Answer

A) True 
 B)False

Exam 25: Using the Economic Fluctuations Model

Interest rates typically rise prior to a recession.

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

A price shock causes movement along the monetary policy rule line.

In 2008,stock markets in the United States and worldwide registered

The long-run effect of increased government purchases is crowding out.

In the late 1960s and 1970s inflation decreased around the world.

Suppose,for some hypothetical economy,an electric storm causes 90 percent of the CPU chips in the economy to become useless.Trace out the macroeconomic consequence of this phenomenon.Does this event result in stagflation? Why?

Explain what effect a monetary policy designed to bring about disinflation would have on the economy.Be sure to discuss what happens in the short run,the medium run,and the long run.

In the economic fluctuations model,the so-called short run normally refers to

A temporary growth slowdown results in a

The initial response of real GDP to a change in aggregate spending is referred to as

In a diagram that includes both the IA line and the AD curve,the price adjustment resulting from an increase in spending is shown by

Among the factors that might have led to the outbreak of the 2007-09 recession,which most likely caused a shift of the IA line instead of the AD curve?

A supply shock is exactly the opposite of a price shock.

Compared to the baseline,the short-run effect of a monetary policy change to lower inflation is for

Price shocks are always accompanied by a shift in potential GDP.

Suppose there is a sharp decline in oil prices.According to the theory of economic fluctuations,

The tendency of prices to adjust over time is shown by an upward movement along the IA line.

If government spending decreases,the long-run income effect on net exports and consumption will be the same as in the baseline case.

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 short-run effects of an increase in government purchases are that inflation will ,and real GDP will .