Question 1

-In the above figure,starting at   ,if there is an increase in technology that causes a temporary increase in production capabilities

Accepted Answer

A) aggregate supply would shift to   and   would shift to   . 
B) aggregate supply would shift to   and   would shift to   . 
C) aggregate supply would shift to   and   would shift to   . 
D) aggregate supply would shift to   and then return to   . 
A) aggregate supply would shift to   and   would shift to   . 
B) aggregate supply would shift to   and   would shift to   . 
C) aggregate supply would shift to   and   would shift to   . 
D) aggregate supply would shift to   and then return to   .

Question 2

The rational expectations hypothesis is based on all the following assumptions EXCEPT

Accepted Answer

A) use of judgment about effects of future policy actions. 
B) use of knowledge of effects of past policy actions. 
C) understanding of how the economy operates. 
D) understanding that prices are sticky. 
A) use of judgment about effects of future policy actions. 
B) use of knowledge of effects of past policy actions. 
C) understanding of how the economy operates. 
D) understanding that prices are sticky.

Question 3

-In the above figure,start with the economy in equilibrium at point A.Then an unanticipated reduction in aggregate demand triggers a shift from AD1 to AD2.In the short run,this would cause

Accepted Answer

A) the price level to fall from P1 to P2,real Gross Domestic Product (GDP)to fall from Y1 to Y2,and the rate of unemployment to increase. 
B) the price level to move from P1 to P2,but real Gross Domestic Product (GDP)would stay at Y1. 
C) the price level to fall by some amount less than P1 but greater than P2,and the rate of unemployment would decrease. 
D) no change in either the price level or real Gross Domestic Product (GDP),but a decrease in unemployment. 
A) the price level to fall from P1 to P2,real Gross Domestic Product (GDP)to fall from Y1 to Y2,and the rate of unemployment to increase. 
B) the price level to move from P1 to P2,but real Gross Domestic Product (GDP)would stay at Y1. 
C) the price level to fall by some amount less than P1 but greater than P2,and the rate of unemployment would decrease. 
D) no change in either the price level or real Gross Domestic Product (GDP),but a decrease in unemployment.

Question 4

New Keynesian inflation dynamics predicts that an increase in aggregate demand will generate,in chronological order,

Accepted Answer

A) a leftward movement along a horizontal short-run aggregate supply curve,a short-run decline in real GDP,a downward shift in the short-run aggregate supply curve,and a decrease in the price level. 
B) a rightward movement along a horizontal short-run aggregate supply curve,a short-run increase in real GDP,an upward shift in the short-run aggregate supply curve,and an increase in the price level. 
C) an leftward shift in a vertical short-run aggregate supply curve,a short-run decline in real GDP,an upward movement along the short-run aggregate supply curve,and an increase in the price level. 
D) a rightward shift in a vertical short-run aggregate supply curve,a short-run increase in real GDP,an upward movement along the short-run aggregate supply curve,and an increase in the price level. 
A) a leftward movement along a horizontal short-run aggregate supply curve,a short-run decline in real GDP,a downward shift in the short-run aggregate supply curve,and a decrease in the price level. 
B) a rightward movement along a horizontal short-run aggregate supply curve,a short-run increase in real GDP,an upward shift in the short-run aggregate supply curve,and an increase in the price level. 
C) an leftward shift in a vertical short-run aggregate supply curve,a short-run decline in real GDP,an upward movement along the short-run aggregate supply curve,and an increase in the price level. 
D) a rightward shift in a vertical short-run aggregate supply curve,a short-run increase in real GDP,an upward movement along the short-run aggregate supply curve,and an increase in the price level.

Question 5

If the Fed engages in open market sales in direct response to an increase in the rate of inflation,this is known as

Accepted Answer

A) direct policy making. 
B) active policy making. 
C) passive policy making. 
D) fiscal policy making. 
A) direct policy making. 
B) active policy making. 
C) passive policy making. 
D) fiscal policy making.

Question 6

An unexpected increase in aggregate demand

Accepted Answer

A) causes the price level to fall and the unemployment rate to rise. 
B) causes the price level to fall and the unemployment rate to fall. 
C) causes the price level to rise and the unemployment rate to rise. 
D) causes the price level to rise and the unemployment rate to fall. 
A) causes the price level to fall and the unemployment rate to rise. 
B) causes the price level to fall and the unemployment rate to fall. 
C) causes the price level to rise and the unemployment rate to rise. 
D) causes the price level to rise and the unemployment rate to fall.

Question 7

-Use the above figure.The long-run Phillips curve is best depicted by graph

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
A) A. 
B) B. 
C) C. 
D) D.

Question 8

Critics of the Phillips curve argue that in the long run,

Accepted Answer

A) there is a trade-off between unemployment and inflation. 
B) for any given unemployment level there is a corresponding inflation rate to which the economy will automatically revert. 
C) employees are not able to anticipate future rates of inflation,and therefore unemployment can always be reduced by inflating the economy. 
D) there is no trade-off between inflation and unemployment because workers' expectations adjust to any systematic attempts to reduce unemployment below the natural rate. 
A) there is a trade-off between unemployment and inflation. 
B) for any given unemployment level there is a corresponding inflation rate to which the economy will automatically revert. 
C) employees are not able to anticipate future rates of inflation,and therefore unemployment can always be reduced by inflating the economy. 
D) there is no trade-off between inflation and unemployment because workers' expectations adjust to any systematic attempts to reduce unemployment below the natural rate.

Question 9

-Refer to the above figure.The economy initially is at point A.The Fed unexpectedly increases the money supply.Which of the following statements are true?

Accepted Answer

A) In the short run,the economy will move from point A to point C.In the long run,the economy will move to point B. 
B) In the short run,the economy will move from point A to point C.In the long run,the economy will move back to point A. 
C) In the short run,the economy will move from point A to point B.In the long run,the economy will stay at point B. 
D) In the short run,the economy will move from point A to point B.In the long run,the economy will move back to point A. 
A) In the short run,the economy will move from point A to point C.In the long run,the economy will move to point B. 
B) In the short run,the economy will move from point A to point C.In the long run,the economy will move back to point A. 
C) In the short run,the economy will move from point A to point B.In the long run,the economy will stay at point B. 
D) In the short run,the economy will move from point A to point B.In the long run,the economy will move back to point A.

Question 10

Suppose the government abolished the minimum wage law and the law that requires union wage rates to be paid on all government contract jobs.We would expect to see

Accepted Answer

A) a decline in the natural rate of unemployment. 
B) an increase in claims for unemployment benefits. 
C) the duration of unemployment to increase. 
D) a recession. 
A) a decline in the natural rate of unemployment. 
B) an increase in claims for unemployment benefits. 
C) the duration of unemployment to increase. 
D) a recession.

Question 11

The short-run Phillips curve suggests what policy making implications?

Accepted Answer

A) Active policy making does not yield any predictable results. 
B) Passive policy making is more effective than active policy making. 
C) Using discretionary policies,it may be possible to achieve just the right unemployment and inflation mix. 
D) Maintaining both the inflation and unemployment rates at low levels is possible if policy makers will rely solely on nondiscretionary policy making. 
A) Active policy making does not yield any predictable results. 
B) Passive policy making is more effective than active policy making. 
C) Using discretionary policies,it may be possible to achieve just the right unemployment and inflation mix. 
D) Maintaining both the inflation and unemployment rates at low levels is possible if policy makers will rely solely on nondiscretionary policy making.

Question 12

Suppose a constitutional amendment is passed that mandates a balanced federal budget every year and the President and Congress consistently carry this mandate out.This would be an example of

Accepted Answer

A) active policy making. 
B) decisive policy making. 
C) nondiscretionary policy making. 
D) cooperative policy making. 
A) active policy making. 
B) decisive policy making. 
C) nondiscretionary policy making. 
D) cooperative policy making.

Question 13

Those who accept both the rational expectations hypothesis and the assumption of flexibility of wages and price would likely argue that

Accepted Answer

A) saving and investment do not contribute to economic growth. 
B) active policy making does not contribute to economic stability. 
C) if policy makers are willing to accept a high inflation rate,they can reduce unemployment to a point below the natural rate. 
D) policy makers can eliminate fluctuations in the level of business activity with careful planning of a widely publicized monetary policy. 
A) saving and investment do not contribute to economic growth. 
B) active policy making does not contribute to economic stability. 
C) if policy makers are willing to accept a high inflation rate,they can reduce unemployment to a point below the natural rate. 
D) policy makers can eliminate fluctuations in the level of business activity with careful planning of a widely publicized monetary policy.

Question 14

Active policy making refers to

Accepted Answer

A) actions taken by policy makers in response to or in anticipation of some change in the overall economy. 
B) policy making that is carried out in response to a rule. 
C) relying on policies that act as automatic stabilizers. 
D) nondiscretionary policy making. 
A) actions taken by policy makers in response to or in anticipation of some change in the overall economy. 
B) policy making that is carried out in response to a rule. 
C) relying on policies that act as automatic stabilizers. 
D) nondiscretionary policy making.

Question 15

The Federal Reserve is anticipating a contractionary period in the economy.The Fed decides to engage in open market operations to stimulate the economy.This action is

Accepted Answer

A) active policy making. 
B) passive policy making. 
C) the monetary rule. 
D) Phillips policy making. 
A) active policy making. 
B) passive policy making. 
C) the monetary rule. 
D) Phillips policy making.

Question 16

What kind of relationship appears to actually exist,if one examines the actual data regarding the inflation rate and the unemployment rate for all years since 1953?

Accepted Answer

A) a direct relationship 
B) a one-to-one relationship 
C) an inverse relationship 
D) no relationship in the long run 
A) a direct relationship 
B) a one-to-one relationship 
C) an inverse relationship 
D) no relationship in the long run

Question 17

Deviations of the actual unemployment rate from the natural rate of unemployment are called

Accepted Answer

A) frictional unemployment. 
B) cyclical unemployment. 
C) seasonal unemployment. 
D) underemployment. 
A) frictional unemployment. 
B) cyclical unemployment. 
C) seasonal unemployment. 
D) underemployment.

Question 18

Which of the following statements is consistent with the rational expectations hypothesis?

Accepted Answer

A) When it comes to making personal economic decisions,people rarely behave in a rational manner. 
B) People combine the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes. 
C) When it comes to making personal economic decisions,people always behave in a rational manner. 
D) Every person in the economy is always correct in her predictions about current and future policy changes. 
A) When it comes to making personal economic decisions,people rarely behave in a rational manner. 
B) People combine the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes. 
C) When it comes to making personal economic decisions,people always behave in a rational manner. 
D) Every person in the economy is always correct in her predictions about current and future policy changes.

Question 19

-Refer to the above figure.Suppose the economy is at C.If the government tried to reduce the unemployment rate to 3 percent,the new long-run outcome will be at point

Accepted Answer

A) A. 
B) C. 
C) D. 
D) H. 
A) A. 
B) C. 
C) D. 
D) H.

Question 20

Small menu costs are a common reason offered for the existence of

Accepted Answer

A) sticky wages. 
B) sticky resource prices. 
C) sticky prices. 
D) sticky product adjustments. 
A) sticky wages. 
B) sticky resource prices. 
C) sticky prices. 
D) sticky product adjustments.

-In the above figure,starting at ,if there is an increase in technology that causes a temporary increase in production capabilities

The rational expectations hypothesis is based on all the following assumptions EXCEPT

-In the above figure,start with the economy in equilibrium at point A.Then an unanticipated reduction in aggregate demand triggers a shift from AD1 to AD2.In the short run,this would cause

New Keynesian inflation dynamics predicts that an increase in aggregate demand will generate,in chronological order,

If the Fed engages in open market sales in direct response to an increase in the rate of inflation,this is known as

An unexpected increase in aggregate demand

-Use the above figure.The long-run Phillips curve is best depicted by graph

Critics of the Phillips curve argue that in the long run,

-Refer to the above figure.The economy initially is at point A.The Fed unexpectedly increases the money supply.Which of the following statements are true?

Suppose the government abolished the minimum wage law and the law that requires union wage rates to be paid on all government contract jobs.We would expect to see

The short-run Phillips curve suggests what policy making implications?

Suppose a constitutional amendment is passed that mandates a balanced federal budget every year and the President and Congress consistently carry this mandate out.This would be an example of

Those who accept both the rational expectations hypothesis and the assumption of flexibility of wages and price would likely argue that

Active policy making refers to

The Federal Reserve is anticipating a contractionary period in the economy.The Fed decides to engage in open market operations to stimulate the economy.This action is

What kind of relationship appears to actually exist,if one examines the actual data regarding the inflation rate and the unemployment rate for all years since 1953?

Deviations of the actual unemployment rate from the natural rate of unemployment are called

Which of the following statements is consistent with the rational expectations hypothesis?

-Refer to the above figure.Suppose the economy is at C.If the government tried to reduce the unemployment rate to 3 percent,the new long-run outcome will be at point

Small menu costs are a common reason offered for the existence of

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

-In the above figure,starting at ,if there is an increase in technology that causes a temporary increase in production capabilities

The rational expectations hypothesis is based on all the following assumptions EXCEPT

-In the above figure,start with the economy in equilibrium at point A.Then an unanticipated reduction in aggregate demand triggers a shift from AD1 to AD2.In the short run,this would cause

New Keynesian inflation dynamics predicts that an increase in aggregate demand will generate,in chronological order,

If the Fed engages in open market sales in direct response to an increase in the rate of inflation,this is known as

An unexpected increase in aggregate demand

-Use the above figure.The long-run Phillips curve is best depicted by graph

Critics of the Phillips curve argue that in the long run,

-Refer to the above figure.The economy initially is at point A.The Fed unexpectedly increases the money supply.Which of the following statements are true?

Suppose the government abolished the minimum wage law and the law that requires union wage rates to be paid on all government contract jobs.We would expect to see

The short-run Phillips curve suggests what policy making implications?

Suppose a constitutional amendment is passed that mandates a balanced federal budget every year and the President and Congress consistently carry this mandate out.This would be an example of

Those who accept both the rational expectations hypothesis and the assumption of flexibility of wages and price would likely argue that

Active policy making refers to

The Federal Reserve is anticipating a contractionary period in the economy.The Fed decides to engage in open market operations to stimulate the economy.This action is

What kind of relationship appears to actually exist,if one examines the actual data regarding the inflation rate and the unemployment rate for all years since 1953?

Deviations of the actual unemployment rate from the natural rate of unemployment are called

Which of the following statements is consistent with the rational expectations hypothesis?

-Refer to the above figure.Suppose the economy is at C.If the government tried to reduce the unemployment rate to 3 percent,the new long-run outcome will be at point

Small menu costs are a common reason offered for the existence of

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