Question 1

The idea that anticipated monetary policy cannot affect real variables such as real Gross Domestic Product (GDP)or employment is known as

Accepted Answer

A) the Keynesian hypothesis. 
B) the policy irrelevance proposition. 
C) the job search model. 
D) the monetary velocity theory.

Question 2

Costs of renewing contracts or printing new price lists are known as

Accepted Answer

A) small business costs. 
B) small menu costs. 
C) small operating costs. 
D) small production costs.

Question 3

Which of the following unemployment rates can be negative?

Accepted Answer

A) the cyclical unemployment rate 
B) the natural unemployment rate 
C) the seasonal unemployment rate 
D) the official unemployment rate reported by the Bureau of Labor Statistics

Question 4

According to the policy irrelevance proposition,

Accepted Answer

A) monetary policy can effectively reduce the rate of unemployment in the short run. 
B) workers are not rational in the long run. 
C) the Phillips curve slopes upward,not downward as traditionally assumed. 
D) expansionary monetary policy will only lead to a higher rate of inflation in the long run.

Question 5

From the late 1980s to 2000,the natural rate of unemployment

Accepted Answer

A) climbed sharply. 
B) held constant. 
C) fluctuated up and down,following the path of the actual rate of unemployment. 
D) gradually declined.

Question 6

When the economy is in long-run equilibrium,there will be

Accepted Answer

A) no unemployment. 
B) frictional and structural unemployment. 
C) cyclical unemployment only. 
D) cyclical and seasonal unemployment.

Question 7

The hypothesis that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes is the basis of the

Accepted Answer

A) adaptive hypothesis. 
B) short-run Phillips curve hypothesis. 
C) rational expectations hypothesis. 
D) demand-pull inflation hypothesis.

Question 8

Describe and explain the real business cycle theory.

Accepted Answer

The answer of Describe and explain the real business cycle...

Question 9

On average,the greater the unexpected decline in aggregate demand,

Accepted Answer

A) the weaker is the resulting deflation. 
B) the greater is the resulting deflation. 
C) the greater is the resulting inflation. 
D) the greater is the rise in the price level.

Question 10

Assume that the government decides to use fiscal or monetary policy to stimulate the economy and that this action comes as a surprise to most individuals and businesses.In the short run,the result will be

Accepted Answer

A) a decrease in the average duration of unemployment and a decrease in the unemployment rate. 
B) an increase in the average duration of unemployment and an increase in the unemployment rate. 
C) a decrease in aggregated demand and a rise in the price level. 
D) an increase in aggregate demand and a fall in the price level.

Question 11

According to New Keynesians,an increase in which of the following will tend to cause the inflation rate to increase?

Accepted Answer

A) anticipated future inflation 
B) firms' average inflation adjusted per-unit costs of production 
C) an unexpected increase in aggregate demand 
D) all of the above

Question 12

In the above figure,if we start at  and  ,and the money supply increases unexpectedly,what causes the economy to get to the long-run equilibrium?

Accepted Answer

A) People's expectations will revise after a short-run gain in output,wages will fall,and SRAS will shift leftward. 
B) People's expectations will revise after a short-run gain in output,wages will rise,and SRAS will shift rightward. 
C) People's expectations will revise after a short-run loss in output,wages will fall,and SRAS will shift leftward. 
D) People's expectations will revise after a short-run gain in output,wages will rise,and SRAS will shift leftward.

Question 13

-Refer to the above figure.The rational expectations hypothesis implies that an anticipated decrease in aggregate demand from  to  will

Accepted Answer

A) move the economy from b to c. 
B) move the economy from b to a. 
C) move the economy from c to a. 
D) shift the aggregate supply (AS)curve to the left.

Question 14

An unexpected decrease in aggregate demand

Accepted Answer

A) will decrease long-run aggregate supply. 
B) will decrease the average duration of unemployment. 
C) will decrease the price level. 
D) will decrease real GDP,but will not affect the rate and duration of unemployment.

Question 15

The rational expectations hypothesis states that

Accepted Answer

A) the government combines the effects of past policy changes on important economic variables with accepted views about the effects of current and future policy changes. 
B) people combine the effect of past policy changes on important economic variables with unpredictable views on what policy makers will do to determine what the economy will do in the future. 
C) people combine the effects of past policy changes on important economic variables with their own judgments about the future effects of current and future policy changes. 
D) people understand how the economy operates and use their knowledge in making expectations about the future,but are uninformed about how fiscal and monetary policies are made and carried out.

Question 16

The most important new Keynesian assumption that distinguishes this theory differs from the real-business-cycle theory is the new Keynesian assumption

Accepted Answer

A) of a horizontal aggregate demand curve. 
B) of price flexibility. 
C) about the importance of interest rates in determining investment spending. 
D) of a horizontal short-run aggregate curve.

Question 17

Which of the following scenarios can be classified as passive policy making?

Accepted Answer

A) The Federal Reserve cuts the federal funds rate in order to increase economic activity. 
B) The federal government increases spending in order to create jobs. 
C) The Federal Reserve adjusts the money supply as appropriate to attain a target rate of inflation. 
D) Congress increases expenditures in an effort to stimulate economic activity.

Question 18

The natural rate of unemployment is defined as the rate of unemployment that

Accepted Answer

A) prevails in long-run macroeconomic equilibrium,when all workers and employers have fully adjusted to any changes in the economy. 
B) prevails in the short-run macroeconomic equilibrium,before workers and employers have had a chance to adjust to an economic shock. 
C) exists due to welfare and unemployment benefits that reduce potential workers' incentives to find work. 
D) exists only during periods of recession or depression in the economy.

Question 19

When it comes to active policy making most economists agree that

Accepted Answer

A) active policy making should be used over passive policy making. 
B) it is unlikely that active policy making will have any long term effects on the economy. 
C) it is likely that active policy making will have long term effects on the economy. 
D) it will lead to long term shocks in the system.

Question 20

Proponents of the policy irrelevance proposition believe that,under the assumption of rational expectations,the unemployment rate will

Accepted Answer

A) go up whenever the Fed announces an anticipated monetary policy change. 
B) go down whenever the Fed announces an anticipated fiscal policy change. 
C) equal the natural rate of unemployment in the long run,regardless of any monetary policy actions. 
D) always be higher in the long run than the natural rate of employment.

Exam 17: Stabilization in an Integrated World Economy

The idea that anticipated monetary policy cannot affect real variables such as real Gross Domestic Product (GDP) or employment is known as