Question 1

Explain why the rate of inflation does not change in the long run as a result of a price shock.

Accepted Answer

This is because the AD curve d

Question 2

What is meant by a baseline?

Accepted Answer

This is the path the

Question 3

Data for the U.S.economy in the years 2007-2009 show that real GDP and inflation moved in the direction predicted by the economic fluctuations model.

Accepted Answer

A) True 
 B)False

Question 4

What is meant by the term stagflation?

Accepted Answer

Stagflation is the word used to describe

Question 5

It is difficult to determine whether a price shock is permanent or temporary.

Accepted Answer

A) True 
 B)False

Question 6

The best explanation for the recent economic fluctuations observed in the U.S.economy is

Accepted Answer

A) one leftward shift of the aggregate demand curve,followed by price adjustment,followed by one rightward shift of the aggregate demand curve,followed by price adjustment. 
B) one leftward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. 
C) one rightward shift of the aggregate demand curve,followed by price adjustment,followed by one leftward shift of the aggregate demand curve,followed by price adjustment. 
D) one rightward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. 
E) one leftward shift of the aggregate demand curve followed by one rightward shift. 
A) one leftward shift of the aggregate demand curve,followed by price adjustment,followed by one rightward shift of the aggregate demand curve,followed by price adjustment. 
B) one leftward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. 
C) one rightward shift of the aggregate demand curve,followed by price adjustment,followed by one leftward shift of the aggregate demand curve,followed by price adjustment. 
D) one rightward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. 
E) one leftward shift of the aggregate demand curve followed by one rightward shift.

Question 7

If a price shock caused by a sharp increase in oil prices is believed to be temporary,then the Fed will

Accepted Answer

A) raise interest rates based on its monetary policy rule. 
B) lower interest rates based on its monetary policy rule. 
C) do nothing. 
D) lower interest rates,but not by as much as it would if the price shock were permanent. 
E) raise interest rates,but not by as much as it would if the price shock were permanent. 
A) raise interest rates based on its monetary policy rule. 
B) lower interest rates based on its monetary policy rule. 
C) do nothing. 
D) lower interest rates,but not by as much as it would if the price shock were permanent. 
E) raise interest rates,but not by as much as it would if the price shock were permanent.

Question 8

Graphically show the difference between what is meant by a growth slowdown as opposed to a recession.

Accepted Answer

The figure below is an example of a grow

Question 9

If a shock to aggregate demand occurs,the period of the initial change in real GDP is called

Accepted Answer

A) the short run. 
B) the medium run. 
C) the long run. 
D) a recovery. 
E) the steady state. 
A) the short run. 
B) the medium run. 
C) the long run. 
D) a recovery. 
E) the steady state.

Question 10

In the economic fluctuations model,the so-called long run normally refers to the time it takes for the economy to return to full employment or,in other words,for real GDP to be back to potential GDP.

Accepted Answer

A) True 
 B)False

Question 11

Over the past 25 years,price shocks have occurred due to sharp changes in

Accepted Answer

A) coffee prices. 
B) oil prices. 
C) gold prices. 
D) silver prices. 
E) interest rates. 
A) coffee prices. 
B) oil prices. 
C) gold prices. 
D) silver prices. 
E) interest rates.

Question 12

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 long 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 13

Suppose the economy is initially at point A in the diagram below,and oil prices suddenly fall.Which point best depicts where the economy will end up in the short run?

Accepted Answer

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

Question 14

An economic recovery occurs only if the Fed shifts its policy.

Accepted Answer

A) True 
 B)False

Question 15

Disinflation can be defined as

Accepted Answer

A) a decrease in the overall price level. 
B) a higher rate of inflation that is accompanied by economic growth. 
C) a rate of inflation that is spiraling out of control. 
D) an inflation hike that is not accompanied by a higher nominal interest rate,thereby creating negative real rates of return. 
E) None of these. 
A) a decrease in the overall price level. 
B) a higher rate of inflation that is accompanied by economic growth. 
C) a rate of inflation that is spiraling out of control. 
D) an inflation hike that is not accompanied by a higher nominal interest rate,thereby creating negative real rates of return. 
E) None of these.

Question 16

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

Accepted Answer

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

Question 17

The IA line does not shift in the short run because

Accepted Answer

A) real and potential GDP are not equal. 
B) potential GDP does not change. 
C) of expectations and staggered wage and price adjustment. 
D) real GDP does not change. 
E) there is no spending balance. 
A) real and potential GDP are not equal. 
B) potential GDP does not change. 
C) of expectations and staggered wage and price adjustment. 
D) real GDP does not change. 
E) there is no spending balance.

Question 18

Which of the following descriptions best depicts the short-run effect of a leftward shift of the monetary policy line?

Accepted Answer

A) An increase in the rate of interest and a decline in both the rate of inflation and real GDP 
B) A decline in both the rate of inflation and the rate of interest,along with an increase in real GDP 
C) An increase in the rate of interest,no change in the rate of inflation,and a decline in real GDP 
D) A decline in real GDP and no change in either the rate of inflation or the rate of interest 
E) A decline in the rate of inflation,the rate of interest,and real GDP 
A) An increase in the rate of interest and a decline in both the rate of inflation and real GDP 
B) A decline in both the rate of inflation and the rate of interest,along with an increase in real GDP 
C) An increase in the rate of interest,no change in the rate of inflation,and a decline in real GDP 
D) A decline in real GDP and no change in either the rate of inflation or the rate of interest 
E) A decline in the rate of inflation,the rate of interest,and real GDP

Question 19

Among economists,

Accepted Answer

A) there is more disagreement about what caused the Great Depression than about what brought about the recovery from it. 
B) there is more disagreement about what brought about the recovery from the Great Depression than about what caused it. 
C) there is much disagreement about both what caused the Great Depression and what brought about the recovery from it. 
D) there is wide consensus about both what caused the Great Depression and what brought about the recovery from it. 
E) there is little reason to be concerned with either the Great Depression's causes or what caused the economy to recover from it. 
A) there is more disagreement about what caused the Great Depression than about what brought about the recovery from it. 
B) there is more disagreement about what brought about the recovery from the Great Depression than about what caused it. 
C) there is much disagreement about both what caused the Great Depression and what brought about the recovery from it. 
D) there is wide consensus about both what caused the Great Depression and what brought about the recovery from it. 
E) there is little reason to be concerned with either the Great Depression's causes or what caused the economy to recover from it.

Question 20

If the Fed thinks inflation is too high,it will

Accepted Answer

A) lower the target inflation rate and lower interest rates. 
B) lower the target inflation rate and raise interest rates. 
C) lower the target inflation rate and leave interest rates unchanged. 
D) raise the target inflation rate and raise interest rates. 
E) raise the target inflation rate and lower interest rates. 
A) lower the target inflation rate and lower interest rates. 
B) lower the target inflation rate and raise interest rates. 
C) lower the target inflation rate and leave interest rates unchanged. 
D) raise the target inflation rate and raise interest rates. 
E) raise the target inflation rate and lower interest rates.

Exam 25: Using the Economic Fluctuations Model

Explain why the rate of inflation does not change in the long run as a result of a price shock.

What is meant by a baseline?

Data for the U.S.economy in the years 2007-2009 show that real GDP and inflation moved in the direction predicted by the economic fluctuations model.

What is meant by the term stagflation?

It is difficult to determine whether a price shock is permanent or temporary.

The best explanation for the recent economic fluctuations observed in the U.S.economy is

If a price shock caused by a sharp increase in oil prices is believed to be temporary,then the Fed will

Graphically show the difference between what is meant by a growth slowdown as opposed to a recession.

If a shock to aggregate demand occurs,the period of the initial change in real GDP is called

In the economic fluctuations model,the so-called long run normally refers to the time it takes for the economy to return to full employment or,in other words,for real GDP to be back to potential GDP.

Over the past 25 years,price shocks have occurred due to sharp changes in

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 long run as a result of the change in spending?

Suppose the economy is initially at point A in the diagram below,and oil prices suddenly fall.Which point best depicts where the economy will end up in the short run?

An economic recovery occurs only if the Fed shifts its policy.

Disinflation can be defined as

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

The IA line does not shift in the short run because

Which of the following descriptions best depicts the short-run effect of a leftward shift of the monetary policy line?

Among economists,

If the Fed thinks inflation is too high,it will

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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