Question 1

If $\tilde { Y } _ { t } = 0$ , the macroeconomy is:

Accepted Answer

A)   at its potential level of output
B)   in a recessionary gap
C)   in an expansionary gap
D)   Not enough information is given.
E)   None of these answers are correct.  A

Question 2

John Maynard Keynes is famous for saying, "In the long run ________."

Accepted Answer

A)   there is no tomorrow
B)   we are all dead
C)   the only thing we have to fear is fear itself
D)   the study of economics will be redundant
E)   we will tear down this wall B

Question 3

Which is responsible for dating business cycles?

Accepted Answer

A)   Congressional Budget Office
B)   Business Cycle Committee of the National Bureau of Economic Research
C)   President's Council of Economic Advisors
D)   New York City Federal Reserve Bank president
E)   Board of Governors of the Federal Reserve System B

Question 4

According to the Phillips curve presented in the text, a positive macroeconomic shock:

Accepted Answer

A)   increases the rate of inflation
B)   decreases the rate of inflation
C)   has no effect on the rate of inflation
D)   has a negative effect on the unemployment rate
E)   has a positive effect on the unemployment rate

Question 5

Refer to the following figure when answering the next five questions.
Figure 9.2: U.S. Output Fluctuations 1960-2012  
(Source: BEA and CBO, data from Federal Reserve Economic Data, St. Louis Federal Reserve)
-Consider Figure 9.2, which represents $\tilde { Y } _ { t }$ . In approximately what years did the U.S. economy experience its longest economic downturn, using the text's definition?

Accepted Answer

A)   1990-1997
B)   1974-1978
C)   1980-1988
D)   1957-1963
E)   2008-2012

Question 6

Post-World War II, the deepest recessionary gap occurred during the Volcker-Reagan recession in the early 1980s.

Accepted Answer

A) True 
 B)False

Question 7

You are a staff economist with the Federal Reserve. The chairman says to you, "The rate of change in inflation is too high, and I don't think the Phillips curve is very steep. What should we do to reduce these inflationary increases?" What do you respond?

Accepted Answer

A)   "Because the Phillips curve is relatively flat, we need to increase interest rates a lot, as the change in inflation is not very responsive to changes in output."
B)   "Because the Phillips curve is relatively flat, we need to decrease interest rates a lot, as the change in inflation is not very responsive to changes in output."
C)   "Because the Phillips curve is relatively flat, we need to increase interest rates only a little, as the change in inflation is very responsive to changes in output."
D)   "Because the Phillips curve is relatively flat, we need to increase interest rates only a little, as the change in inflation is not very responsive to changes in output."
E)   "Because the Phillips curve is relatively flat, we can do nothing to interest rates, as the change in inflation does not respond to changes in output."

Question 8

If $\Delta \pi > 0$ , the macroeconomy is:

Accepted Answer

A)   in a recession
B)   in an expansion
C)   at its potential level of output
D)   Not enough information is given.
E)   None of these answers are correct.

Question 9

You are a staff economist with the Federal Reserve. The chairman says to you, "The rate of change in inflation is too high and I think the Phillips curve is horizontal. What should we do to reduce these inflationary increases?" How do you respond?

Accepted Answer

A)   "Because the Phillips curve is flat, we can do nothing to change the rate of inflation, as it does not respond to changes in output."
B)   "Because the Phillips curve is flat, we need to increase interest rates a lot, as the change in inflation is not very responsive to changes in output."
C)   "Because the Phillips curve is flat, we need to decrease interest rates a lot, as the change in inflation is not very responsive to changes in output."
D)   "Because the Phillips curve is flat, we need to increase interest rates a lot, as the change in inflation is infinitely responsive to changes in output."
E)   "You are not giving me enough information."

Question 10

Refer to the following figure when answering  
Figure 9.1: Output versus Time

-Considering Figure 9.1:

Accepted Answer

A)   area a is where current output is less than potential output, and area b is where current output is greater than potential output
B)   area a is where current output is greater than potential output, and area b is where current output is less than potential output
C)   point c is where economic fluctuations are zero, and at point b, the economy is in a boom
D)   at point c, current output equals the short-term fluctuations
E)   area a is where current output is greater than potential output, and at point c, the economy is in a boom

Question 11

A country with a steep Phillips curve experiences a smaller increase in the rate of inflation than a country with a relatively flat Phillips curve, assuming the size of the positive demand shock in each country is the same.

Accepted Answer

A) True 
 B)False

Question 12

If $\tilde { Y } _ { t } > 0$  , the macroeconomy is producing at its potential level of output.

Accepted Answer

A) True 
 B)False

Question 13

Suppose an economy exhibits a large unexpected decrease in productivity growth that lasts for a decade; however, monetary policymakers are slow to recognize that the change is to potential, not current, output and they interpret the decrease in output as a recession that leads current output to fall below potential output. In this scenario, policymakers believe that recessionary pressures are building and incorrectly respond by increasing interest rates, sending the economy into a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is NOT an example of a short-term macroeconomic "shock"?

Accepted Answer

A)   increased oil prices
B)   a drought
C)   increased military spending
D)   a change in the tax code
E)   None of these answers are correct.

Question 15

Okun's law shows the ________ relationship between ________ and ________.

Accepted Answer

A)   negative; the unemployment gap; economic fluctuations
B)   positive; the unemployment gap; economic fluctuations
C)   negative; the unemployment gap; inflation
D)   positive; the unemployment gap; inflation
E)   negative; inflation; economic fluctuations

Question 16

Defining $Y _ { t }$   as current output, $$\bar { Y } _ { t }$$ as potential output, and $\tilde { Y } _ { t }$  as short-run fluctuations, the equation $\tilde { Y } _ { t } = \left( Y _ { t } - \bar { Y } _ { t } \right) / \bar { Y } _ { t }$  is defined as the percentage deviation of current output from potential output.

Accepted Answer

A) True 
 B)False

Question 17

An increase in planned investment expenditures is a short-term economic "shock."

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is NOT an example of a short-term macroeconomic "shock"?

Accepted Answer

A)   a drought
B)   high unemployment
C)   increased military spending
D)   a change in the tax code
E)   political unrest

Question 19

The long-run model determines ________ and ________.

Accepted Answer

A)   current output; unemployment
B)   potential output; unemployment
C)   current output; long-run inflation
D)   potential output; potential inflation
E)   potential output; long-run inflation

Question 20

According to the text, which of the following can be used to characterize potential output?
i. Assume a perfectly smooth trend is passing through the quarter-to-quarter movements in the real GDP.
ii. Take averages of the surrounding actual GDP numbers.
iii. Gather current data from statistical agencies, such as the Bureau of Economic Analysis.

Accepted Answer

A)   i only
B)   ii only
C)   ii and iii
D)   i and ii
E)   iii only

Exam 9: An Introduction to the Short Run

If $\tilde { Y } _ { t } = 0$ , the macroeconomy is:

John Maynard Keynes is famous for saying, "In the long run ________."

Which is responsible for dating business cycles?

According to the Phillips curve presented in the text, a positive macroeconomic shock:

Post-World War II, the deepest recessionary gap occurred during the Volcker-Reagan recession in the early 1980s.

You are a staff economist with the Federal Reserve. The chairman says to you, "The rate of change in inflation is too high, and I don't think the Phillips curve is very steep. What should we do to reduce these inflationary increases?" What do you respond?

If $\Delta \pi > 0$ , the macroeconomy is:

You are a staff economist with the Federal Reserve. The chairman says to you, "The rate of change in inflation is too high and I think the Phillips curve is horizontal. What should we do to reduce these inflationary increases?" How do you respond?

Refer to the following figure when answering Figure 9.1: Output versus Time -Considering Figure 9.1:

A country with a steep Phillips curve experiences a smaller increase in the rate of inflation than a country with a relatively flat Phillips curve, assuming the size of the positive demand shock in each country is the same.

If $\tilde { Y } _ { t } > 0$ , the macroeconomy is producing at its potential level of output.

Which of the following is NOT an example of a short-term macroeconomic "shock"?

Okun's law shows the relationship between and .

An increase in planned investment expenditures is a short-term economic "shock."

Which of the following is NOT an example of a short-term macroeconomic "shock"?

The long-run model determines and .

Exam 9: An Introduction to the Short Run

If Y~t=0\tilde { Y } _ { t } = 0Y~t​=0 , the macroeconomy is:

John Maynard Keynes is famous for saying, "In the long run ________."

Which is responsible for dating business cycles?

According to the Phillips curve presented in the text, a positive macroeconomic shock:

Post-World War II, the deepest recessionary gap occurred during the Volcker-Reagan recession in the early 1980s.

You are a staff economist with the Federal Reserve. The chairman says to you, "The rate of change in inflation is too high, and I don't think the Phillips curve is very steep. What should we do to reduce these inflationary increases?" What do you respond?

If Δπ>0\Delta \pi > 0Δπ>0 , the macroeconomy is:

You are a staff economist with the Federal Reserve. The chairman says to you, "The rate of change in inflation is too high and I think the Phillips curve is horizontal. What should we do to reduce these inflationary increases?" How do you respond?

Refer to the following figure when answering Figure 9.1: Output versus Time -Considering Figure 9.1:

A country with a steep Phillips curve experiences a smaller increase in the rate of inflation than a country with a relatively flat Phillips curve, assuming the size of the positive demand shock in each country is the same.

If Y~t>0\tilde { Y } _ { t } > 0Y~t​>0 , the macroeconomy is producing at its potential level of output.

Which of the following is NOT an example of a short-term macroeconomic "shock"?

Okun's law shows the ________ relationship between ________ and ________.

An increase in planned investment expenditures is a short-term economic "shock."

Which of the following is NOT an example of a short-term macroeconomic "shock"?

The long-run model determines ________ and ________.

If $\tilde { Y } _ { t } = 0$ , the macroeconomy is:

If $\Delta \pi > 0$ , the macroeconomy is:

If $\tilde { Y } _ { t } > 0$ , the macroeconomy is producing at its potential level of output.

Okun's law shows the relationship between and .

The long-run model determines and .