Question 1

If the economy is in long-run equilibrium:

Accepted Answer

A) inflation should be accelerating. 
B) current output should be greater than potential output. 
C) current inflation should equal expected inflation. 
D) current inflation should be less than expected inflation.

Question 2

Potential output of the country when viewed over long periods of time:

Accepted Answer

A) rises in spurts and then starts a downward trend that can last years. 
B) is surprisingly constant. 
C) always decreases. 
D) tends to rise over time.

Question 3

The economy is in both a short- and long-run equilibrium if:

Accepted Answer

A) current inflation equals expected inflation and current output equals potential output. 
B) the aggregate demand curve intersects the short-run aggregate supply curve. 
C) the long-run aggregate supply curve is at potential output. 
D) the short-run aggregate supply curve intersects the long-run aggregate supply curve at potential output.

Question 4

Given the equation of exchange, MV = PY, when central bankers control short-term nominal interest rates by adjusting the level of reserves in the banking system, their actions are expected to primarily affect:

Accepted Answer

A) the rate of growth of V. 
B) the value of V. 
C) potential Y as opposed to current Y. 
D) the rate of growth of M.

Question 5

A decrease in taxes would cause:

Accepted Answer

A) the dynamic aggregate demand curve to shift to the left. 
B) a movement down and along the existing dynamic aggregate demand curve. 
C) a movement up and along the existing dynamic aggregate demand curve. 
D) the dynamic aggregate demand curve to shift to the right.

Question 6

Which of the following would cause an increase in the potential output of a country?

Accepted Answer

A) An increase in the capital stock 
B) A temporary decrease in exports 
C) An increase in the money supply 
D) A decrease in the labor force

Question 7

If the economy's current level of output rises above its potential level of output, the short-run aggregate supply curve will:

Accepted Answer

A) shift right. 
B) shift left. 
C) become horizontal. 
D) become vertical.

Question 8

Why would central bankers have to pay attention to forecasts regarding consumer sentiment and expectations of business owners and managers?

Accepted Answer

The answer of Why would central bankers have to pay...

Question 9

If the economy was initially at a long-run equilibrium, the short-run effects from a decrease in aggregate demand will include:

Accepted Answer

A) a recessionary gap. 
B) a decrease in potential output. 
C) an increase in the current inflation rate. 
D) a decrease in the target rate of inflation.

Question 10

Is the actual amount of output that corresponds to the long-run aggregate supply curve fixed? Explain.

Accepted Answer

The answer of Is the actual amount of output that...

Question 11

Evidence points out that since the mid-1950's just about every recession was preceded by:

Accepted Answer

A) low interest rates. 
B) rising interest rates. 
C) falling interest rates. 
D) negative real interest rates.

Question 12

If changes in the nominal federal funds rate result in equal changes to the expected rate of inflation, how effective would it be for the FOMC to target the nominal federal funds rate?

Accepted Answer

The answer of If changes in the nominal federal funds...

Question 13

If government purchases increase and as a result push current output above potential output, monetary policymakers are likely to:

Accepted Answer

A) lower the real interest rate. 
B) raise the real interest rate. 
C) keep the real interest rate constant and focus on only changing the nominal interest rate. 
D) purchase Treasury securities.

Question 14

In the long run the inflation rate equals the level implied by:

Accepted Answer

A) the rate of money growth. 
B) aggregate demand. 
C) the exchange rate. 
D) fiscal policy.

Question 15

Select the answer which best completes the following statement: "at any point along the long-run aggregate supply curve…"

Accepted Answer

A) expected inflation equals current inflation and current output is below potential output. 
B) the economy is moving toward its potential output level. 
C) current output equals potential output and expected inflation equals current inflation. 
D) expected inflation is moving toward current inflation.

Question 16

The long-run aggregate supply curve intersects the horizontal axis at the:

Accepted Answer

A) potential level of output. 
B) current level of output. 
C) expected rate of inflation. 
D) actual rate of inflation.

Question 17

It has been argued that the information technology age has greatly increased productivity and potential output.If this is true:

Accepted Answer

A) the long-run real interest rate is also higher as a result. 
B) nominal long-run interest rates should have increased. 
C) we should have seen lower short-run interest rates than we have seen. 
D) the long-run real interest rate is lower as a result.

Question 18

Temporary changes in inflation lead to adjustments in the price level.What causes permanent increases in inflation and why?

Accepted Answer

The answer of Temporary changes in inflation lead to adjustments...

Question 19

Increases in the real interest rate in the U.S.will cause net exports to:

Accepted Answer

A) decrease, because the dollar depreciates. 
B) increase, because the dollar depreciates. 
C) decrease, because the dollar appreciates. 
D) increase, because the dollar appreciates.

Question 20

Business cycles are viewed as:

Accepted Answer

A) movements in the short-run equilibrium. 
B) situations where aggregate demand does not equal short-run aggregate supply. 
C) inevitable; every economy must experience them. 
D) movements in the long-run equilibrium.

Exam 21: Output, Inflation, and Monetary Policy