Question 1

The rational expectations hypothesis suggests that if wages and prices are flexible,

Accepted Answer

A) unanticipated monetary policy actions can shift the long-run aggregate supply curve but cannot shift the aggregate demand curve. 
B) anticipated monetary policy actions can affect nominal variables,but not real variables. 
C) unanticipated monetary policy actions can affect real variables,but not nominal variables. 
D) growth in the money supply can alter real variables only if the growth is anticipated. 
A) unanticipated monetary policy actions can shift the long-run aggregate supply curve but cannot shift the aggregate demand curve. 
B) anticipated monetary policy actions can affect nominal variables,but not real variables. 
C) unanticipated monetary policy actions can affect real variables,but not nominal variables. 
D) growth in the money supply can alter real variables only if the growth is anticipated.

Question 2

Real business cycle theory explains changes in employment and output by focusing on

Accepted Answer

A) real supply-side factors. 
B) changes in monetary policy. 
C) changes in fiscal policy. 
D) the interaction of fiscal and monetary policies. 
A) real supply-side factors. 
B) changes in monetary policy. 
C) changes in fiscal policy. 
D) the interaction of fiscal and monetary policies.

Question 3

If a significant portion of firms in the economy does not adjust product prices,a predicted result according to new Keynesian theory is

Accepted Answer

A) real business cycles. 
B) real inflation cycles. 
C) inflation dynamics. 
D) output dynamics. 
A) real business cycles. 
B) real inflation cycles. 
C) inflation dynamics. 
D) output dynamics.

Question 4

The conclusion that the economy has price flexibility,wage flexibility,and perfectly competitive markets justifies

Accepted Answer

A) active policy making. 
B) rational policy making. 
C) passive policy making. 
D) none of the above. 
A) active policy making. 
B) rational policy making. 
C) passive policy making. 
D) none of the above.

Question 5

The shorter is the interval between firms' price adjustments,

Accepted Answer

A) the greater is the scope for activist policies to stabilize the economy. 
B) the smaller is the scope for activist policies to stabilize the economy. 
C) a given unexpected increase in aggregate demand will cause a larger increase in output. 
D) a given unexpected increase in aggregate demand will cause a smaller increase in the price level in the short run. 
A) the greater is the scope for activist policies to stabilize the economy. 
B) the smaller is the scope for activist policies to stabilize the economy. 
C) a given unexpected increase in aggregate demand will cause a larger increase in output. 
D) a given unexpected increase in aggregate demand will cause a smaller increase in the price level in the short run.

Question 6

The theory of new Keynesian inflation dynamics suggests that a fall in aggregate demand would

Accepted Answer

A) immediately reduce the price level,followed by a more sluggish decline in real GDP. 
B) immediately raise the price level,followed by a more sluggish decline in real GDP. 
C) immediately reduce real GDP,followed by a more sluggish decline in the price level. 
D) immediately raise real GDP,followed by a more sluggish increase in the price level. 
A) immediately reduce the price level,followed by a more sluggish decline in real GDP. 
B) immediately raise the price level,followed by a more sluggish decline in real GDP. 
C) immediately reduce real GDP,followed by a more sluggish decline in the price level. 
D) immediately raise real GDP,followed by a more sluggish increase in the price level.

Question 7

If you accept the rational expectations hypothesis as accurate,what would you tell monetary policy makers who ask you how to more effectively manage the economy?

Accepted Answer

A) Consumers do not understand the workings of monetary policy,so discretionary and nondiscretionary policies are equally effective. 
B) Individuals do understand how monetary policy works,so consistency and predictability are the keys to effective policy making. 
C) Individuals base their economic expectations solely on current information,so repeating policy decisions that have worked in the past is the most effective path to take. 
D) Only unanticipated policies will be effective once individuals understand how monetary policy works. 
A) Consumers do not understand the workings of monetary policy,so discretionary and nondiscretionary policies are equally effective. 
B) Individuals do understand how monetary policy works,so consistency and predictability are the keys to effective policy making. 
C) Individuals base their economic expectations solely on current information,so repeating policy decisions that have worked in the past is the most effective path to take. 
D) Only unanticipated policies will be effective once individuals understand how monetary policy works.

Question 8

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

Accepted Answer

A) perfectly flexible wages and prices. 
B) the trade off between inflation and unemployment is not stable in the short run and is non-existent in the long run. 
C) pure competition is typical. 
D) aggregate demand shocks can influence real GDP and unemployment. 
A) perfectly flexible wages and prices. 
B) the trade off between inflation and unemployment is not stable in the short run and is non-existent in the long run. 
C) pure competition is typical. 
D) aggregate demand shocks can influence real GDP and unemployment.

Question 9

-Refer to the above figure.Suppose the economy is at point B and the central bank adopts contractionary monetary policy.In the short run,this will result in

Accepted Answer

A) the economy moving towards point A. 
B) the economy staying at point B. 
C) the economy moving towards point C. 
D) an outcome that cannot be predicted,because not enough information is given. 
A) the economy moving towards point A. 
B) the economy staying at point B. 
C) the economy moving towards point C. 
D) an outcome that cannot be predicted,because not enough information is given.

Question 10

The hypothesis stating that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of future and current policy changes is known as

Accepted Answer

A) policy irrelevance hypothesis. 
B) rational expectations hypothesis. 
C) life cycle hypothesis. 
D) real business cycle hypothesis. 
A) policy irrelevance hypothesis. 
B) rational expectations hypothesis. 
C) life cycle hypothesis. 
D) real business cycle hypothesis.

Question 11

Based on the work of economist A.W.Phillips,economists concluded that

Accepted Answer

A) there is no trade-off between inflation and unemployment. 
B) high inflation rates are associated with low unemployment rates. 
C) unemployment can be effectively combated by raising wages. 
D) higher rates of inflation are associated with higher rates of unemployment. 
A) there is no trade-off between inflation and unemployment. 
B) high inflation rates are associated with low unemployment rates. 
C) unemployment can be effectively combated by raising wages. 
D) higher rates of inflation are associated with higher rates of unemployment.

Question 12

The short-run Phillips curve and the long-run Phillips curve are different because

Accepted Answer

A) the expected rate of inflation is always zero in the long run,while it is a positive number in the short run. 
B) the expected rate of inflation is always zero in the short run,while it is a positive number in the long run. 
C) the actual and expected rate of inflation are equal in the short run. 
D) the actual and expected rate of inflation are equal in the long run. 
A) the expected rate of inflation is always zero in the long run,while it is a positive number in the short run. 
B) the expected rate of inflation is always zero in the short run,while it is a positive number in the long run. 
C) the actual and expected rate of inflation are equal in the short run. 
D) the actual and expected rate of inflation are equal in the long run.

Question 13

Which of the following holds that economic decision making on all levels is unbiased and is based on all available information?

Accepted Answer

A) Keynesian cycle theory 
B) rational expectations based theory 
C) adaptive expectations based theory 
D) none of the above 
A) Keynesian cycle theory 
B) rational expectations based theory 
C) adaptive expectations based theory 
D) none of the above

Question 14

Cyclical unemployment is

Accepted Answer

A) the difference between the unemployment rate when the economy is in a recession and the unemployment rate when the economy is at the peak of an expansion. 
B) the difference between the actual unemployment rate and the natural rate of unemployment. 
C) the unemployment due to union activities and government-imposed restrictions to entry into specific occupations. 
D) the unemployment due to the unemployment benefits and welfare programs of the government. 
A) the difference between the unemployment rate when the economy is in a recession and the unemployment rate when the economy is at the peak of an expansion. 
B) the difference between the actual unemployment rate and the natural rate of unemployment. 
C) the unemployment due to union activities and government-imposed restrictions to entry into specific occupations. 
D) the unemployment due to the unemployment benefits and welfare programs of the government.

Question 15

Under the assumption of rational expectations,real GDP is determined by

Accepted Answer

A) the economy's aggregate demand curve. 
B) the Fed. 
C) a combination of monetary and fiscal policy. 
D) the nation's long-run aggregate supply curve. 
A) the economy's aggregate demand curve. 
B) the Fed. 
C) a combination of monetary and fiscal policy. 
D) the nation's long-run aggregate supply curve.

Question 16

What types of unemployment will still exist when the economy is at the natural rate of unemployment?

Accepted Answer

A) frictional and cyclical unemployment only 
B) frictional and structural unemployment only 
C) structural and cyclical unemployment only 
D) frictional,structural,and cyclical unemployment 
A) frictional and cyclical unemployment only 
B) frictional and structural unemployment only 
C) structural and cyclical unemployment only 
D) frictional,structural,and cyclical unemployment

Question 17

If a policy is carried out by a rule,then we have an example of

Accepted Answer

A) active policy making. 
B) discretionary policy making. 
C) nondiscretionary policy making. 
D) natural policy making. 
A) active policy making. 
B) discretionary policy making. 
C) nondiscretionary policy making. 
D) natural policy making.

Question 18

Available evidence about price adjustments across U.S.industries indicates that

Accepted Answer

A) prices are very flexible in all industries. 
B) prices are very sticky in all industries. 
C) prices are equally flexible in all industries. 
D) there is considerable variation in price flexibility across industries. 
A) prices are very flexible in all industries. 
B) prices are very sticky in all industries. 
C) prices are equally flexible in all industries. 
D) there is considerable variation in price flexibility across industries.

Question 19

The costs associated with changing prices are called

Accepted Answer

A) price costs. 
B) change costs. 
C) menu costs. 
D) inflation-dynamics costs. 
A) price costs. 
B) change costs. 
C) menu costs. 
D) inflation-dynamics costs.

Question 20

According to the new Keynesian theory,the widespread importance of small menu costs results in variations in aggregate demand causing both

Accepted Answer

A) greater short-run adjustments in real GDP and delayed adjustment in the price level. 
B) greater short-run adjustments in the real GDP and immediate adjustment in the price level. 
C) smaller short-run adjustments in real GDP and delayed adjustment in the price level. 
D) smaller short-run adjustments in real GDP and immediate adjustment in the price level. 
A) greater short-run adjustments in real GDP and delayed adjustment in the price level. 
B) greater short-run adjustments in the real GDP and immediate adjustment in the price level. 
C) smaller short-run adjustments in real GDP and delayed adjustment in the price level. 
D) smaller short-run adjustments in real GDP and immediate adjustment in the price level.

The rational expectations hypothesis suggests that if wages and prices are flexible,

Real business cycle theory explains changes in employment and output by focusing on

If a significant portion of firms in the economy does not adjust product prices,a predicted result according to new Keynesian theory is

The conclusion that the economy has price flexibility,wage flexibility,and perfectly competitive markets justifies

The shorter is the interval between firms' price adjustments,

The theory of new Keynesian inflation dynamics suggests that a fall in aggregate demand would

If you accept the rational expectations hypothesis as accurate,what would you tell monetary policy makers who ask you how to more effectively manage the economy?

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

-Refer to the above figure.Suppose the economy is at point B and the central bank adopts contractionary monetary policy.In the short run,this will result in

The hypothesis stating that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of future and current policy changes is known as

Based on the work of economist A.W.Phillips,economists concluded that

The short-run Phillips curve and the long-run Phillips curve are different because

Which of the following holds that economic decision making on all levels is unbiased and is based on all available information?

Cyclical unemployment is

Under the assumption of rational expectations,real GDP is determined by

What types of unemployment will still exist when the economy is at the natural rate of unemployment?

If a policy is carried out by a rule,then we have an example of

Available evidence about price adjustments across U.S.industries indicates that

The costs associated with changing prices are called

According to the new Keynesian theory,the widespread importance of small menu costs results in variations in aggregate demand causing both

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 rational expectations hypothesis suggests that if wages and prices are flexible,

Real business cycle theory explains changes in employment and output by focusing on

If a significant portion of firms in the economy does not adjust product prices,a predicted result according to new Keynesian theory is

The conclusion that the economy has price flexibility,wage flexibility,and perfectly competitive markets justifies

The shorter is the interval between firms' price adjustments,

The theory of new Keynesian inflation dynamics suggests that a fall in aggregate demand would

If you accept the rational expectations hypothesis as accurate,what would you tell monetary policy makers who ask you how to more effectively manage the economy?

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

-Refer to the above figure.Suppose the economy is at point B and the central bank adopts contractionary monetary policy.In the short run,this will result in

The hypothesis stating that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of future and current policy changes is known as

Based on the work of economist A.W.Phillips,economists concluded that

The short-run Phillips curve and the long-run Phillips curve are different because

Which of the following holds that economic decision making on all levels is unbiased and is based on all available information?

Cyclical unemployment is

Under the assumption of rational expectations,real GDP is determined by

What types of unemployment will still exist when the economy is at the natural rate of unemployment?

If a policy is carried out by a rule,then we have an example of

Available evidence about price adjustments across U.S.industries indicates that

The costs associated with changing prices are called

According to the new Keynesian theory,the widespread importance of small menu costs results in variations in aggregate demand causing both

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