Question 1

In the short run,________.

Accepted Answer

A) when expected inflation rises,there is a movement up along the AS curve 
B) workers pushing for higher wages causes output to rise 
C) the aggregate supply curve may shift to the right with increases in output 
D) all of the above 
E) none of the above 
A) when expected inflation rises,there is a movement up along the AS curve 
B) workers pushing for higher wages causes output to rise 
C) the aggregate supply curve may shift to the right with increases in output 
D) all of the above 
E) none of the above

Question 2

What is the main difference between a demand shock stemming from monetary policy and a demand shock that comes from a change in spending?

Accepted Answer

A) In the short-run,an autonomous monetary policy easing lowers real interest rates and raises aggregate output whereas a positive spending shock has the opposite effect on both variables. 
B) An autonomous monetary policy easing raises inflation permanently whereas a positive spending shock only raises inflation temporarily. 
C) An autonomous monetary policy easing has a temporary effect on the real interest rate whereas a positive spending shock has a permanent effect on the real interest rate. 
D) all of the above 
E) none of the above 
A) In the short-run,an autonomous monetary policy easing lowers real interest rates and raises aggregate output whereas a positive spending shock has the opposite effect on both variables. 
B) An autonomous monetary policy easing raises inflation permanently whereas a positive spending shock only raises inflation temporarily. 
C) An autonomous monetary policy easing has a temporary effect on the real interest rate whereas a positive spending shock has a permanent effect on the real interest rate. 
D) all of the above 
E) none of the above

Question 3

When a temporary shock in the economy involves a restriction in supply ________.

Accepted Answer

A) we refer to it as a negative supply shock 
B) a rise in commodity prices typically follows 
C) a reduction in output typically ensues 
D) all of the above 
E) none of the above 
A) we refer to it as a negative supply shock 
B) a rise in commodity prices typically follows 
C) a reduction in output typically ensues 
D) all of the above 
E) none of the above

Question 4

-On the graph above,suppose the economy is at point F when there is a temporary negative supply shock.The new long-run equilibrium is at point ________.

Accepted Answer

A) H 
B) I 
C) F 
D) G 
E) none of the above 
A) H 
B) I 
C) F 
D) G 
E) none of the above

Question 5

A fall in import prices or an increase in productivity ________.

Accepted Answer

A) constitute a positive supply shock 
B) typically leads to a rise in commodity prices 
C) typically comes with a reduction in output 
D) all of the above 
E) none of the above 
A) constitute a positive supply shock 
B) typically leads to a rise in commodity prices 
C) typically comes with a reduction in output 
D) all of the above 
E) none of the above

Question 6

The endogenous variable in the aggregate supply curve is ________.

Accepted Answer

A) output 
B) the real interest rate 
C) inflation 
D) planned expenditure 
E) none of the above 
A) output 
B) the real interest rate 
C) inflation 
D) planned expenditure 
E) none of the above

Question 7

Unlike either the United States or the United Kingdom,________ did not occur in China's economy between 2007 and 2009.

Accepted Answer

A) a massive monetary and fiscal stimulus 
B) a negative demand shock 
C) a negative rate of inflation (i.e. ,deflation) 
D) a sharp increase in financial frictions 
E) a positive supply shock 
A) a massive monetary and fiscal stimulus 
B) a negative demand shock 
C) a negative rate of inflation (i.e. ,deflation) 
D) a sharp increase in financial frictions 
E) a positive supply shock

Question 8

An autonomous increase in net exports for any given inflation rate ________.

Accepted Answer

A) would add directly to planned expenditures 
B) would raise the equilibrium level of output 
C) causes the aggregate demand curve to shift to the right 
D) all of the above 
E) none of the above 
A) would add directly to planned expenditures 
B) would raise the equilibrium level of output 
C) causes the aggregate demand curve to shift to the right 
D) all of the above 
E) none of the above

Question 9

-On the graph above,suppose the economy is at point F when there is a permanent positive supply shock.The new long-run equilibrium is at point ________.

Accepted Answer

A) F 
B) H 
C) I 
D) G 
E) none of the above 
A) F 
B) H 
C) I 
D) G 
E) none of the above

Question 10

AD - AS Shocks  
-On the graph above,movement from point ________ to point ________ might occur if there is a negative demand shock,followed by updating of expected inflation.

Accepted Answer

A) F;G 
B) H;I 
C) H;F 
D) F;H 
E) none of the above 
A) F;G 
B) H;I 
C) H;F 
D) F;H 
E) none of the above

Question 11

Under a favorable business environment and if the economic outlook of the future looked promising ________.

Accepted Answer

A) firms might spend more for any given inflation rate 
B) planned investment might increase leading to a higher equilibrium level of output 
C) the aggregate demand curve would likely shift to the right 
D) all of the above 
E) none of the above 
A) firms might spend more for any given inflation rate 
B) planned investment might increase leading to a higher equilibrium level of output 
C) the aggregate demand curve would likely shift to the right 
D) all of the above 
E) none of the above

Question 12

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,the inflation rate exceeded 10%.By the end of 1986 the inflation rate had been brought down to 1.9%.Which of the following is true about the Volcker Disinflation?

Accepted Answer

A) lower inflation resulted from a tightening of monetary policy 
B) by raising the federal funds rate to over 20%,the Federal Reserve stimulated the economy resulting in lower levels of both inflation and the unemployment rate by the early 1980s 
C) the unemployment rate was brought down by 1982 but it took longer to reach lower inflation rates 
D) all of the above 
E) none of the above 
A) lower inflation resulted from a tightening of monetary policy 
B) by raising the federal funds rate to over 20%,the Federal Reserve stimulated the economy resulting in lower levels of both inflation and the unemployment rate by the early 1980s 
C) the unemployment rate was brought down by 1982 but it took longer to reach lower inflation rates 
D) all of the above 
E) none of the above

Question 13

A likely result of the September 11,2001 terrorist attacks was ________.

Accepted Answer

A) weaker consumer confidence 
B) lower business confidence 
C) a leftward shift of the AD curve 
D) all of the above 
E) none of the above 
A) weaker consumer confidence 
B) lower business confidence 
C) a leftward shift of the AD curve 
D) all of the above 
E) none of the above

Question 14

The effect on the aggregate demand curve of which of the following is most similar to the effect of a decrease in the barriers to efficient functioning of financial markets?

Accepted Answer

A) a decrease in autonomous investment 
B) a decrease in the inflation rate 
C) an autonomous loosening of monetary policy 
D) a decrease in expected inflation 
E) a negative price shock 
A) a decrease in autonomous investment 
B) a decrease in the inflation rate 
C) an autonomous loosening of monetary policy 
D) a decrease in expected inflation 
E) a negative price shock

Question 15

-On the graph above,a movement from point ________ to point ________ might represent a negative supply shock.

Accepted Answer

A) H;G 
B) H;F 
C) F;I 
D) F;G 
E) none of the above 
A) H;G 
B) H;F 
C) F;I 
D) F;G 
E) none of the above

Question 16

In the 1960s and 1970s,research funding by the U.S.government and some universities led to revolutionary advances in network computing.These advances in communication and network technology remained largely isolated to governmental and academic use.By the mid-to-late 1990s,the Internet began to be widely adopted with massive increases in productivity (which journalists dubbed the "new economy").Which of the following is an appropriate description of the mechanism behind this supply shock?

Accepted Answer

A) Since this "new economy" was a new paradigm,the transition from a pre-internet to an internet economy was initially costly.Thus,the AS curve likely shifted to the left and unemployment likely increased in the short-run. 
B) The ensuing increase in productive capacity led to the rightward shift of the LRAS which is a likely explanation for the protracted decline in the unemployment rate of the 1990s. 
C) A negative output gap would have resulted in the short-run,but it was eventually closed by a rightward shift of the LRAS which is a likely explanation for the protracted decline in the inflation rate of the 1990s. 
D) all of the above 
E) none of the above 
A) Since this "new economy" was a new paradigm,the transition from a pre-internet to an internet economy was initially costly.Thus,the AS curve likely shifted to the left and unemployment likely increased in the short-run. 
B) The ensuing increase in productive capacity led to the rightward shift of the LRAS which is a likely explanation for the protracted decline in the unemployment rate of the 1990s. 
C) A negative output gap would have resulted in the short-run,but it was eventually closed by a rightward shift of the LRAS which is a likely explanation for the protracted decline in the inflation rate of the 1990s. 
D) all of the above 
E) none of the above

Question 17

In the long run,following a combination of a negative demand shock and a temporary negative supply shock,________.

Accepted Answer

A) both inflation and output return to the original long-run equilibrium values 
B) inflation is permanently increased,while output returns to potential output 
C) output returns to potential output,while inflation may be higher or lower than its initial value 
D) inflation is permanently reduced,while output returns to potential output 
E) none of the above 
A) both inflation and output return to the original long-run equilibrium values 
B) inflation is permanently increased,while output returns to potential output 
C) output returns to potential output,while inflation may be higher or lower than its initial value 
D) inflation is permanently reduced,while output returns to potential output 
E) none of the above

Question 18

Which equation is a plausible aggregate demand curve?

Accepted Answer

A) π = 2 + 0.3Y 
B) Y = 50 - 1.25π 
C) Y = 250 - 80r 
D) π = 5 - 0.4 (U - 6) 
E) none of the above 
A) π = 2 + 0.3Y 
B) Y = 50 - 1.25π 
C) Y = 250 - 80r 
D) π = 5 - 0.4 (U - 6) 
E) none of the above

Question 19

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,the inflation rate exceeded 10%.By 1982 the unemployment rate soared to 9.7% and inflation was cut to 6.2%.By the end of 1986 the unemployment rate was brought down to 7% and the inflation rate was brought further down to 1.9%.Which of the following is an appropriate description of the mechanism behind the Volcker Disinflation?

Accepted Answer

A) The AD curve shifted right due to the autonomous tightening of monetary policy which explains the lowering of the unemployment rate between 1982 and 1986. 
B) With the Federal Reserve raising interest rates,the AD curve shifted to the left lowering the equilibrium level of inflation but inducing a negative output gap,which explains the lower inflation rate between 1979 and 1982 at the cost of a higher unemployment rate over the same period. 
C) The LRAS curve shifted left due to the tightening of monetary policy generating a positive output gap or a negative unemployment gap which explains the lowering of the unemployment rate between 1982 and 1986. 
D) all of the above 
E) none of the above 
A) The AD curve shifted right due to the autonomous tightening of monetary policy which explains the lowering of the unemployment rate between 1982 and 1986. 
B) With the Federal Reserve raising interest rates,the AD curve shifted to the left lowering the equilibrium level of inflation but inducing a negative output gap,which explains the lower inflation rate between 1979 and 1982 at the cost of a higher unemployment rate over the same period. 
C) The LRAS curve shifted left due to the tightening of monetary policy generating a positive output gap or a negative unemployment gap which explains the lowering of the unemployment rate between 1982 and 1986. 
D) all of the above 
E) none of the above

Question 20

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,both the inflation and unemployment rates were higher than during most of the 1950s,60s and early 70s.The Federal Reserve implemented an autonomous tightening of monetary policy that resulted in the famous Volker Disinflation which was successful in bringing both problems under control.What would have been a likely long-run result had Mr.Volker conducted an expansionary monetary policy instead?

Accepted Answer

A) Eventually,inflation would have been made worse and unemployment would not have been fixed. 
B) Eventually,both the inflation and unemployment rates would have declined. 
C) Eventually,inflation would have been fixed and unemployment would have been made worse. 
D) There would have been no effect on the unemployment and inflation rates. 
E) none of the above 
A) Eventually,inflation would have been made worse and unemployment would not have been fixed. 
B) Eventually,both the inflation and unemployment rates would have declined. 
C) Eventually,inflation would have been fixed and unemployment would have been made worse. 
D) There would have been no effect on the unemployment and inflation rates. 
E) none of the above

In the short run,________.

What is the main difference between a demand shock stemming from monetary policy and a demand shock that comes from a change in spending?

When a temporary shock in the economy involves a restriction in supply ________.

-On the graph above,suppose the economy is at point F when there is a temporary negative supply shock.The new long-run equilibrium is at point ________.

A fall in import prices or an increase in productivity ________.

The endogenous variable in the aggregate supply curve is ________.

Unlike either the United States or the United Kingdom,________ did not occur in China's economy between 2007 and 2009.

An autonomous increase in net exports for any given inflation rate ________.

-On the graph above,suppose the economy is at point F when there is a permanent positive supply shock.The new long-run equilibrium is at point ________.

AD - AS Shocks -On the graph above,movement from point to point might occur if there is a negative demand shock,followed by updating of expected inflation.

Under a favorable business environment and if the economic outlook of the future looked promising ________.

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,the inflation rate exceeded 10%.By the end of 1986 the inflation rate had been brought down to 1.9%.Which of the following is true about the Volcker Disinflation?

A likely result of the September 11,2001 terrorist attacks was ________.

The effect on the aggregate demand curve of which of the following is most similar to the effect of a decrease in the barriers to efficient functioning of financial markets?

-On the graph above,a movement from point to point might represent a negative supply shock.

In the long run,following a combination of a negative demand shock and a temporary negative supply shock,________.

Which equation is a plausible aggregate demand curve?

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

Aggregate Supply and the Phillips Curve

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

Filters

Exam 12: The Aggregate Demand and Supply Model

In the short run,________.

What is the main difference between a demand shock stemming from monetary policy and a demand shock that comes from a change in spending?

When a temporary shock in the economy involves a restriction in supply ________.

-On the graph above,suppose the economy is at point F when there is a temporary negative supply shock.The new long-run equilibrium is at point ________.

A fall in import prices or an increase in productivity ________.

The endogenous variable in the aggregate supply curve is ________.

Unlike either the United States or the United Kingdom,________ did not occur in China's economy between 2007 and 2009.

An autonomous increase in net exports for any given inflation rate ________.

-On the graph above,suppose the economy is at point F when there is a permanent positive supply shock.The new long-run equilibrium is at point ________.

AD - AS Shocks -On the graph above,movement from point ________ to point ________ might occur if there is a negative demand shock,followed by updating of expected inflation.

Under a favorable business environment and if the economic outlook of the future looked promising ________.

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,the inflation rate exceeded 10%.By the end of 1986 the inflation rate had been brought down to 1.9%.Which of the following is true about the Volcker Disinflation?

A likely result of the September 11,2001 terrorist attacks was ________.

The effect on the aggregate demand curve of which of the following is most similar to the effect of a decrease in the barriers to efficient functioning of financial markets?

-On the graph above,a movement from point ________ to point ________ might represent a negative supply shock.

In the long run,following a combination of a negative demand shock and a temporary negative supply shock,________.

Which equation is a plausible aggregate demand curve?

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

Aggregate Supply and the Phillips Curve

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

Filters

AD - AS Shocks -On the graph above,movement from point to point might occur if there is a negative demand shock,followed by updating of expected inflation.

-On the graph above,a movement from point to point might represent a negative supply shock.