Question 1

Use the figure below to answer the following questions.
  Figure 12.4.1
-Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.If the expected inflation rate changes to 3 percent a year, the

Accepted Answer

A) short run Phillips curve will shift downward and the long run Phillips curve will not change. 
B) short run Phillips curve will shift downward and the long run Phillips curve will shift rightward. 
C) short run Phillips curve will shift upward and the long run Phillips curve will shift leftward. 
D) short run Phillips curve will shift upward and the long run Phillips curve will not change. 
E) short run Phillips curve will shift upward and the long run Phillips curve will shift rightward.

Question 2

In real business cycle theory, _______ are the main source of economic fluctuations.

Accepted Answer

A) unexpected changes in the full- employment quantity of labour 
B) changes in the quantity of money 
C) random fluctuations in productivity 
D) random fluctuations in investment 
E) unexpected changes in government expenditure

Question 3

Suppose that the business cycle in Canada is best described by RBC theory.An advance in technology increases productivity.The when- to- work decision depends on the real interest rate.The _______ the real interest rate, other things remaining the same, the _______ is the supply of labour today.RBC theorists believe the when- to- work effect is _______.

Accepted Answer

A) higher; smaller; small 
B) lower; smaller; small 
C) higher; larger; small 
D) higher; larger; large 
E) lower; larger; large

Question 4

Which of the following is not a mainstream theory of the business cycle?

Accepted Answer

A) real business cycle theory 
B) new Keynesian cycle theory 
C) Keynesian cycle theory 
D) new classical cycle theory 
E) monetarist cycle theory

Question 5

According to real business cycle theory, if the Bank of Canada increases the quantity of money when real GDP decreases, real GDP

Accepted Answer

A) will increase but only temporarily. 
B) and the price level will both be unaffected. 
C) will increase permanently. 
D) will be unaffected, but the price level will rise. 
E) will decrease due to the inefficiencies introduced into production as a result.

Question 6

Cost- push inflation can result from an initial

Accepted Answer

A) increase in the money wage rate. 
B) increase in transfer payments. 
C) decrease in personal income taxes. 
D) increase in government expenditure. 
E) increase in personal income taxes.

Question 7

According to real business cycle theory, an increase in productivity _______ the demand for loanable funds, _______ the demand for labour, and _______  the supply of labour.The real interest rate will _______.

Accepted Answer

A) increases; increases; does not change; rise 
B) increases; increases; does not change; fall 
C) increases; increases; increases; rise 
D) decreases; decreases; decreases; fall 
E) increases; increases; increases; fall

Question 8

A movement down along the short- run Phillips curve results from an unanticipated

Accepted Answer

A) increase in the natural unemployment rate. 
B) increase in aggregate demand. 
C) decrease in aggregate demand. 
D) decrease in short- run aggregate supply. 
E) increase in short- run aggregate supply.

Question 9

Use the figure below to answer the following questions.
  Figure 12.2.3
-Refer to Figure 12.2.3.Assume that the figure illustrates an economy initially in equilibrium at the intersection of the SAS0 curve and the AD0 curve.If the aggregate demand curve is expected to shift to AD1 but remains at AD0, the new equilibrium real GDP is _______ and the new equilibrium price level is _______.

Accepted Answer

A) $500 billion; 100 
B) $380 billion; 100 
C) $500 billion; 150 
D) $620 billion; 125 
E) $380 billion; 125

Question 10

Use the table below to answer the following questions.
Table 12.4.1 
-Refer to Table 12.4.1.The table gives points on a short- run Phillips curve.If the expected inflation rate is 10 percent, and the inflation rate unexpectedly falls to 8 percent, what is the unemployment rate?

Accepted Answer

A) 4 percent 
B) 5 percent 
C) 6 percent 
D) 7 percent 
E) 8 percent

Question 11

Use the figure below to answer the following questions.
  Figure 12.2.2
-Refer to Figure 12.2.2.Consider the market for labour as the short- run aggregate supply curve shifts leftward from SAS0 to SAS1.This shift could have been the result of an agreement between workers and employers for a

Accepted Answer

A) 10 percent increase in the money wage rate. 
B) 15 percent decrease in the money wage rate. 
C) 10 percent increase in the real wage rate. 
D) 15 percent increase in the money wage rate. 
E) 10 percent decrease in the money wage rate.

Question 12

Suppose that the money prices of raw materials rise.With no action by the Bank of Canada, I.the aggregate demand curve shifts rightward and the price level rises.
II.the aggregate demand curve shifts rightward and the aggregate supply curve shifts leftward.
III.the initial outcome is lower employment and a rise in the price level.

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I and II only 
E) I, II, and III

Question 13

According to real business cycle theory, a fall in the real interest rate _______ the supply of labour and _______ employment.

Accepted Answer

A) decreases; increases 
B) increases; increases 
C) increases; decreases 
D) decreases; decreases 
E) does not change; does not change

Question 14

The key difference between new classical cycle theory and new Keynesian cycle theory is that the new classical cycle theory believes that _______ while the new Keynesian cycle theory believes that _______.

Accepted Answer

A) expected and unexpected changes in aggregate demand change real GDP; only changes in labour productivity change aggregate demand 
B) only unexpected changes in aggregate demand change real GDP; only expected changes in aggregate demand change real GDP 
C) the short- run aggregate supply curve is horizontal; the short- run aggregate supply curve is vertical. 
D) expected changes in aggregate demand change real GDP; expected changes in aggregate demand do not change real GDP 
E) only unexpected changes in aggregate demand change real GDP; both expected and unexpected changes in aggregate demand change real GDP

Question 15

Suppose that a severe shock that decreases the demand for loanable funds hits Canada.Which of the following can we expect to occur according to real business cycle theory?

Accepted Answer

A) People will work fewer hours. 
B) The real wage rate will fall. 
C) The demand for loanable funds will decrease. 
D) The real interest rate will fall. 
E) All of the above are true.

Question 16

Real business cycle theorists believe that the intertemporal substitution effect _______.Many other economists believe that the intertemporal substitution effect _______.

Accepted Answer

A) is negligible; is large 
B) occurs in the money market; occurs in the labour market 
C) occurs in the labour market; occurs in the money market 
D) occurs in foreign markets; occurs in domestic markets 
E) is large; is negligible

Question 17

In real business cycle theory, the supply of labour

Accepted Answer

A) decreases if the real interest rate rises. 
B) increases if the nominal interest rate rises. 
C) decreases if the real wage rate decreases. 
D) decreases if the real interest rate falls. 
E) is independent of the real interest rate.

Question 18

A forecast based on all the relevant information is

Accepted Answer

A) a perfect forecast. 
B) always a correct expectation. 
C) an adaptive expectation. 
D) a future expectation. 
E) a rational expectation.

Question 19

Demand- pull inflation can start when

Accepted Answer

A) input costs rise. 
B) aggregate supply decreases. 
C) aggregate demand increases. 
D) unemployment is above the natural rate. 
E) people incorrectly forecast inflation.

Question 20

Use the figure below to answer the following questions.
  Figure 12.4.1
-Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.If the current inflation rate is 4 percent a year, what is the current unemployment rate?

Accepted Answer

A) 9 percent 
B) 6 percent 
C) 3 percent 
D) 4 percent 
E) cannot be determined without more information

Exam 12: The Business Cycle, Inflation, and Deflation

Use the figure below to answer the following questions. Figure 12.4.1 -Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.If the expected inflation rate changes to 3 percent a year, the

In real business cycle theory, _______ are the main source of economic fluctuations.

Which of the following is not a mainstream theory of the business cycle?

According to real business cycle theory, if the Bank of Canada increases the quantity of money when real GDP decreases, real GDP

Cost- push inflation can result from an initial

According to real business cycle theory, an increase in productivity ___ the demand for loanable funds, _ the demand for labour, and _ the supply of labour.The real interest rate will ___.

A movement down along the short- run Phillips curve results from an unanticipated

Use the table below to answer the following questions. Table 12.4.1 -Refer to Table 12.4.1.The table gives points on a short- run Phillips curve.If the expected inflation rate is 10 percent, and the inflation rate unexpectedly falls to 8 percent, what is the unemployment rate?

Use the figure below to answer the following questions. Figure 12.2.2 -Refer to Figure 12.2.2.Consider the market for labour as the short- run aggregate supply curve shifts leftward from SAS₀to SAS₁.This shift could have been the result of an agreement between workers and employers for a

According to real business cycle theory, a fall in the real interest rate _ the supply of labour and _ employment.

The key difference between new classical cycle theory and new Keynesian cycle theory is that the new classical cycle theory believes that _ while the new Keynesian cycle theory believes that _.

Suppose that a severe shock that decreases the demand for loanable funds hits Canada.Which of the following can we expect to occur according to real business cycle theory?

Real business cycle theorists believe that the intertemporal substitution effect _.Many other economists believe that the intertemporal substitution effect _.

In real business cycle theory, the supply of labour

A forecast based on all the relevant information is

Demand- pull inflation can start when

Use the figure below to answer the following questions. Figure 12.4.1 -Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.If the current inflation rate is 4 percent a year, what is the current unemployment rate?

Exam 12: The Business Cycle, Inflation, and Deflation

Use the figure below to answer the following questions. Figure 12.4.1 -Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.If the expected inflation rate changes to 3 percent a year, the

In real business cycle theory, _______ are the main source of economic fluctuations.

Which of the following is not a mainstream theory of the business cycle?

According to real business cycle theory, if the Bank of Canada increases the quantity of money when real GDP decreases, real GDP

Cost- push inflation can result from an initial

According to real business cycle theory, an increase in productivity _______ the demand for loanable funds, _______ the demand for labour, and _______ the supply of labour.The real interest rate will _______.

A movement down along the short- run Phillips curve results from an unanticipated

Use the table below to answer the following questions. Table 12.4.1 -Refer to Table 12.4.1.The table gives points on a short- run Phillips curve.If the expected inflation rate is 10 percent, and the inflation rate unexpectedly falls to 8 percent, what is the unemployment rate?

Use the figure below to answer the following questions. Figure 12.2.2 -Refer to Figure 12.2.2.Consider the market for labour as the short- run aggregate supply curve shifts leftward from SAS0 to SAS1.This shift could have been the result of an agreement between workers and employers for a

According to real business cycle theory, a fall in the real interest rate _______ the supply of labour and _______ employment.

The key difference between new classical cycle theory and new Keynesian cycle theory is that the new classical cycle theory believes that _______ while the new Keynesian cycle theory believes that _______.

Suppose that a severe shock that decreases the demand for loanable funds hits Canada.Which of the following can we expect to occur according to real business cycle theory?

Real business cycle theorists believe that the intertemporal substitution effect _______.Many other economists believe that the intertemporal substitution effect _______.

In real business cycle theory, the supply of labour

A forecast based on all the relevant information is

Demand- pull inflation can start when

Use the figure below to answer the following questions. Figure 12.4.1 -Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.If the current inflation rate is 4 percent a year, what is the current unemployment rate?

According to real business cycle theory, an increase in productivity ___ the demand for loanable funds, _ the demand for labour, and _ the supply of labour.The real interest rate will ___.

Use the figure below to answer the following questions. Figure 12.2.2 -Refer to Figure 12.2.2.Consider the market for labour as the short- run aggregate supply curve shifts leftward from SAS₀to SAS₁.This shift could have been the result of an agreement between workers and employers for a

According to real business cycle theory, a fall in the real interest rate _ the supply of labour and _ employment.

The key difference between new classical cycle theory and new Keynesian cycle theory is that the new classical cycle theory believes that _ while the new Keynesian cycle theory believes that _.

Real business cycle theorists believe that the intertemporal substitution effect _.Many other economists believe that the intertemporal substitution effect _.