Question 1

The idea that anticipated monetary policy changes cannot affect real GDP or employment is known as

Accepted Answer

A) the systematic policy hypothesis. 
B) the policy irrelevance theorem. 
C) the policy relevance theorem. 
D) the Keynesian hypothesis. 
A) the systematic policy hypothesis. 
B) the policy irrelevance theorem. 
C) the policy relevance theorem. 
D) the Keynesian hypothesis.

Question 2

According to the theory based on rational expectations and flexible wages and prices,

Accepted Answer

A) fiscal policy has less effect on real GDP than monetary policy in the long run. 
B) monetary policy has less effect on real GDP than fiscal policy in the long run. 
C) neither fiscal nor monetary policy influence real GDP in the long run. 
D) only the combination of discretionary fiscal policy and conservative monetary policy can affect real GDP in the long run. 
A) fiscal policy has less effect on real GDP than monetary policy in the long run. 
B) monetary policy has less effect on real GDP than fiscal policy in the long run. 
C) neither fiscal nor monetary policy influence real GDP in the long run. 
D) only the combination of discretionary fiscal policy and conservative monetary policy can affect real GDP in the long run.

Question 3

If a group of economists believes the following points are true,which is likely to be their policy making stance? ∙ Aggregate demand shocks have no long run effect on real Gross Domestic Product (GDP)or unemployment.
∙ Pure competition is widespread throughout the economy.
∙ Real wages are flexible.
∙ The Phillips Curve trade-off does not exist in the long run.

Accepted Answer

A) They will support active policy making. 
B) They will support passive policy making. 
C) They will support discretionary policy making. 
D) They will argue that any attempt at economic policy making is futile. 
A) They will support active policy making. 
B) They will support passive policy making. 
C) They will support discretionary policy making. 
D) They will argue that any attempt at economic policy making is futile.

Question 4

Assume the Fed initiates an expansionary monetary policy that is correctly anticipated by economic agents in the economy.According to the rational expectation hypothesis,the result is

Accepted Answer

A) an increased price level in the short run,but no effect on price level in the long run. 
B) decreased real Gross Domestic Product (GDP)in the short run,but increased real Gross Domestic Product (GDP)in the long run. 
C) increased real Gross Domestic Product (GDP)and increased employment in the long run. 
D) an increased price level,but no change in real Gross Domestic Product (GDP)in the long run. 
A) an increased price level in the short run,but no effect on price level in the long run. 
B) decreased real Gross Domestic Product (GDP)in the short run,but increased real Gross Domestic Product (GDP)in the long run. 
C) increased real Gross Domestic Product (GDP)and increased employment in the long run. 
D) an increased price level,but no change in real Gross Domestic Product (GDP)in the long run.

Question 5

-Refer to the above figure.Suppose the economy is in equilibrium at point A.If rational expectations exist,an increase in aggregate demand caused by an anticipated increase in the money supply will cause the economy to

Accepted Answer

A) stay at point A. 
B) move to point B. 
C) move to point C. 
D) move to point D. 
A) stay at point A. 
B) move to point B. 
C) move to point C. 
D) move to point D.

Question 6

Which of the following statements has been proposed as a benefit of passive policy making?

Accepted Answer

A) Passive policy making allows for making immediate changes in response to an anticipated change in economic performance. 
B) Passive policy making utilizes the rational expectations hypothesis. 
C) When using passive policy making there is no tradeoff between price stability and unemployment. 
D) Passive policy making does not wait for the time lag between recognition of a problem and policy action before engaging in economic policies to stabilize the economy. 
A) Passive policy making allows for making immediate changes in response to an anticipated change in economic performance. 
B) Passive policy making utilizes the rational expectations hypothesis. 
C) When using passive policy making there is no tradeoff between price stability and unemployment. 
D) Passive policy making does not wait for the time lag between recognition of a problem and policy action before engaging in economic policies to stabilize the economy.

Question 7

The trade-off between unemployment and inflation is known as

Accepted Answer

A) the Keynesian mechanism. 
B) the Phillips curve. 
C) an expansionary gap. 
D) passive policy making. 
A) the Keynesian mechanism. 
B) the Phillips curve. 
C) an expansionary gap. 
D) passive policy making.

Question 8

Which one of the following is an example of passive policy making?

Accepted Answer

A) introducing expansionary monetary policy to combat a recession 
B) introducing expansionary monetary policy to combat inflation 
C) introducing expansionary fiscal policy to combat a recession 
D) following a predetermined monetary policy rule 
A) introducing expansionary monetary policy to combat a recession 
B) introducing expansionary monetary policy to combat inflation 
C) introducing expansionary fiscal policy to combat a recession 
D) following a predetermined monetary policy rule

Question 9

Suppose the natural rate of unemployment is 5 percent.If the actual unemployment rate is 4 percent,then the cyclical unemployment rate is

Accepted Answer

A) 9 percent. 
B) 1 percent. 
C) -1 percent. 
D) 0 percent as cyclical unemployment cannot be less than zero. 
A) 9 percent. 
B) 1 percent. 
C) -1 percent. 
D) 0 percent as cyclical unemployment cannot be less than zero.

Question 10

Those who favor active policy making argue that all of the following exist EXCEPT

Accepted Answer

A) perfectly flexible wages and prices. 
B) inflation and unemployment are stable in the short run and predictable in the long run. 
C) pure competition is not typical. 
D) aggregate demand shocks can influence real GDP and unemployment. 
A) perfectly flexible wages and prices. 
B) inflation and unemployment are stable in the short run and predictable in the long run. 
C) pure competition is not typical. 
D) aggregate demand shocks can influence real GDP and unemployment.

Question 11

The Phillips curve shows

Accepted Answer

A) a positive relationship in the long run between the rate of inflation and the rate of unemployment. 
B) a negative relationship between the inflation rate and the unemployment rate,at least in the short run. 
C) a positive relationship between contractionary monetary policy and higher price levels. 
D) a positive relationship between price stability and constant,small-increment changes in the fiscal policy on the part of the Fed. 
A) a positive relationship in the long run between the rate of inflation and the rate of unemployment. 
B) a negative relationship between the inflation rate and the unemployment rate,at least in the short run. 
C) a positive relationship between contractionary monetary policy and higher price levels. 
D) a positive relationship between price stability and constant,small-increment changes in the fiscal policy on the part of the Fed.

Question 12

A trade-off between unemployment and inflation is reflected in the

Accepted Answer

A) natural rate of unemployment. 
B) Phillips Curve. 
C) economic stability. 
D) nonaccelerating inflation rate of unemployment (NAIRU). 
A) natural rate of unemployment. 
B) Phillips Curve. 
C) economic stability. 
D) nonaccelerating inflation rate of unemployment (NAIRU).

Question 13

The natural rate of unemployment is

Accepted Answer

A) zero. 
B) the unemployment rate when there is no structural unemployment. 
C) the unemployment rate when there is no structural or cyclical unemployment. 
D) the unemployment rate that exists in long-run equilibrium,after adjustments to all changes have occurred. 
A) zero. 
B) the unemployment rate when there is no structural unemployment. 
C) the unemployment rate when there is no structural or cyclical unemployment. 
D) the unemployment rate that exists in long-run equilibrium,after adjustments to all changes have occurred.

Question 14

Proponents of passive policy making believe that

Accepted Answer

A) the existence of time lags makes active policy ineffective or even procyclical. 
B) time lags do not exist so the economy will adjust too rapidly with active policy. 
C) government should not follow any particular policy. 
D) fiscal policy is always better than monetary policy in stabilizing the economy. 
A) the existence of time lags makes active policy ineffective or even procyclical. 
B) time lags do not exist so the economy will adjust too rapidly with active policy. 
C) government should not follow any particular policy. 
D) fiscal policy is always better than monetary policy in stabilizing the economy.

Question 15

The natural rate of unemployment includes

Accepted Answer

A) frictional and cyclical unemployment. 
B) only cyclical unemployment. 
C) only unemployment due to layoffs and corporate downsizing. 
D) frictional unemployment and structural unemployment. 
A) frictional and cyclical unemployment. 
B) only cyclical unemployment. 
C) only unemployment due to layoffs and corporate downsizing. 
D) frictional unemployment and structural unemployment.

Question 16

According to New Keynesians,a reduction in which of the following will tend to cause the inflation rate to decrease?

Accepted Answer

A) anticipated future inflation 
B) firms' average inflation adjusted per-unit costs of production 
C) an unexpected reduction in aggregate demand 
D) all of the above 
A) anticipated future inflation 
B) firms' average inflation adjusted per-unit costs of production 
C) an unexpected reduction in aggregate demand 
D) all of the above

Question 17

Suppose there was an unexpected increase in aggregate demand.We would expect to observe

Accepted Answer

A) frictional unemployment to increase. 
B) the duration of unemployment and the amount of unemployment to decrease. 
C) higher wages,with the duration of unemployment and the amount of unemployment unchanged. 
D) a decrease in aggregate demand. 
A) frictional unemployment to increase. 
B) the duration of unemployment and the amount of unemployment to decrease. 
C) higher wages,with the duration of unemployment and the amount of unemployment unchanged. 
D) a decrease in aggregate demand.

Question 18

The rational expectations hypothesis is a theory that states that

Accepted Answer

A) individuals can predict the future perfectly,at least with respect to macroeconomic variables like the interest rate and inflation. 
B) people make their economic plans by using all available past and present information and their understanding about how the economy operates. 
C) people make their economic plans in an irrational,intuitive manner. 
D) people make their economic plans by relying on the policy statements made by the President and by leaders in Congress. 
A) individuals can predict the future perfectly,at least with respect to macroeconomic variables like the interest rate and inflation. 
B) people make their economic plans by using all available past and present information and their understanding about how the economy operates. 
C) people make their economic plans in an irrational,intuitive manner. 
D) people make their economic plans by relying on the policy statements made by the President and by leaders in Congress.

Question 19

More recent studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States are

Accepted Answer

A) are one year or less. 
B) two years or less. 
C) four years or less. 
D) more than four years. 
A) are one year or less. 
B) two years or less. 
C) four years or less. 
D) more than four years.

Question 20

Under the rational expectations hypothesis,if wages adjust rapidly to new information about intended policy actions,the only time that changes in government policies have real effects is when

Accepted Answer

A) the changes are unanticipated. 
B) the changes involve fiscal policy. 
C) the changes involve monetary policy. 
D) the changes affect aggregate demand. 
A) the changes are unanticipated. 
B) the changes involve fiscal policy. 
C) the changes involve monetary policy. 
D) the changes affect aggregate demand.

The idea that anticipated monetary policy changes cannot affect real GDP or employment is known as

According to the theory based on rational expectations and flexible wages and prices,

Assume the Fed initiates an expansionary monetary policy that is correctly anticipated by economic agents in the economy.According to the rational expectation hypothesis,the result is

-Refer to the above figure.Suppose the economy is in equilibrium at point A.If rational expectations exist,an increase in aggregate demand caused by an anticipated increase in the money supply will cause the economy to

Which of the following statements has been proposed as a benefit of passive policy making?

The trade-off between unemployment and inflation is known as

Which one of the following is an example of passive policy making?

Suppose the natural rate of unemployment is 5 percent.If the actual unemployment rate is 4 percent,then the cyclical unemployment rate is

Those who favor active policy making argue that all of the following exist EXCEPT

The Phillips curve shows

A trade-off between unemployment and inflation is reflected in the

The natural rate of unemployment is

Proponents of passive policy making believe that

The natural rate of unemployment includes

According to New Keynesians,a reduction in which of the following will tend to cause the inflation rate to decrease?

Suppose there was an unexpected increase in aggregate demand.We would expect to observe

The rational expectations hypothesis is a theory that states that

More recent studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States are

Under the rational expectations hypothesis,if wages adjust rapidly to new information about intended policy actions,the only time that changes in government policies have real effects is when

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

The idea that anticipated monetary policy changes cannot affect real GDP or employment is known as

According to the theory based on rational expectations and flexible wages and prices,

Assume the Fed initiates an expansionary monetary policy that is correctly anticipated by economic agents in the economy.According to the rational expectation hypothesis,the result is

-Refer to the above figure.Suppose the economy is in equilibrium at point A.If rational expectations exist,an increase in aggregate demand caused by an anticipated increase in the money supply will cause the economy to

Which of the following statements has been proposed as a benefit of passive policy making?

The trade-off between unemployment and inflation is known as

Which one of the following is an example of passive policy making?

Suppose the natural rate of unemployment is 5 percent.If the actual unemployment rate is 4 percent,then the cyclical unemployment rate is

Those who favor active policy making argue that all of the following exist EXCEPT

The Phillips curve shows

A trade-off between unemployment and inflation is reflected in the

The natural rate of unemployment is

Proponents of passive policy making believe that

The natural rate of unemployment includes

According to New Keynesians,a reduction in which of the following will tend to cause the inflation rate to decrease?

Suppose there was an unexpected increase in aggregate demand.We would expect to observe

The rational expectations hypothesis is a theory that states that

More recent studies of new Keynesian inflation dynamics indicated that the average price-adjustment intervals in the United States are

Under the rational expectations hypothesis,if wages adjust rapidly to new information about intended policy actions,the only time that changes in government policies have real effects is when

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