Question 1

AD - AS Shocks
  
-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 A

Question 2

If the adoption of a new technology led to gains in productivity ________.

Accepted Answer

A)  the ensuing positive supply shock would lead to an immediate increase in output 
B)  in the short-run, the ensuing increase in supply would lower inflation 
C)  and if this new technology permanently altered the productive capacity of the economy then the increase in output and decrease in inflation would be permanent as well 
D)  all of the above 
E)  none of the above 
A)  the ensuing positive supply shock would lead to an immediate increase in output 
B)  in the short-run, the ensuing increase in supply would lower inflation 
C)  and if this new technology permanently altered the productive capacity of the economy then the increase in output and decrease in inflation would be permanent as well 
D)  all of the above 
E)  none of the above D

Question 3

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 but unemployment would have been lowered 
B)  Eventually, both the inflation and unemployment rates would have declined 
C)  Eventually, both inflation 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 but unemployment would have been lowered 
B)  Eventually, both the inflation and unemployment rates would have declined 
C)  Eventually, both inflation 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 E

Question 4

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 5

Describe how changes in expected inflation impact an economy in the wake of a temporary negative supply shock.

Accepted Answer

The supply shock causes the short-run ag

Question 6

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 likely shifted left due to the autonomous tightening of monetary policy which explains the lowering of the inflation rate between 1979 and 1982 
B)  Due to the autonomous tightening of monetary policy, a negative output gap ensued which explains the increase in the unemployment rate between 1979 and 1982 
C)  By 1982, it is likely that equilibrium output was lower than potential leading the AS curve to shift to the right to close the output gap toward a general equilibrium which explains the reduction in the unemployment rate and the further reduction in inflation between 1982 and 1986 
D)  all of the above 
E)  none of the above 
A)  The AD curve likely shifted left due to the autonomous tightening of monetary policy which explains the lowering of the inflation rate between 1979 and 1982 
B)  Due to the autonomous tightening of monetary policy, a negative output gap ensued which explains the increase in the unemployment rate between 1979 and 1982 
C)  By 1982, it is likely that equilibrium output was lower than potential leading the AS curve to shift to the right to close the output gap toward a general equilibrium which explains the reduction in the unemployment rate and the further reduction in inflation between 1982 and 1986 
D)  all of the above 
E)  none of the above

Question 7

The price of a barrel of oil doubled between 2007 and the middle of 2008. To make matters worse, a financial crisis hit the U.S. economy starting in August of 2007. Which of the following is true of the Chinese experience?

Accepted Answer

A)  The worldwide decline in demand led to a collapse of Chinese exports 
B)  Instead of relying solely on the economy's self-correcting mechanism, much more aggressive fiscal expansions than those of the U.S. (in addition to a substantial monetary easing) served to shift the AD curve back to general equilibrium relatively quickly 
C)  The Chinese economy was better able than the U.S. economy to weather the financial crisis with output growth starting to grow earlier and more quickly than that of the U.S. 
D)  all of the above 
E)  none of the above 
A)  The worldwide decline in demand led to a collapse of Chinese exports 
B)  Instead of relying solely on the economy's self-correcting mechanism, much more aggressive fiscal expansions than those of the U.S. (in addition to a substantial monetary easing) served to shift the AD curve back to general equilibrium relatively quickly 
C)  The Chinese economy was better able than the U.S. economy to weather the financial crisis with output growth starting to grow earlier and more quickly than that of the U.S. 
D)  all of the above 
E)  none of the above

Question 8

The "tech bubble" burst of 2000, the terrorist attacks of 2001 and the corporate scandals of 2001 and 2002 all had similar qualitative effects on the economy. Which of the following is an appropriate description of the mechanism that would have ensued?

Accepted Answer

A)  Household and business spending would have been eroded shifting the AD curve to the left 
B)  Unemployment would have risen and inflation would have fallen 
C)  Output would have declined below potential but through shifts in the AS curve, the self-correcting mechanism of the AD-AS framework would have brought the unemployment rate down to the lower levels we saw by 2004 
D)  all of the above 
E)  none of the above 
A)  Household and business spending would have been eroded shifting the AD curve to the left 
B)  Unemployment would have risen and inflation would have fallen 
C)  Output would have declined below potential but through shifts in the AS curve, the self-correcting mechanism of the AD-AS framework would have brought the unemployment rate down to the lower levels we saw by 2004 
D)  all of the above 
E)  none of the above

Question 9

Rising inflation causes quantity demanded to decline, because ________.

Accepted Answer

A)  the central bank raises the nominal interest rate by more than the increase in expected inflation 
B)  households and businesses are reluctant to spend when prices rise 
C)  higher inflation causes the IS curve to shift to the left 
D)  all of the above 
E)  none of the above 
A)  the central bank raises the nominal interest rate by more than the increase in expected inflation 
B)  households and businesses are reluctant to spend when prices rise 
C)  higher inflation causes the IS curve to shift to the left 
D)  all of the above 
E)  none of the above

Question 10

In the short run, ________.

Accepted Answer

A)  cost push shocks can cause firms to raise prices 
B)  workers pushing for higher wages may lead to increases in inflation 
C)  the aggregate supply curve may shift to the left with increases in expected inflation 
D)  all of the above 
E)  none of the above 
A)  cost push shocks can cause firms to raise prices 
B)  workers pushing for higher wages may lead to increases in inflation 
C)  the aggregate supply curve may shift to the left with increases in expected inflation 
D)  all of the above 
E)  none of the above

Question 11

If the unemployment rate is below its natural rate, then ________.

Accepted Answer

A)  output is below its potential level 
B)  there is excess tightness in the labor market 
C)  the AS curve will shift to the right 
D)  all of the above 
E)  none of the above 
A)  output is below its potential level 
B)  there is excess tightness in the labor market 
C)  the AS curve will shift to the right 
D)  all of the above 
E)  none of the above

Question 12

-On the graph above, if output is falling, while the quantity demanded is rising, the economy may be at a point on ________.

Accepted Answer

A)  the aggregate supply curve above the aggregate demand curve 
B)  the aggregate supply curve below the aggregate demand curve 
C)  the aggregate demand curve above the aggregate supply curve 
D)  the aggregate demand curve below the aggregate supply curve 
E)  none of the above 
A)  the aggregate supply curve above the aggregate demand curve 
B)  the aggregate supply curve below the aggregate demand curve 
C)  the aggregate demand curve above the aggregate supply curve 
D)  the aggregate demand curve below the aggregate supply curve 
E)  none of the above

Question 13

Which equation is a plausible aggregate supply curve?

Accepted Answer

A)  Y = 50 - 1.25π 
B)  π = 2 + 0.3 (Y - 75) 
C)  Y = 250 - 80r 
D)  π = 5 - 0.4 (U - 6) 
E)  none of the above 
A)  Y = 50 - 1.25π 
B)  π = 2 + 0.3 (Y - 75) 
C)  Y = 250 - 80r 
D)  π = 5 - 0.4 (U - 6) 
E)  none of the above

Question 14

AD - AS Shocks
  
-On the graph above (and considering the short run only), a combination of a negative demand shock and a negative supply shock may be represented by the movement from point ________ to point ________.

Accepted Answer

A)  G; I 
B)  H; F 
C)  H; I 
D)  G; F 
E)  G; H 
A)  G; I 
B)  H; F 
C)  H; I 
D)  G; F 
E)  G; H

Question 15

In the long run, we typically assume that ________.

Accepted Answer

A)  capital, labor, and technology are independent of the level of inflation 
B)  the natural rate of unemployment is independent of the level of inflation 
C)  aggregate supply is fixed and independent of the level of inflation 
D)  all of the above 
E)  none of the above 
A)  capital, labor, and technology are independent of the level of inflation 
B)  the natural rate of unemployment is independent of the level of inflation 
C)  aggregate supply is fixed and independent of the level of inflation 
D)  all of the above 
E)  none of the above

Question 16

The aggregate demand curve has a negative slope, because households and businesses respond to an increase in ________ by reducing their expenditures.

Accepted Answer

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

Question 17

The aggregate demand curve shifts to the left when there is ________.

Accepted Answer

A)  autonomous tightening of monetary policy 
B)  an increase in the nominal interest rate 
C)  an increase in inflation 
D)  all of the above 
E)  none of the above 
A)  autonomous tightening of monetary policy 
B)  an increase in the nominal interest rate 
C)  an increase in inflation 
D)  all of the above 
E)  none of the above

Question 18

-On the graph above, consider a point A at which output is greater than potential output. At this point, ________.

Accepted Answer

A)  the inflation rate will rise 
B)  output will rise 
C)  potential output will rise 
D)  the aggregate demand curve will shift to the left 
E)  none of the above 
A)  the inflation rate will rise 
B)  output will rise 
C)  potential output will rise 
D)  the aggregate demand curve will shift to the left 
E)  none of the above

Question 19

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 20

Which of the following is (are) linked to (an) adverse supply shock(s)?

Accepted Answer

A)  The terrorist attacks of 2001 
B)  Collective bargaining that followed the termination of U.S. wage and price controls in 1973 
C)  The corporate scandals of 2002 
D)  all of the above 
E)  none of the above 
A)  The terrorist attacks of 2001 
B)  Collective bargaining that followed the termination of U.S. wage and price controls in 1973 
C)  The corporate scandals of 2002 
D)  all of the above 
E)  none of the above

AD - AS Shocks -A fall in import prices or an increase in productivity ________.

If the adoption of a new technology led to gains in productivity ________.

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.

Describe how changes in expected inflation impact an economy in the wake of a temporary negative supply shock.

The price of a barrel of oil doubled between 2007 and the middle of 2008. To make matters worse, a financial crisis hit the U.S. economy starting in August of 2007. Which of the following is true of the Chinese experience?

The "tech bubble" burst of 2000, the terrorist attacks of 2001 and the corporate scandals of 2001 and 2002 all had similar qualitative effects on the economy. Which of the following is an appropriate description of the mechanism that would have ensued?

Rising inflation causes quantity demanded to decline, because ________.

In the short run, ________.

If the unemployment rate is below its natural rate, then ________.

-On the graph above, if output is falling, while the quantity demanded is rising, the economy may be at a point on ________.

Which equation is a plausible aggregate supply curve?

AD - AS Shocks -On the graph above (and considering the short run only), a combination of a negative demand shock and a negative supply shock may be represented by the movement from point to point .

In the long run, we typically assume that ________.

The aggregate demand curve has a negative slope, because households and businesses respond to an increase in ________ by reducing their expenditures.

The aggregate demand curve shifts to the left when there is ________.

-On the graph above, consider a point A at which output is greater than potential output. At this point, ________.

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

Which of the following is (are) linked to (an) adverse supply shock(s)?

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

AD - AS Shocks -A fall in import prices or an increase in productivity ________.

If the adoption of a new technology led to gains in productivity ________.

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.

Describe how changes in expected inflation impact an economy in the wake of a temporary negative supply shock.

The price of a barrel of oil doubled between 2007 and the middle of 2008. To make matters worse, a financial crisis hit the U.S. economy starting in August of 2007. Which of the following is true of the Chinese experience?

The "tech bubble" burst of 2000, the terrorist attacks of 2001 and the corporate scandals of 2001 and 2002 all had similar qualitative effects on the economy. Which of the following is an appropriate description of the mechanism that would have ensued?

Rising inflation causes quantity demanded to decline, because ________.

In the short run, ________.

If the unemployment rate is below its natural rate, then ________.

-On the graph above, if output is falling, while the quantity demanded is rising, the economy may be at a point on ________.

Which equation is a plausible aggregate supply curve?

AD - AS Shocks -On the graph above (and considering the short run only), a combination of a negative demand shock and a negative supply shock may be represented by the movement from point ________ to point ________.

In the long run, we typically assume that ________.

The aggregate demand curve has a negative slope, because households and businesses respond to an increase in ________ by reducing their expenditures.

The aggregate demand curve shifts to the left when there is ________.

-On the graph above, consider a point A at which output is greater than potential output. At this point, ________.

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

Which of the following is (are) linked to (an) adverse supply shock(s)?

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.

AD - AS Shocks -On the graph above (and considering the short run only), a combination of a negative demand shock and a negative supply shock may be represented by the movement from point to point .