Deck 14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Question 1

The Phillips curve based on the unemployment and inflation rates in the U.S. between 1961 and 1969 was:

A) upward-sloping.
B) downward-sloping.
C) horizontal.
D) vertical.
E) upward-sloping but kinked.

Answer 1

downward-sloping.

Question 2

What is the difference between the short-run Phillips curve and the long-run Phillips curve?

A) The long-run Phillips curve is horizontal, indicating that the unemployment rate may change but inflation remains the same, whereas the short-run curve is vertical.
B) The long-run Phillips curve slopes upward, indicating a positive relationship between the unemployment rate and inflation, whereas the short-run curve slopes downward.
C) The long-run Phillips curve is vertical, indicating that the unemployment rate may change but inflation does not, whereas the short-run curve is positively sloped.
D) The long-run Phillips curve is vertical, indicating that inflation may change but the unemployment rate does not, whereas the short-run curve is negatively sloped.
E) The long-run Phillips curve is negatively sloped, indicating an inverse relationship between unemployment and inflation, whereas the short-run curve is vertical.

Answer 2

The long-run Phillips curve is vertical, indicating that inflation may change but the unemployment rate does not, whereas the short-run curve is negatively sloped.

Question 3

The figure given below shows the Phillips curves of the U.S. economy during early 1960s to late 1970s.?Figure 14.2

Refer to Figure 14.2. Following the movement from point A to point B on Phillips curve III, what would cause the Phillips curve to shift up so that 5 percent unemployment is associated with 10 percent inflation?

A) An upward movement along the aggregate supply curve
B) A downward movement along the aggregate supply curve
C) A downward movement along the aggregate demand curve
D) An outward shift of the aggregate supply curve
E) An inward shift of the aggregate supply curve

Answer 3

An inward shift of the aggregate supply curve

Question 4

The long-run Phillips curve indicates that the consequences of trying to reduce unemployment below its natural rate would be:

A) an ever-rising rate of unemployment.
B) an inflation rate equal to zero.
C) a very high uncontrollable rate of inflation.
D) a very low rate of inflation.
E) a natural rate of unemployment equal to zero.

Question 5

In the short run, a decline in aggregate demand would be associated with:

A) an inward shift of the Phillips curve.
B) an outward shift of the Phillips curve.
C) an upward movement along the Phillips curve.
D) a downward movement along the Phillips curve.
E) no change along the Phillips curve.

Question 6

The figure given below depicts the long run equilibrium in an economy.?Figure 14.1??In the figure:?AD₁ and AD₂: Aggregate demand curves?AS₁ and AS₂: Aggregate supply curves

Refer to Figure 14.1. When the economy moves from point B to point C:

A) both the unemployment rate and the rate of inflation increases.
B) both the unemployment rate and the rate of inflation declines.
C) the unemployment rate declines at the cost of higher inflation.
D) the rate of inflation declines at the cost of a higher unemployment rate.
E) the rate of inflation declines with no change in the unemployment rate.

Question 7

The figure given below depicts the long run equilibrium in an economy.?Figure 14.1??In the figure:?AD₁ and AD₂: Aggregate demand curves?AS₁ and AS₂: Aggregate supply curves

Refer to Figure 14.1. The movement from point A to point B to point C results in:

A) a constant price level and a decline in the natural rate of unemployment.
B) a rightward shift of the short-run Phillips curve.
C) a lower price level and no change in the natural rate of unemployment.
D) a movement up the short-run Phillips curve.
E) a lower price level and a decline in the natural rate of unemployment.

Question 8

The long-run aggregate supply curve at potential national income is analogous to:

A) the short-run aggregate demand curve at potential national income.
B) the long-run Phillips curve at the natural rate of unemployment.
C) the long-run aggregate demand curve at each price level.
D) the short-run Phillips curve at the natural rate of unemployment.
E) the horizontal portion of the Phillips curve.

Question 9

The figure given below depicts the long run equilibrium in an economy.?Figure 14.1??In the figure:?AD₁ and AD₂: Aggregate demand curves?AS₁ and AS₂: Aggregate supply curves

Refer to Figure 14.1. Movement from point A to point C is equivalent to:

A) an upward movement along the long-run Phillips curve.
B) an outward shift of the short-run Phillips curve.
C) an upward movement along the short-run Phillips curve.
D) an inward shift of the long-run Phillips curve.
E) a downward movement along the long-run Phillips curve.

Question 10

The figure given below shows the Phillips curves of the U.S. economy during early 1960s to late 1970s.?Figure 14.2

Refer to Figure 14.2. If the natural rate of unemployment is 5 percent, which of the following would cause a movement along Phillips curve III from point A to point B?

A) An inward shift of the aggregate demand curve
B) An outward shift of the aggregate demand curve
C) A downward movement along the aggregate supply curve
D) A downward movement along the aggregate demand curve
E) An upward movement along the aggregate demand curve

Question 11

In the short run, an expansionary monetary policy by the Fed would:

A) reduce unemployment at the cost of higher inflation.
B) reduce inflation at the cost of a rise in the natural rate of unemployment.
C) reduce inflation and leave the natural unemployment rate unchanged.
D) reduce both inflation and unemployment.
E) increase both inflation and unemployment.

Question 12

The figure given below shows the Phillips curves of the U.S. economy during early 1960s to late 1970s.?Figure 14.2

Refer to Figure 14.2. Phillips curve II is associated with the late 1980s in the United States and indicates that 5 percent unemployment was consistent with 4 percent inflation. Which curve would be associated with the late 1970s in the United States?

A) I
B) II
C) III
D) IV
E) V

Question 13

According to the long-run Phillips curve, which of the following will be the end result of an expansionary monetary policy when unemployment is at its natural rate?

A) Zero inflation
B) Deflation
C) A constant level of potential real GDP
D) A decrease in unemployment
E) An increase in unemployment

Question 14

Consider a nation experiencing the relationship illustrated by the short-run Phillips curve. An increase in both unemployment and inflation in this nation over the next ten years can be explained by:

A) a downward movement along the short-run Phillips curve.
B) a series of outward shifts of the short-run Phillips curve.
C) an upward movement along the short-run Phillips curve.
D) a series of inward shifts of the short-run Phillips curve.
E) a complete change in the slope of the Phillips curve.

Question 15

The natural rate of unemployment is defined as the unemployment rate that exists in the absence of:

A) structural unemployment.
B) frictional unemployment.
C) cyclical unemployment.
D) seasonal unemployment.
E) inflation.

Question 16

If the short-run Phillips curve shifts to the right, we can conclude that:

A) the trade-off between inflation and unemployment has improved over time.
B) the trade-off between inflation and unemployment has worsened over time.
C) the inflation rate associated with any given level of unemployment has declined.
D) the unemployment rate associated with any given inflation rate has declined.
E) the trade-off between inflation and unemployment has remained unchanged.

Question 17

Which of the following is most likely to increase the natural rate of unemployment?

A) An increase in the age of the working population
B) A shift from service to manufacturing jobs
C) An increase in the minimum wage rate
D) A reduction in social security benefits
E) A reduction in direct taxes

Question 18

Contrary to what believers in the Phillips curve would say, U.S. economic data from 1955 to 2000 show evidence of:

A) a positive relationship between the unemployment rate and inflation.
B) no short-run relationship between the unemployment rate and inflation.
C) increases in both unemployment and inflation rates.
D) a constant rate of inflation, with changing rates of unemployment.
E) a constant rate of unemployment, with changing rates of inflation.

Question 19

The Phillips curve is named after the economist A. W. Phillips, who found that there is:

A) an inverse relationship between the PPI and the budget deficit in the United States.
B) an inverse relationship between wage rates in Great Britain and the unemployment rate.
C) an inverse relationship between economic growth and the unemployment rate in Great Britain.
D) a positive relationship between inflation and the unemployment rate in the United States.
E) a positive relationship between British national debt and economic downturns.

Question 20

The slope of the short-run Phillips curve is consistent with:

A) the long-run trade-off between the unemployment rate and inflation.
B) the long-run trade-off between inflation and GDP.
C) the short-run trade-off between the money supply and interest rates.
D) the short-run trade-off between business productivity and wage contracts.
E) the short-run trade-off between the unemployment rate and inflation.

Question 21

The actual rate of inflation is equal to the expected rate of inflation along the:

A) downward-sloping Phillips curve.
B) upward-sloping aggregate supply curve.
C) horizontal aggregate supply curve.
D) downward-sloping aggregate demand curve.
E) vertical Phillips curve.

Question 22

Suppose that an increase in aggregate demand causes an unplanned depletion in business inventories. Which of the following situations will result from this?

A) The economy moves up the short-run Phillips curve.
B) The short-run Phillips curve shifts to the right.
C) The short-run Phillips curve shifts to the left.
D) The aggregate supply curve shifts to the left.
E) The economy moves down the short-run Phillips curve.

Question 23

If the percentage increase in nominal wage rates is less than the percentage increase in the price level, then:

A) real wage rate rises and the unemployment rate falls.
B) both real wage rate and the unemployment rate rises.
C) both real wage rate and the unemployment rate falls.
D) real wage rate rises and the unemployment rate remains unchanged.
E) both real wage rate and the unemployment rate remains unchanged.

Question 24

The adaptive expectations theory suggests that:

A) the price level that people expect in the future is based on the behavior of prices in the past.
B) the unemployment rate adapts immediately to the inflation rate.
C) people have perfect foresight and always predict future price levels correctly.
D) people use all current information available to formulate their inflation expectations.
E) people react spontaneously to price level changes and do not consider any past or present information.

Question 25

Suppose that a labor union negotiates an increase in wages of 4 percent for the coming year because annual inflation for the past five years has been 4 percent. The expectations formed by the union are:

A) pessimistic expectations.
B) deductive expectations.
C) rational expectations.
D) adaptive expectations.
E) optimistic expectations.

Question 26

If workers realize that an increase in nominal wage rates does not necessarily constitute a rise in real wages, then we would expect:

A) an increase in employment.
B) a decrease in employment.
C) a downward movement along the Philips curve.
D) a rightward shift of the Phillips curve.
E) a leftward shift of the Phillips curve.

Question 27

According to the theory of rational expectations, expansionary fiscal policy that is anticipated will:

A) cause wage expectations to adjust downward immediately following the lower price level.
B) increase the real wage rate in the long run.
C) cause a permanent decline in the natural rate of unemployment.
D) decrease the real wage rate in the long run.
E) cause wage expectations to adjust upward immediately following the higher price level.

Question 28

The key feature due to which unexpected inflation decreases the unemployment rate is that:

A) expectations are formed irrationally.
B) reservation wages of workers are fixed.
C) workers behave irrationally.
D) firms are greedy.
E) government policy is time consistent.

Question 29

Assume that an unemployed person expects inflation to be 4.5 percent. In reality, inflation turns out to be 2.9 percent. If wage expectations lag behind actual price changes:

A) job offers below the reservation wage will decline, and the unemployment rate will rise.
B) job offers above the reservation wage will rise, and the unemployment rate will fall.
C) job offers above the reservation wage will decline, and the unemployment rate will rise.
D) job offers above the reservation wage will decline, and the unemployment rate will fall.
E) job offers below the reservation wage will increase, and the unemployment rate will fall.

Question 30

When the reservation wage is adjusted to account for a higher inflation rate:

A) the aggregate demand curve shifts to the right.
B) the price level falls.
C) the short-run Phillips curve shifts outward.
D) production costs of businesses decline.
E) the aggregate supply curve shifts to the right.

Question 31

If nominal wage rates are contractually determined and cannot change in the short run, then an unexpected increase in the inflation rate will:

A) increase business profits and reduce the unemployment rate.
B) reduce both business profits and the unemployment rate.
C) reduce business profits and increase the unemployment rate.
D) increase both business profits and the unemployment rate.
E) cause no change in business profits or the unemployment rate

Question 32

When workers expect more inflation than actually occurs:

A) the Phillips curve becomes vertical.
B) the long-run Phillips curve shifts to the right.
C) the short-run Phillips curve shifts to the left.
D) there will be a movement down the short-run Phillips curve.
E) there will be a movement up the short-run Phillips curve.

Question 33

Following an unexpected decline in aggregate demand, once production cutbacks start offsetting rising inventory levels:

A) the aggregate demand curve will shift to the right.
B) the aggregate supply curve will shift to the left.
C) the economy will return to its natural rate of unemployment.
D) the short-run Phillips curve will shift to the right.
E) the economy will face both higher inflation and a higher unemployment rate.

Question 34

A look at macroeconomic data across countries reveals that when economies experience recessions, unemployment rates rise, but wages fall very little, if at all. Which of the following is most likely to support this observation?

A) Wages are determined by the interaction of the forces of labor demand and supply.
B) The demand for labor is derived demand and hence does not fall during recessions.
C) The labor market usually exhibits perfect competition.
D) The labor supply curve becomes perfectly inelastic during recessions.
E) Long term labor contracts make the wage rates sticky downwards.

Question 35

When aggregate demand declines unexpectedly and wage contracts are fixed, then the average price level will:

A) increase and business firms will hire new workers.
B) decline and firms will reduce wages.
C) decline and business firms will lay off workers.
D) increase and business firms will lay off workers.
E) increase and business firms will increase wages.

Question 36

Suppose the inflation rate has risen 0.5 percent a year for the past three years. Using this experience an individual forecasts a 0.5 percent rise in the coming year's inflation rate. This is an example of:

A) traditional expectations.
B) rational expectations.
C) adaptive expectations.
D) reflective expectations.
E) deductive expectations.

Question 37

The observed unemployment rate is less than the natural rate of unemployment if:

A) the inflation rate is lower than expected.
B) the reservation wage is adjusted to account for higher inflation.
C) real wage increases with increase in prices.
D) reservation wages go up with the rate of inflation.
E) the inflation rate is higher than expected.

Question 38

Following a decline in the inflation rate, once long-term wage contracts are renegotiated and all prices in the economy adjust to their new equilibrium:

A) the economy will move up the short-run Phillips curve.
B) the short-run Phillips curve will shift to the left.
C) the economy will return to the vertical Phillips curve.
D) the aggregate supply curve will shift to the right.
E) the aggregate demand curve will shift to the right.

Question 39

According to the theory of adaptive expectations, if the inflation rate has been 4.2 percent for the last ten years, people will expect next year's inflation rate to be:

A) 4.2 percent.
B) higher than 4.2 percent.
C) lower than 4.2 percent.
D) 0; that is, they will expect no inflation.
E) 8.4 percent.

Question 40

If an increase in inflation is expected, which of the following events is the least likely to occur?

A) There will be an upward movement along the long-run Phillips curve.
B) Nominal GDP will increase.
C) Nominal wage rates will increase at the same rate as expected inflation.
D) A worker's reservation wage will rise at the same rate as expected inflation.
E) Unemployment rate will increase.

Question 41

The figure given below depicts the equilibrium level of real GDP and the price level in an economy, derived from the aggregate demand aggregate supply model.?Figure 14.3

Refer to Figure 14.3. Consider that the economy initially operates at point A. Therefore, according to the theory of rational expectations, an unanticipated increase in consumer confidence will cause the economy to move along the path:

A) ADC.
B) AC.
C) ABDC.
D) AD.
E) ABC.

Question 42

Figure 14.4

Refer to Figure 14.4. A movement from point A to point C would be associated with an:

A) outward shift of both the aggregate demand and the aggregate supply curve.
B) outward shift of the aggregate supply curve and an inward shift of the aggregate demand curve.
C) outward shift of the aggregate demand curve and an inward shift of the aggregate supply curve.
D) outward shift of the aggregate demand curve but no change in the aggregate supply curve.
E) inward shift of both the aggregate demand and the aggregate supply curve

Question 43

Figure 14.4

Refer to Figure 14.4. If the observed unemployment rate equals the natural rate, and the expected rate of inflation equals zero, the economy will be operating at:

A) point A.
B) point B.
C) point C.
D) point D.
E) point E.

Question 44

Suppose that the Fed announces a low-money-growth policy to control inflation and workers sign low-wage contracts as a result. If instead, the Fed had implemented a high-money-growth policy, which of the following would not occur?

A) The unemployment rate would increase.
B) The Fed's stated policy would be time inconsistent.
C) The unemployment rate would be less than the natural rate.
D) The Fed would not achieve credibility through its actions.
E) The rate of inflation would be higher than expected.

Question 45

If the public expects the incumbent administration to stimulate the economy shortly before an election:

A) the unemployment rate will fall at the cost of higher inflation.
B) the economy will move up the short-run Phillips curve.
C) lower inflation will prevail, and the rate of unemployment will remain unchanged.
D) the economy will immediately move up the long-run Phillips curve.
E) neither inflation nor the unemployment rate will change.

Question 46

Figure 14.4

Refer to Figure 14.4. If the adaptive expectations hypothesis holds, and the economy moves from point C to point D because of expansionary fiscal policy, what rate of inflation are people expecting at point D?

A) 2 percent
B) 4 percent
C) 6 percent
D) 8 percent
E) 10 percent

Question 47

The business cycle that results from the election campaign of incumbent politicians is called a:

A) monetary business cycle.
B) time consistent business cycle.
C) political business cycle.
D) real business cycle.
E) historical business cycle.

Question 48

Suppose that the economy has witnessed an 8 percent increase in its money supply over the last few years and the Fed now announces a plan to increase the money supply by 4 percent per year. What will be the public response, assuming that the Fed has a reputation for always implementing its announced plans?

A) High-wage contracts will prevail, and the economy will experience lower inflation at the cost of higher unemployment.
B) High-wage contracts will prevail, and the economy will experience lower unemployment at the cost of higher inflation.
C) Low-wage contracts will emerge, and the economy will experience lower inflation with no change in the unemployment rate.
D) Low-wage contracts will emerge and the economy will experience higher unemployment with no change in the inflation rate.
E) Low-wage contracts will emerge, and the economy will experience lower inflation at the cost of higher unemployment.

Question 49

Which of the following will be a short run impact of a pre-election expansionary fiscal policy, public expectations remaining constant?

A) An increase in unemployment
B) A decline in real GDP
C) An increase in real GDP
D) A fall in the rate of inflation
E) An economic recession

Question 50

Which of the following techniques adopted by the central banks around the world have helped them to achieve credibility?

A) Maintaining a low rate of inflation through tight monetary policies
B) Publicly announcing a target rate of inflation
C) Refusing to bail out the commercial banks at times of failure
D) Supporting all government budget deficits through deficit financing
E) Reducing unemployment amidst high inflation

Question 51

Which of the following gives the Fed a credibility problem because the Fed may change its planned policies in light of new economic developments?

A) Adaptive expectations
B) Time inconsistency
C) Wage expectations
D) Disinflation
E) Rational expectations

Question 52

During the 1970s, real shocks to the U.S. economy caused:

A) an increase in both aggregate demand and aggregate supply.
B) an increase in both the price level and the unemployment rate.
C) a leftward shift of the Phillips curve.
D) a decline in inflation but higher unemployment.
E) a decline in both the price level and the unemployment rate.

Question 53

Figure 14.4

Refer to Figure 14.4. Suppose the economy is operating at point A, but the government increases spending because it believes that 6 percent unemployment is unacceptably high. If the adaptive expectations hypothesis holds, in the short run, the economy will move to:

A) point B.
B) point C.
C) point D.
D) point E.
E) point F.

Question 54

According to the rational expectations view, _____.

A) the economy will never deviate from the natural rate of unemployment for any anticipated policy
B) the long-run inflation rate is equal to zero
C) expected inflation is always less than actual inflation
D) people use only past information to form expectations about future inflation rates
E) announced money-growth policies are quite effective in reducing unemployment below its natural rate

Question 55

Critics of the Federal Reserve maintain that, to correct the credibility problem of monetary policy, the Fed should:

A) tighten monetary policy.
B) be required to maintain a growth rate of the money supply that is fixed by law.
C) give more power to the Federal Open Market Committee.
D) ignore public opinion and establish more discretionary power over monetary policy.
E) merge with the U.S. Treasury and be dissolved as an independent agency.

Question 56

Assume that a low-wage contract is in force in the society, and the central bank follows a low-money-growth policy. Which of the following will be observed?

A) The actual inflation rate will match the low rate that people had expected.
B) The actual inflation rate will be higher than the natural rate.
C) The actual inflation rate will be higher than the low rate that people had expected.
D) The actual inflation rate will be lower than the high rate that people had expected.
E) The unemployment rate will be lower than the natural rate.

Question 57

Which of the following would not be considered a real variable in determining a real business cycle?

A) A change in technology
B) A labor strike
C) An increase in the money supply
D) A change in tastes
E) A substantial weather event

Question 58

Suppose workers do not believe the Fed will implement its announced monetary policy plans and the Fed wants to achieve low unemployment. In this situation the Fed would be best off:

A) implementing a policy of high money growth.
B) announcing and implementing a policy of low money growth.
C) announcing a policy of high money growth and implementing a policy of low money growth.
D) following a policy that forces the actual inflation rate to coincide with the expected inflation rate.
E) promoting a low rate of inflation and adjusting actual policy plans to economic conditions.

Question 59

A time-inconsistent monetary policy is one that:

A) is set by congressional decree.
B) is based on monetary targets established by law.
C) changes over time as economic conditions change.
D) follows a zero percent inflation rate.
E) does not adapt to changing economic conditions.

Question 60

Figure 14.4

Refer to Figure 14.4. Suppose the rational expectations hypothesis holds, and the Fed implements a fully expected increase in money supply growth. Starting from point C in the short run, the economy will tend to move to:

A) point A.
B) point B.
C) point D.
D) point E.
E) point F.

Question 61

The money supply in an economy declines when, other things equal, _____.

A) government spending exceeds borrowing
B) government borrowing exceeds tax revenues and there is a deficit
C) government borrowing exceeds the government deficit
D) government spending exceeds tax revenues
E) government spending exceeds borrowing and there is a surplus

Question 62

The change in the money supply in an economy is measured as:

A) the difference between the government deficit and government borrowing.
B) the sum of a change in high-powered money and the change in tax revenues.
C) the difference between government borrowing and government spending.
D) the ratio of the change in excess reserves to the deposit expansion multiplier.
E) the change in the government budget deficit.

Question 63

When the money supply increases by $5 billion, tax revenues are $10 billion, and government borrowing is $30 billion, government spending must equal:

A) $10 billion.
B) $15 billion.
C) $20 billion.
D) $35 billion.
E) $45 billion.

Question 64

Assume that taxes are constant. If the government borrows $17 billion in new funds and has a budget deficit of $35 billion, then the central bank has to:

A) reduce the money supply by $52 billion.
B) reduce the money supply by $35 billion.
C) increase the money supply by $17 billion.
D) increase the money supply by $35 billion.
E) increase the money supply by $18 billion.

Question 65

The money supply in an economy increases when, other things equal, _____.

A) the government surplus rises
B) the amount of government borrowing rises
C) tax revenues increase
D) government spending increases
E) the government deficit falls

Question 66

Government spending can be financed by all of the following, except:

A) personal income taxes.
B) investment spending.
C) government borrowing.
D) money creation.
E) excise taxes.

Question 67

In the presence of Regulation Q, when interest rates would rise, _____.

A) the transaction demand for money in the economy would increase
B) people would invest in the bond markets
C) the economy would grow faster
D) people would withdraw money from banks seeking higher interest rates elsewhere
E) the U.S. dollar would depreciate

Question 68

Which of the following is most likely to have contributed to better inventory management?

A) Stability in the market demand
B) Stability in the average price level
C) Perfect forecasting by the firms
D) Reduced variability in the input costs
E) Improvements in information technology and communication

Question 69

Consider an economy in equilibrium, and assume no change in aggregate demand. An earthquake that destroys many factories across the country would result in a(n):

A) increase in the average price level and a decrease in real GDP.
B) increase in the average price level and no change in real GDP.
C) increase in the average price level and an increase in real GDP.
D) decrease in the average price level and an increase in real GDP.
E) decrease in the average price level and a decrease in real GDP.

Question 70

If the government fiscal deficit equals $78 billion, government borrowing equals $38 million, and tax revenue equals $92 billion, what is the value of the change in the money supply?

A) $40 billion
B) $132 billion
C) $18 billion
D) $208 billion
E) $78 billion

Question 71

A sudden technological breakthrough in an economy would:

A) have no impact on real GDP.
B) cause aggregate demand to fall.
C) lower the natural rate of unemployment.
D) increase the price level.
E) cause aggregate supply to rise.

Question 72

Monetary reform is a new monetary policy that includes:

A) the introduction of a new unit of currency.
B) a reduction in borrowing.
C) an increase in government spending.
D) the issuing of more currency.
E) an increase in taxes.

Question 73

In the 1980s, U.S. economists acknowledged that it was not possible to exploit the trade-off suggested by the Philips curve of the 1960s. This realization led to more stable macroeconomic policy, which in turn contributed to:

A) more volatility in real output.
B) less volatility in real output.
C) complete removal of unemployment.
D) more volatility in the price level.
E) short business cycles.

Question 74

Identify the correct statement.

A) The removal of financial market regulations has lowered the probability of a financial crisis to zero.
B) Investment in residential housing in the U.S. was less volatile during the era prior to the removal of Regulation Q.
C) Investment in residential housing in the U.S. was more volatile after the removal of Regulation Q.
D) The removal of financial market regulations lowered output volatility.
E) The removal of financial market regulations increased variability in consumer spending.

Question 75

If the government fiscal deficit equals $240 million and government borrowing equals $120 million, what is the change in the money supply in the economy?

A) $120 million
B) $240 million
C) $360 million
D) $480 million
E) $600 million

Question 76

Which of the following shifts the aggregate supply curve to the left?

A) An improvement in computer technology
B) A war that forces people to ration their food and their use of energy
C) An increase in real wage rates
D) Discovery of a new oil field
E) Lower oil prices in the world market

Question 77

Hyperinflation in developing countries is typically the result of:

A) low interest rates.
B) an economic recession.
C) high income tax rates.
D) large government fiscal deficits.
E) large trade deficits.

Question 78

Which of the following factors have not contributed to the "Great Moderation" of real GDP in the U.S. over the past 20 years?

A) Better inventory management
B) Better macroeconomic policy
C) Greater availability of financial products for lending and borrowing
D) Imposition of a ceiling on interest rates
E) Smaller real shocks

Question 79

To some economists, the "Great moderation" means:

A) a small change in real wages.
B) a low inflation rate.
C) a low unemployment rate.
D) low output growth variability.
E) low money supply growth.

Question 80

A recessionary real shock will:

A) shift the aggregate demand curve to the left and reduce real GDP.
B) shift the aggregate demand curve to the right and increase real GDP.
C) shift the aggregate supply curve to the left and increase real GDP.
D) shift the aggregate supply curve to the left and reduce real GDP.
E) shift the aggregate supply curve to the right and increase real GDP.