Question 1

Deflation is a problem because it requires more purchasing power to pay off debt.

Accepted Answer

A) True 
 B)False

Question 2

Wall Street ratings firms had an incentive to give overly rosy ratings to collateralized debt obligations because the firm received a higher fee for giving higher ratings.

Accepted Answer

A) True 
 B)False

Question 3

The simultaneous occurrence of rising inflation and rising unemployment is called:

Accepted Answer

A)  deflation. 
B)  stagflation. 
C)  disinflation. 
D)  disintermediation.

Question 4

Monetized debt results in a decrease in the value of the dollar.

Accepted Answer

A) True 
 B)False

Question 5

Figure: Aggregate Supply and Demand Shifts  (Figure: )The economy is originally at its long-run equilibrium,SRAS0 and AD0.Government policymakers signal that they intend to reduce aggregate demand from AD0 to AD1.If we assume that individuals have rational expectations,then the speed of the shift from SRAS0 to SRAS1 will happen:

Accepted Answer

A)  almost immediately. 
B)  after a long lag. 
C)  only after the government finishes fully implementing its policy. 
D)  too slowly to affect the price level.

Question 6

In the short run,unanticipated inflation usually leads to:

Accepted Answer

A)  an increase in real wages. 
B)  higher rates of unemployment. 
C)  lower rates of unemployment. 
D)  a decrease in aggregate demand.

Question 7

The Phillips curve shows the tradeoff between unemployment and the interest rate.

Accepted Answer

A) True 
 B)False

Question 8

Suppose policymakers want to keep the unemployment rate below its natural rate by increasing demand.A consequence of this policy would be:

Accepted Answer

A)  an increase in aggregate supply. 
B)  a stable Phillips curve. 
C)  increasing structural unemployment. 
D)  accelerating inflation.

Question 9

Imperfect information and efficiency wages together suggest that policy changes can have a short-term impact.

Accepted Answer

A) True 
 B)False

Question 10

If policymakers attempt to keep unemployment below its natural level,it will drift back up again.

Accepted Answer

A) True 
 B)False

Question 11

The difference between Bear Stearns and Lehman Brothers was that:

Accepted Answer

A)  the Fed bailed out Bear Stearns and did not bail out Lehman Brothers. 
B)  the Fed bailed out Lehman Brothers and did not bail out Bear Stearns. 
C)  Lehman Brothers was an investment bank and Bear Stearns was a commercial bank. 
D)  Bear Stearns was a commercial bank and Lehman Brothers was an investment bank.

Question 12

If worker productivity increases enough to offset any wage increases,then product prices can remain stable.

Accepted Answer

A) True 
 B)False

Question 13

One of the trigger points for the financial crisis of 2008 was when:

Accepted Answer

A)  interest rates on adjustable-rate mortgages were reset at a higher level. 
B)  foreigners started to sell off their holdings of U.S.financial instruments. 
C)  the Federal Reserve started to raise short-term interest rates. 
D)  the federal government started to engage in deficit spending.

Question 14

Which of the following is NOT a problem for policymakers who want to reduce the national debt?

Accepted Answer

A)  In the near future,more baby boomers will be receiving Medicare payments. 
B)  Rising health care costs will increase the cost of Medicare. 
C)  High interest rates make it more difficult to pay down debt. 
D)  Social Security costs will rise with inflation.

Question 15

Describe the criticisms of the rational expectations theory.

Accepted Answer

The answer of Describe the criticisms of the rational expectations...

Question 16

Wages above market-clearing rates,intended to improve morale and reduce turnover,are:

Accepted Answer

A)  efficiency wages. 
B)  high-cost wages. 
C)  undeserved wages. 
D)  profit-impediment wages.

Question 17

(Figure: Natural Rate of Unemployment)  The natural rate of unemployment:

Accepted Answer

A)  is zero. 
B)  is 3%. 
C)  is 6%. 
D)  cannot be determined.

Question 18

What types of loans are NOT typically included in collateralized debt obligations?

Accepted Answer

A)  subprime mortgages 
B)  home equity loans 
C)  adjustable-rate mortgages 
D)  student loans

Question 19

According to A.W.Phillips,there is an inverse relationship between money wages and the unemployment level.

Accepted Answer

A) True 
 B)False

Question 20

The Phillips curve:

Accepted Answer

A)  was developed by economists at Phillips 66. 
B)  shows the effectiveness of government policy. 
C)  is used by economists to determine optimal oil prices. 
D)  shows the relationship between unemployment and inflation.

Exam 14: Macroeconomic Policy: Challenges in a Global Economy

Deflation is a problem because it requires more purchasing power to pay off debt.

Wall Street ratings firms had an incentive to give overly rosy ratings to collateralized debt obligations because the firm received a higher fee for giving higher ratings.

The simultaneous occurrence of rising inflation and rising unemployment is called:

Monetized debt results in a decrease in the value of the dollar.

In the short run,unanticipated inflation usually leads to:

The Phillips curve shows the tradeoff between unemployment and the interest rate.

Suppose policymakers want to keep the unemployment rate below its natural rate by increasing demand.A consequence of this policy would be:

Imperfect information and efficiency wages together suggest that policy changes can have a short-term impact.

If policymakers attempt to keep unemployment below its natural level,it will drift back up again.

The difference between Bear Stearns and Lehman Brothers was that:

If worker productivity increases enough to offset any wage increases,then product prices can remain stable.

One of the trigger points for the financial crisis of 2008 was when:

Which of the following is NOT a problem for policymakers who want to reduce the national debt?

Describe the criticisms of the rational expectations theory.

Wages above market-clearing rates,intended to improve morale and reduce turnover,are:

(Figure: Natural Rate of Unemployment) The natural rate of unemployment:

What types of loans are NOT typically included in collateralized debt obligations?

According to A.W.Phillips,there is an inverse relationship between money wages and the unemployment level.

The Phillips curve: