Question 1

Active policy making would include all of the following EXCEPT

Accepted Answer

A) interest rate changes by the Fed. 
B) tax increases. 
C) unemployment insurance benefits. 
D) increased government spending by the Congress. 
A) interest rate changes by the Fed. 
B) tax increases. 
C) unemployment insurance benefits. 
D) increased government spending by the Congress.

Question 2

According to the policy irrelevance proposition,the impact of an anticipated expansionary monetary policy will be to

Accepted Answer

A) increase the price level in the long run. 
B) increase the real Gross Domestic Product (GDP)in the long run. 
C) decrease the natural rate of unemployment. 
D) decrease the price level and the unemployment rate. 
A) increase the price level in the long run. 
B) increase the real Gross Domestic Product (GDP)in the long run. 
C) decrease the natural rate of unemployment. 
D) decrease the price level and the unemployment rate.

Question 3

-Refer to the above figure.Line ABCD is a(n)

Accepted Answer

A) aggregate demand curve. 
B) Phillips curve. 
C) discretionary-policy curve. 
D) natural rate of unemployment curve. 
A) aggregate demand curve. 
B) Phillips curve. 
C) discretionary-policy curve. 
D) natural rate of unemployment curve.

Question 4

Which of the following would be an example of passive policy making?

Accepted Answer

A) Establishing a system of automatic tax stabilizers 
B) Marginal rate tax cuts intended to increase real Gross Domestic Product (GDP) 
C) Government spending decreases intended to decrease real Gross Domestic Product (GDP) 
D) None of the above 
A) Establishing a system of automatic tax stabilizers 
B) Marginal rate tax cuts intended to increase real Gross Domestic Product (GDP) 
C) Government spending decreases intended to decrease real Gross Domestic Product (GDP) 
D) None of the above

Question 5

Frictional and structural unemployment both exist when

Accepted Answer

A) the economy is in an expansionary phase. 
B) the economy is in long-run equilibrium. 
C) the economy is at the peak of the business cycle. 
D) the economy is in short-run equilibrium. 
A) the economy is in an expansionary phase. 
B) the economy is in long-run equilibrium. 
C) the economy is at the peak of the business cycle. 
D) the economy is in short-run equilibrium.

Question 6

The real business cycle theory

Accepted Answer

A) indicates that supply side shocks cause most business cycles. 
B) indicates that demand side shocks cause most business cycles. 
C) indicates that rapid changes in the money supply cause most business cycles. 
D) indicates that faulty fiscal policy creates most business cycles. 
A) indicates that supply side shocks cause most business cycles. 
B) indicates that demand side shocks cause most business cycles. 
C) indicates that rapid changes in the money supply cause most business cycles. 
D) indicates that faulty fiscal policy creates most business cycles.

Question 7

According to the text,the probability of an unemployed person finding a job doubles when

Accepted Answer

A) his unemployment benefits expire. 
B) his unemployment benefits are extended. 
C) the economy enters a recessionary phase. 
D) he is threatened with arrest. 
A) his unemployment benefits expire. 
B) his unemployment benefits are extended. 
C) the economy enters a recessionary phase. 
D) he is threatened with arrest.

Question 8

According to the rational expectations hypothesis,an individual's assessment of future economic performance

Accepted Answer

A) does not consider past performance. 
B) does not consider the impact of inflation. 
C) only considers past performance. 
D) considers both past performance and current monetary and fiscal policy. 
A) does not consider past performance. 
B) does not consider the impact of inflation. 
C) only considers past performance. 
D) considers both past performance and current monetary and fiscal policy.

Question 9

When a person bases her future expectations for the economy on all available current data and her own judgment about future policy effects,this is known as

Accepted Answer

A) the policy irrelevance proposition. 
B) rational expectations. 
C) irrational expectations. 
D) the new classical theory. 
A) the policy irrelevance proposition. 
B) rational expectations. 
C) irrational expectations. 
D) the new classical theory.

Question 10

-Refer to the above figure.Suppose the natural rate of unemployment is 5 percent.If the government tried to reduce unemployment to 4 percent and keep it there,it must

Accepted Answer

A) raise unemployment benefits. 
B) accept a permanent inflation rate of 1 percent. 
C) generate higher and higher inflation rates or else people will adjust their behavior and the unemployment rate will return to 5 percent. 
D) use contractionary fiscal and expansionary monetary policy. 
A) raise unemployment benefits. 
B) accept a permanent inflation rate of 1 percent. 
C) generate higher and higher inflation rates or else people will adjust their behavior and the unemployment rate will return to 5 percent. 
D) use contractionary fiscal and expansionary monetary policy.

Question 11

The inflation rate has been constant for several years at 4 percent,and the unemployment rate has been stable at 6 percent over the same time period.Changes in government policy that cause the inflation rate to rise to 6 percent will

Accepted Answer

A) have no effect on the unemployment rate. 
B) cause the unemployment rate to fall in the short run. 
C) cause the unemployment rate to rise to 9 percent in the short run. 
D) cause the unemployment rate to rise in the short run,but we cannot tell by how much. 
A) have no effect on the unemployment rate. 
B) cause the unemployment rate to fall in the short run. 
C) cause the unemployment rate to rise to 9 percent in the short run. 
D) cause the unemployment rate to rise in the short run,but we cannot tell by how much.

Question 12

Assuming that the rational expectations hypothesis is NOT in effect,in the short run an expansionary monetary policy should

Accepted Answer

A) shift the aggregate supply function. 
B) increase real Gross Domestic Product (GDP)and the price level. 
C) increase the rate of unemployment. 
D) generate stagflation. 
A) shift the aggregate supply function. 
B) increase real Gross Domestic Product (GDP)and the price level. 
C) increase the rate of unemployment. 
D) generate stagflation.

Question 13

According to the rational expectations hypothesis,the attempt by the government to reduce unemployment below its natural rate through expansionary policies will

Accepted Answer

A) succeed in the short run and can succeed in the long run as long as the government makes it clear what its goals are. 
B) succeed because the government knows how people will react to their policies and will adjust their policies accordingly. 
C) fail because people will figure out what the government is doing and alter their expectations and their behavior in ways that counteract the government policy. 
D) fail because the economy can never achieve an unemployment rate below the natural level. 
A) succeed in the short run and can succeed in the long run as long as the government makes it clear what its goals are. 
B) succeed because the government knows how people will react to their policies and will adjust their policies accordingly. 
C) fail because people will figure out what the government is doing and alter their expectations and their behavior in ways that counteract the government policy. 
D) fail because the economy can never achieve an unemployment rate below the natural level.

Question 14

People combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes is consistent with

Accepted Answer

A) frictional unemployment. 
B) the rational expectations hypothesis. 
C) active policy making. 
D) passive policy making. 
A) frictional unemployment. 
B) the rational expectations hypothesis. 
C) active policy making. 
D) passive policy making.

Question 15

Initial studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States was as long as

Accepted Answer

A) 6 months. 
B) 12 months. 
C) 2 years. 
D) 4 years. 
A) 6 months. 
B) 12 months. 
C) 2 years. 
D) 4 years.

Question 16

Menu costs are a possible reason for

Accepted Answer

A) aggregate supply shocks. 
B) low levels of consumer confidence in response to aggregate supply shocks. 
C) sticky product prices. 
D) swings in the labor force participation rate. 
A) aggregate supply shocks. 
B) low levels of consumer confidence in response to aggregate supply shocks. 
C) sticky product prices. 
D) swings in the labor force participation rate.

Question 17

Menu costs are

Accepted Answer

A) the constantly changing resource prices that make planning for firms difficult. 
B) the advertised prices for final products that firms guarantee for a certain period of time. 
C) the cost of compliance with government regulations. 
D) the costs that deter firms from changing prices in reaction to demand changes. 
A) the constantly changing resource prices that make planning for firms difficult. 
B) the advertised prices for final products that firms guarantee for a certain period of time. 
C) the cost of compliance with government regulations. 
D) the costs that deter firms from changing prices in reaction to demand changes.

Question 18

The natural rate of unemployment consists of

Accepted Answer

A) no workers looking for employment. 
B) only seasonal unemployment. 
C) only structural unemployment. 
D) structural and frictional unemployment. 
A) no workers looking for employment. 
B) only seasonal unemployment. 
C) only structural unemployment. 
D) structural and frictional unemployment.

Question 19

The rational expectations hypothesis states that

Accepted Answer

A) individuals always behave rationally. 
B) prices do not adjust in a downward direction. 
C) past and present economic information is incorporated into decision making. 
D) consumers do not understand the effects of monetary and fiscal policy. 
A) individuals always behave rationally. 
B) prices do not adjust in a downward direction. 
C) past and present economic information is incorporated into decision making. 
D) consumers do not understand the effects of monetary and fiscal policy.

Question 20

The stickiness of wages and prices will cause

Accepted Answer

A) changes in aggregate demand to have no short-run effects on real GDP. 
B) changes in aggregate demand to have long-run effects on real GDP. 
C) changes in aggregate demand to have both short-run and long-run effects on real GDP. 
D) changes in aggregate demand to have short-run effects on real GDP. 
A) changes in aggregate demand to have no short-run effects on real GDP. 
B) changes in aggregate demand to have long-run effects on real GDP. 
C) changes in aggregate demand to have both short-run and long-run effects on real GDP. 
D) changes in aggregate demand to have short-run effects on real GDP.

Active policy making would include all of the following EXCEPT

According to the policy irrelevance proposition,the impact of an anticipated expansionary monetary policy will be to

-Refer to the above figure.Line ABCD is a(n)

Which of the following would be an example of passive policy making?

Frictional and structural unemployment both exist when

The real business cycle theory

According to the text,the probability of an unemployed person finding a job doubles when

According to the rational expectations hypothesis,an individual's assessment of future economic performance

When a person bases her future expectations for the economy on all available current data and her own judgment about future policy effects,this is known as

-Refer to the above figure.Suppose the natural rate of unemployment is 5 percent.If the government tried to reduce unemployment to 4 percent and keep it there,it must

The inflation rate has been constant for several years at 4 percent,and the unemployment rate has been stable at 6 percent over the same time period.Changes in government policy that cause the inflation rate to rise to 6 percent will

Assuming that the rational expectations hypothesis is NOT in effect,in the short run an expansionary monetary policy should

According to the rational expectations hypothesis,the attempt by the government to reduce unemployment below its natural rate through expansionary policies will

People combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes is consistent with

Initial studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States was as long as

Menu costs are a possible reason for

Menu costs are

The natural rate of unemployment consists of

The rational expectations hypothesis states that

The stickiness of wages and prices will cause

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

Exam 17: Stabilization in an Integrated World Economy

Active policy making would include all of the following EXCEPT

According to the policy irrelevance proposition,the impact of an anticipated expansionary monetary policy will be to

-Refer to the above figure.Line ABCD is a(n)

Which of the following would be an example of passive policy making?

Frictional and structural unemployment both exist when

The real business cycle theory

According to the text,the probability of an unemployed person finding a job doubles when

According to the rational expectations hypothesis,an individual's assessment of future economic performance

When a person bases her future expectations for the economy on all available current data and her own judgment about future policy effects,this is known as

-Refer to the above figure.Suppose the natural rate of unemployment is 5 percent.If the government tried to reduce unemployment to 4 percent and keep it there,it must

The inflation rate has been constant for several years at 4 percent,and the unemployment rate has been stable at 6 percent over the same time period.Changes in government policy that cause the inflation rate to rise to 6 percent will

Assuming that the rational expectations hypothesis is NOT in effect,in the short run an expansionary monetary policy should

According to the rational expectations hypothesis,the attempt by the government to reduce unemployment below its natural rate through expansionary policies will

People combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes is consistent with

Initial studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States was as long as

Menu costs are a possible reason for

Menu costs are

The natural rate of unemployment consists of

The rational expectations hypothesis states that

The stickiness of wages and prices will cause

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters