Question 1

Exhibit 25-2  
-According to Exhibit 25-2,which point best represents where the U.S.economy was in 2009?

Accepted Answer

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

Question 2

A reduction in the target rate of inflation

Accepted Answer

A) occurred during the 1970s. 
B) has never occurred in the United States. 
C) is what caused the Great Depression. 
D) occurred in the United States during the early 1980s. 
E) occurred in the United States during the late 1960s. 
A) occurred during the 1970s. 
B) has never occurred in the United States. 
C) is what caused the Great Depression. 
D) occurred in the United States during the early 1980s. 
E) occurred in the United States during the late 1960s.

Question 3

The short-run effect of a change in autonomous expenditures is shown by the AD curve moving along the IA line.

Accepted Answer

A) True 
 B)False

Question 4

What is the difference between a temporary growth slowdown and a recession?

Accepted Answer

During a temporary growth slow

Question 5

A price shock has the same effect as a demand shock.

Accepted Answer

A) True 
 B)False

Question 6

The medium-run effect of a monetary policy that seeks to lower the rate of inflation is best depicted by

Accepted Answer

A) the AD curve shifting to the right. 
B) an upward movement of the IA line. 
C) an upward movement along the AD curve. 
D) a downward movement along the AD curve. 
E) the AD curve shifting to the left. 
A) the AD curve shifting to the right. 
B) an upward movement of the IA line. 
C) an upward movement along the AD curve. 
D) a downward movement along the AD curve. 
E) the AD curve shifting to the left.

Question 7

Suppose the relationship between real GDP and inflation is depicted as shown in the table below.Assume that real and potential GDP are equal to each other at $5,400 billion.Suppose government purchases decline by $100 billion and the slope of the aggregate expenditure line is 0.5.   (A)Explain how the AD curve is affected by this change.In the short run,what will real GDP and the rate of inflation be?
(B)Using the AD and IA curves,show what will happen in the medium run.Be sure to give an economic explanation for what is happening.
(C)Using the AD and IA curves,show what will happen in the long run.

Accepted Answer

(A) The AD curve will shift to the left.

Question 8

An increase in government purchases

Accepted Answer

A) has a positive effect on real GDP in the long run. 
B) has a negative effect on real GDP in the long run. 
C) results in a lower rate of inflation in the long run. 
D) results in lower interest rates in the long run. 
E) results in a higher rate of inflation in the long run. 
A) has a positive effect on real GDP in the long run. 
B) has a negative effect on real GDP in the long run. 
C) results in a lower rate of inflation in the long run. 
D) results in lower interest rates in the long run. 
E) results in a higher rate of inflation in the long run.

Question 9

If there is a temporary growth slowdown,real GDP will not go below potential GDP.

Accepted Answer

A) True 
 B)False

Question 10

Suppose the economy is initially at point A in the diagram below,and there is a sudden increase in oil prices that the central bank believes is only temporary.Which point best depicts where the economy will end up in the short run?

Accepted Answer

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

Question 11

Which of the following did not contribute to the decline in aggregate demand during 2007?

Accepted Answer

A) A commodity price shock 
B) A drop in stock prices 
C) A change in monetary policy 
D) A drop in consumer confidence 
E) A decrease in lending from banks 
A) A commodity price shock 
B) A drop in stock prices 
C) A change in monetary policy 
D) A drop in consumer confidence 
E) A decrease in lending from banks

Question 12

Suppose the GDP deflator is 100 in 2009 and 101 in 2010.
(A)Suppose the economy is at potential GDP in 2009 and 2010.What is the rate of inflation in 2010?
(B)Suppose instead that real GDP is above potential GDP in 2010.How is the adjustment back to potential made in this situation?

Accepted Answer

(A) The rate of inflation in 2010 is 1 p

Question 13

The long-run overall effect of decreased government purchases is that

Accepted Answer

A) investment is higher. 
B) consumption and net exports are the same,and investment is higher. 
C) consumption is lower,and investment is higher. 
D) consumption and net exports are higher. 
E) consumption,investment,and net exports are all higher. 
A) investment is higher. 
B) consumption and net exports are the same,and investment is higher. 
C) consumption is lower,and investment is higher. 
D) consumption and net exports are higher. 
E) consumption,investment,and net exports are all higher.

Question 14

Suppose the target rate of inflation is 3 percent and real GDP equals potential GDP.Now,suppose a major oil-producing country decides to increase the supply of oil in order to discipline the other members of the oil-producing cartel.There is a sharp decline in the price of oil,and,in turn,the rate of inflation falls to 2 percent in the short run.The Fed views this decline in inflation as temporary and expects the price adjustment line to shift back up to 3 percent next year,which it does.
(A)Where will real GDP be in the short run? If the Fed follows its usual policy rule,how will the economy adjust back to potential?
(B)Now,suppose the Fed is sure this is a temporary decline in the inflation rate.Therefore,it decides not to follow its typical policy rule,but instead maintains the interest rate at the level it was at prior to the shock.What happens to real GDP? Why? What will the long-run adjustment be in this case?

Accepted Answer

(A) The IA line shifts down and intersec

Question 15

A reduction in the inflation rate is called

Accepted Answer

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

Question 16

The long-run effect of a decline in exports is

Accepted Answer

A) an ambiguous change in net exports and a decline in both investment and consumption. 
B) for there to be no change in any of the aggregate expenditure categories. 
C) for net exports to decline,with no change in investment or consumption. 
D) an ambiguous change in net exports and an increase in both consumption and investment. 
E) an increase in net exports,consumption,and investment. 
A) an ambiguous change in net exports and a decline in both investment and consumption. 
B) for there to be no change in any of the aggregate expenditure categories. 
C) for net exports to decline,with no change in investment or consumption. 
D) an ambiguous change in net exports and an increase in both consumption and investment. 
E) an increase in net exports,consumption,and investment.

Question 17

Monetary policy that attempts to increase the rate of inflation is called a

Accepted Answer

A) reinflation. 
B) supply shock. 
C) recession. 
D) temporary growth slowdown. 
E) disinflation. 
A) reinflation. 
B) supply shock. 
C) recession. 
D) temporary growth slowdown. 
E) disinflation.

Question 18

Suppose oil prices increase sharply.Trace the short-run,medium-run,and long-run effects this will have on the economy.

Accepted Answer

The initial impact will be an upward shi

Question 19

Which of the following is the most appropriate explanation of a supply shock?

Accepted Answer

A) A large shift in the AD curve 
B) A shift in the monetary policy rule line 
C) A shift in potential GDP 
D) A large shift in the aggregate expenditure line 
E) A large change in a key commodity price 
A) A large shift in the AD curve 
B) A shift in the monetary policy rule line 
C) A shift in potential GDP 
D) A large shift in the aggregate expenditure line 
E) A large change in a key commodity price

Question 20

If the Fed raises interest rates because inflation is too high,this will cause

Accepted Answer

A) a long-term recession. 
B) a temporary slowdown in growth but not a recession. 
C) a permanent slowdown in growth. 
D) either a temporary slowdown in growth or a recession. 
E) a temporary recession. 
A) a long-term recession. 
B) a temporary slowdown in growth but not a recession. 
C) a permanent slowdown in growth. 
D) either a temporary slowdown in growth or a recession. 
E) a temporary recession.

Exam 25: Using the Economic Fluctuations Model

Exhibit 25-2 -According to Exhibit 25-2,which point best represents where the U.S.economy was in 2009?

A reduction in the target rate of inflation

The short-run effect of a change in autonomous expenditures is shown by the AD curve moving along the IA line.

What is the difference between a temporary growth slowdown and a recession?

A price shock has the same effect as a demand shock.

The medium-run effect of a monetary policy that seeks to lower the rate of inflation is best depicted by

An increase in government purchases

If there is a temporary growth slowdown,real GDP will not go below potential GDP.

Suppose the economy is initially at point A in the diagram below,and there is a sudden increase in oil prices that the central bank believes is only temporary.Which point best depicts where the economy will end up in the short run?

Which of the following did not contribute to the decline in aggregate demand during 2007?

Suppose the GDP deflator is 100 in 2009 and 101 in 2010. (A)Suppose the economy is at potential GDP in 2009 and 2010.What is the rate of inflation in 2010? (B)Suppose instead that real GDP is above potential GDP in 2010.How is the adjustment back to potential made in this situation?

The long-run overall effect of decreased government purchases is that

A reduction in the inflation rate is called

The long-run effect of a decline in exports is

Monetary policy that attempts to increase the rate of inflation is called a

Suppose oil prices increase sharply.Trace the short-run,medium-run,and long-run effects this will have on the economy.

Which of the following is the most appropriate explanation of a supply shock?

If the Fed raises interest rates because inflation is too high,this will cause

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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