Question 1

In the short-run model, the steady state is characterized by:

Accepted Answer

A)    . 
B)    . 
C)    . 
D)  All of these answers are correct. 
E)  None of these answers is correct. 
A)    . 
B)    . 
C)    . 
D)  All of these answers are correct. 
E)  None of these answers is correct.

Question 2

Refer to the following figure when answering the following questions.
Figure 13.1: AD Curve  
-Consider Figure 13.1. If Europe goes into a recession and inflation remains constant, the economy would move from point e to point:

Accepted Answer

A)  g. 
B)  a. 
C)  c. 
D)  b. 
E)  c 
A)  g. 
B)  a. 
C)  c. 
D)  b. 
E)  c

Question 3

When we raise the federal funds rate by 2 percent for every 1 percent increase in the inflation rate, this is an example of:

Accepted Answer

A)  a fiscal policy rule. 
B)  a monetary policy rule. 
C)  discretionary monetary policy. 
D)  discretionary fiscal policy. 
E)  None of these answers is correct. 
A)  a fiscal policy rule. 
B)  a monetary policy rule. 
C)  discretionary monetary policy. 
D)  discretionary fiscal policy. 
E)  None of these answers is correct.

Question 4

The reputations of ________, ________, and ________ have convinced observers that the Fed is committed to low and stable inflation.

Accepted Answer

A)  John Taylor; Milton Friedman; Karl Marx 
B)  George H. W. Bush; Bill Clinton; George W. Bush 
C)  Ronald Reagan; Alan Greenspan; Janet Yellen 
D)  Paul Volcker; Alan Greenspan; Janet Yellen 
E)  David Ricardo; John Stuart Mill; Alfred Marshall 
A)  John Taylor; Milton Friedman; Karl Marx 
B)  George H. W. Bush; Bill Clinton; George W. Bush 
C)  Ronald Reagan; Alan Greenspan; Janet Yellen 
D)  Paul Volcker; Alan Greenspan; Janet Yellen 
E)  David Ricardo; John Stuart Mill; Alfred Marshall

Question 5

If   is close to zero, the AD curve is:

Accepted Answer

A)  vertical. 
B)  relatively flat. 
C)  horizontal. 
D)  relatively steep. 
E)  Not enough information is given. 
A)  vertical. 
B)  relatively flat. 
C)  horizontal. 
D)  relatively steep. 
E)  Not enough information is given.

Question 6

On the aggregate demand curve, if the rate of inflation rises, short-term output will rise as the curve shifts right.

Accepted Answer

A) True 
 B)False

Question 7

Refer to the following figure when answering the following questions.
Figure 13.1: AD Curve  
-Consider Figure 13.1. Holding the inflation rate constant, beginning at point e, if there is an aggregate demand shock, the AD curve shifts:

Accepted Answer

A)  right to point c. 
B)  right to point a. 
C)  left to point g. 
D)  to point d. 
E)  Not enough information is given. 
A)  right to point c. 
B)  right to point a. 
C)  left to point g. 
D)  to point d. 
E)  Not enough information is given.

Question 8

The equation used to predict movements in the federal funds rate is called the Slutsky equation.

Accepted Answer

A) True 
 B)False

Question 9

Refer to the following figure when answering the following questions.
Figure 13.1: AD Curve  
-Consider Figure 13.1. Holding inflation constant, if the interest rate increases, the economy would move from point e to point:

Accepted Answer

A)  b. 
B)  c. 
C)  d. 
D)  a. 
E)  None of these answers is correct. 
A)  b. 
B)  c. 
C)  d. 
D)  a. 
E)  None of these answers is correct.

Question 10

Refer to the following figure when answering the following questions.
Figure 13.1: AD Curve  
-Consider Figure 13.1. Holding inflation constant, if the interest rate increases, the economy would move from point e to point:

Accepted Answer

A)  b. 
B)  c. 
C)  d. 
D)  a. 
E)  g. 
A)  b. 
B)  c. 
C)  d. 
D)  a. 
E)  g.

Question 11

According to the Taylor rule, the federal funds rate should rise in positive proportion to the inflation rise.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following best describes why the aggregate demand curve slopes downward?

Accepted Answer

A)  If the central bank observes a high rate of inflation, the monetary policy rule dictates an increase in the real interest rate. The high interest rate reduces output by reducing investment demand in the economy. 
B)  If the central bank observes a low rate of inflation, the monetary policy rule dictates an increase in the real interest rate. The high interest rate reduces output by reducing investment demand in the economy. 
C)  If the central bank observes a high rate of inflation, the monetary policy rule dictates a decrease in the real interest rate. The low interest rate increases output by reducing investment demand in the economy. 
D)  If the central bank observes a low rate of inflation, the monetary policy rule dictates a decrease in the real interest rate. The low interest rate reduces output by reducing investment demand in the economy. 
E)  None of these answers is correct. 
A)  If the central bank observes a high rate of inflation, the monetary policy rule dictates an increase in the real interest rate. The high interest rate reduces output by reducing investment demand in the economy. 
B)  If the central bank observes a low rate of inflation, the monetary policy rule dictates an increase in the real interest rate. The high interest rate reduces output by reducing investment demand in the economy. 
C)  If the central bank observes a high rate of inflation, the monetary policy rule dictates a decrease in the real interest rate. The low interest rate increases output by reducing investment demand in the economy. 
D)  If the central bank observes a low rate of inflation, the monetary policy rule dictates a decrease in the real interest rate. The low interest rate reduces output by reducing investment demand in the economy. 
E)  None of these answers is correct.

Question 13

Refer to the following figure when answering the following questions.
Figure 13.2: AD Curve  
-Consider Figure 13.2. The aggregate demand curve ________ displays a relatively aggressive monetary policy, while the curve ________ displays a monetary policy completely unresponsive to changes in inflation.

Accepted Answer

A)    
B)    
C)    
D)  All of these answers are correct. 
E)  None of these answers is correct. 
A)    
B)    
C)    
D)  All of these answers are correct. 
E)  None of these answers is correct.

Question 14

The adjustment process back to the steady state in the short-run model hinges on the:

Accepted Answer

A)  rate of unemployment. 
B)  immediate reaction to a change in the inflation rate. 
C)  consumers' response to inflation shocks. 
D)  government's response to inflation shocks. 
E)  slow adjustment of inflation reflected in the aggregate supply curve. 
A)  rate of unemployment. 
B)  immediate reaction to a change in the inflation rate. 
C)  consumers' response to inflation shocks. 
D)  government's response to inflation shocks. 
E)  slow adjustment of inflation reflected in the aggregate supply curve.

Question 15

The simple monetary policy rule may contain which of the following?

Accepted Answer

A)  price shocks 
B)  long-term output 
C)  the unemployment rate 
D)  stock indices 
E)  All of these answers are correct. 
A)  price shocks 
B)  long-term output 
C)  the unemployment rate 
D)  stock indices 
E)  All of these answers are correct.

Question 16

Use the aggregate supply/aggregate demand model in Figure 13.4 to answer the following scenario. The terrorist attacks on 9/11 caused the economy initially to move from point ________ to point ________; eventually the economy returned to the steady state at point ________.

Accepted Answer

A)  c; a; b 
B)  c; b; a 
C)  c; d; c 
D)  a; b; c 
E)  Not enough information is given. 
A)  c; a; b 
B)  c; b; a 
C)  c; d; c 
D)  a; b; c 
E)  Not enough information is given.

Question 17

Assuming the simple Taylor rule for dictating the federal funds rate, when the actual federal funds rate deviates from the suggested rate, it can be explained by:

Accepted Answer

A)  bad monetary policy. 
B)  discretionary fiscal policy. 
C)  a richer version of the Taylor rule. 
D)  poorly informed monetary policy. 
E)  poorly informed fiscal policy. 
A)  bad monetary policy. 
B)  discretionary fiscal policy. 
C)  a richer version of the Taylor rule. 
D)  poorly informed monetary policy. 
E)  poorly informed fiscal policy.

Question 18

A policy rule dictates that monetary policy is at the discretion of the president.

Accepted Answer

A) True 
 B)False

Question 19

Refer to the following figure when answering the following questions.
Figure 13.2: AD Curve  
-Consider Figure 13.2. Each of the aggregate demand curves pictured represents a different economy. In which economy would fighting inflation have the biggest impact on real output?

Accepted Answer

A)  Economy 3 
B)  Economy 1 
C)  Economy 2 
D)  Economy 4 
E)  Not enough information is given. 
A)  Economy 3 
B)  Economy 1 
C)  Economy 2 
D)  Economy 4 
E)  Not enough information is given.

Question 20

Combining the IS and monetary policy curves gives us the aggregate supply curve.

Accepted Answer

A) True 
 B)False

Exam 13: Stabilization Policy and the Asad Framework

In the short-run model, the steady state is characterized by:

Refer to the following figure when answering the following questions. Figure 13.1: AD Curve -Consider Figure 13.1. If Europe goes into a recession and inflation remains constant, the economy would move from point e to point:

When we raise the federal funds rate by 2 percent for every 1 percent increase in the inflation rate, this is an example of:

The reputations of ________, ________, and ________ have convinced observers that the Fed is committed to low and stable inflation.

If is close to zero, the AD curve is:

On the aggregate demand curve, if the rate of inflation rises, short-term output will rise as the curve shifts right.

Refer to the following figure when answering the following questions. Figure 13.1: AD Curve -Consider Figure 13.1. Holding the inflation rate constant, beginning at point e, if there is an aggregate demand shock, the AD curve shifts:

The equation used to predict movements in the federal funds rate is called the Slutsky equation.

Refer to the following figure when answering the following questions. Figure 13.1: AD Curve -Consider Figure 13.1. Holding inflation constant, if the interest rate increases, the economy would move from point e to point:

Refer to the following figure when answering the following questions. Figure 13.1: AD Curve -Consider Figure 13.1. Holding inflation constant, if the interest rate increases, the economy would move from point e to point:

According to the Taylor rule, the federal funds rate should rise in positive proportion to the inflation rise.

Which of the following best describes why the aggregate demand curve slopes downward?

The adjustment process back to the steady state in the short-run model hinges on the:

The simple monetary policy rule may contain which of the following?

Use the aggregate supply/aggregate demand model in Figure 13.4 to answer the following scenario. The terrorist attacks on 9/11 caused the economy initially to move from point ________ to point ________; eventually the economy returned to the steady state at point ________.

Assuming the simple Taylor rule for dictating the federal funds rate, when the actual federal funds rate deviates from the suggested rate, it can be explained by:

A policy rule dictates that monetary policy is at the discretion of the president.

Refer to the following figure when answering the following questions. Figure 13.2: AD Curve -Consider Figure 13.2. Each of the aggregate demand curves pictured represents a different economy. In which economy would fighting inflation have the biggest impact on real output?

Combining the IS and monetary policy curves gives us the aggregate supply curve.

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

The reputations of , , and have convinced observers that the Fed is committed to low and stable inflation.

Use the aggregate supply/aggregate demand model in Figure 13.4 to answer the following scenario. The terrorist attacks on 9/11 caused the economy initially to move from point to point ; eventually the economy returned to the steady state at point .