Question 1

According to the policy irrelevance proposition, the impact of an anticipated expansionary monetary policy will be to

Accepted Answer

A)  increase the price level in the long run.
B)  increase the real Gross Domestic Product (GDP) in the long run.
C)  decrease the natural rate of unemployment.
D)  decrease the price level and the unemployment rate.E) A) and B)
F) B) and C)

Question 2

According to the real business cycle theory, which of the following would be a real disturbance to the economy?

Accepted Answer

A)  change in the required reserve ratio
B)  reduction in the money supply
C)  increase in the rate at which married women participate in the labor force
D)  increase in the price levelE) None of the above
F) A) and D)

Question 3

-In the above figure, if we start at AD₁ and SRAS₁, 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.E) B) and C)
F) None of the above

Question 4

Explain the rational expectations hypothesis.

Accepted Answer

The rational expectations hypothesis ass...

Question 5

During the 1960s, many Keynesian economists felt that by studying the Phillips curve

Accepted Answer

A)  policy makers could dispense with the Federal Reserve's open-market operations.
B)  policy makers could fine-tune the economy by selecting policies that would produce the exact mix of unemployment and inflation that suited current government objectives.
C)  the President and Congress did not need to attempt to balance the budget.
D)  policy makers could eliminate even frictional unemployment in the economy.E) A) and B)
F) B) and C)

Question 6

According to the theory based on rational expectations and flexible wages and prices,

Accepted Answer

A)  fiscal policy has less effect on real GDP than monetary policy in the long run.
B)  monetary policy has less effect on real GDP than fiscal policy in the long run.
C)  neither fiscal nor monetary policy influence real GDP in the long run.
D)  only the combination of discretionary fiscal policy and conservative monetary policy can affect real GDP in the long run.E) B) and D)
F) B) and C)

Question 7

Suppose the natural rate of unemployment is 5 percent. If the actual unemployment rate is 4 percent, then the cyclical unemployment rate is

Accepted Answer

A)  9 percent.
B)  1 percent.
C)  -1 percent.
D)  0 percent as cyclical unemployment cannot be less than zero.E) A) and D)
F) B) and C)

Question 8

-In the above figure, if we start at AD₁ and SRAS₁, and the money supply increases unexpectedly, what would be the short-run equilibrium even with rational expectations?

Accepted Answer

A)  E₁
B)  E₂
C)  E₃
D)  P₁E) None of the above
F) A) and B)

Question 9

Your friend recently graduated from college and is actively looking for employment. The economy has completely recovered from the last recession and your friend is taking her time, looking for the "perfect" job. In the meantime, the unemployment she is experiencing is categorized as

Accepted Answer

A)  cyclical.
B)  structural.
C)  seasonal.
D)  frictional.E) A) and D)
F) A) and B)

Question 10

Available evidence about price adjustments across U.S. industries indicates that

Accepted Answer

A)  prices are very flexible in all industries.
B)  prices are very sticky in all industries.
C)  prices are equally flexible in all industries.
D)  there is considerable variation in price flexibility across industries.E) None of the above
F) C) and D)

Question 11

Suppose the economy is in equilibrium when there is a change in environmental policy that bans all pesticides and herbicides on farmland. We would expect to observe

Accepted Answer

A)  a decrease in aggregate supply and an increase in aggregate demand.
B)  a decrease in both real output and the natural rate of unemployment.
C)  a decrease in real output and an increase in the natural rate of unemployment.
D)  a decrease in real output and an increase in the price level.E) None of the above
F) B) and D)

Question 12

What is meant by the natural rate of unemployment?

Accepted Answer

The natural rate of unemployme...

Question 13

The policy irrelevance proposition suggests that the policy effects on the economy primarily occur as a result of

Accepted Answer

A)  fiscal policy measures.
B)  policy mistakes or misjudgment of policies.
C)  nondiscretionary fiscal policy, not discretionary fiscal policy.
D)  fluctuations in the value of the U.S. dollar.E) A) and B)
F) A) and D)

Question 14

One key assumption lying behind the policy irrelevance proposition is that

Accepted Answer

A)  wages are "sticky" downward.
B)  prices are "sticky" upward.
C)  the rational expectations hypothesis is correct.
D)  markets are not purely competitive.E) A) and B)
F) All of the above

Question 15

When a person bases her future expectations for the economy on all available current data and her own judgment about future policy effects, this is known as

Accepted Answer

A)  the policy irrelevance proposition.
B)  rational expectations.
C)  irrational expectations.
D)  the new classical theory.E) A) and B)
F) None of the above

Question 16

Structural unemployment may result from all of the following factors EXCEPT

Accepted Answer

A)  union wage contracts.
B)  government-imposed licensing arrangements that restrict entry into certain professions.
C)  improved elementary and secondary education.
D)  welfare and unemployment benefits.E) B) and D)
F) B) and C)

Question 17

According to the real business cycle theory, which of the following is a TRUE statement about the effects of an oil shock in the 1970s?

Accepted Answer

A)  The shock affected real variables only and did not affect nominal variables.
B)  The shock shifted the short-run aggregate supply curve but not the long-run aggregate supply curve.
C)  The natural rate of unemployment remained unchanged, but employment levels did decline.
D)  Relative prices changed but there was no impact on the price level in general.E) All of the above
F) A) and D)

Question 18

The rational expectations hypothesis suggests that if wages and prices are flexible,

Accepted Answer

A)  unanticipated monetary policy actions can shift the long-run aggregate supply curve but cannot shift the aggregate demand curve.
B)  anticipated monetary policy actions can affect nominal variables, but not real variables.
C)  unanticipated monetary policy actions can affect real variables, but not nominal variables.
D)  growth in the money supply can alter real variables only if the growth is anticipated.E) None of the above
F) B) and C)

Question 19

According to New Keynesians, which of the following is one of the two key factors that determines the inflation rate?

Accepted Answer

A)  anticipated future inflation
B)  fiscal policy
C)  oil prices
D)  stock pricesE) All of the above
F) A) and D)

Question 20

-In the above figure, if A is the initial equilibrium point and there is an unanticipated rise in aggregate demand from AD₁ to AD₂, then

Accepted Answer

A)  the new short-run equilibrium will be at point B.
B)  the new long-run equilibrium will be at point B.
C)  the new short-run equilibrium will be at point D.
D)  real Gross Domestic Product (GDP) per year will fall below Y₁.E) A) and B)
F) None of the above

Exam 16: Stabilization in an Integrated World Economy

According to the real business cycle theory, which of the following is a TRUE statement about the effects of an oil shock in the 1970s?

Correct AnswerverifiedShow Answer

-In the above figure, if we start at AD₁ and SRAS₁, and the money supply increases unexpectedly, what causes the economy to get to the long-run equilibrium?

Correct AnswerverifiedShow Answer

The rational expectations hypothesis suggests that if wages and prices are flexible,

Correct AnswerverifiedShow Answer

During the 1960s, many Keynesian economists felt that by studying the Phillips curve

Correct AnswerverifiedShow Answer

According to New Keynesians, which of the following is one of the two key factors that determines the inflation rate?

Correct AnswerverifiedShow Answer

What is meant by the natural rate of unemployment?

Correct AnswerverifiedThe natural rate of unemployme...View AnswerShow Answer

One key assumption lying behind the policy irrelevance proposition is that

Correct AnswerverifiedShow Answer

Suppose the economy is in equilibrium when there is a change in environmental policy that bans all pesticides and herbicides on farmland. We would expect to observe

Correct AnswerverifiedShow Answer

According to the real business cycle theory, which of the following would be a real disturbance to the economy?

Correct AnswerverifiedShow Answer

Structural unemployment may result from all of the following factors EXCEPT

Correct AnswerverifiedShow Answer

When a person bases her future expectations for the economy on all available current data and her own judgment about future policy effects, this is known as

Correct AnswerverifiedShow Answer

According to the theory based on rational expectations and flexible wages and prices,

Correct AnswerverifiedShow Answer

-In the above figure, if A is the initial equilibrium point and there is an unanticipated rise in aggregate demand from AD₁ to AD₂, then

Correct AnswerverifiedShow Answer

According to the policy irrelevance proposition, the impact of an anticipated expansionary monetary policy will be to

Correct AnswerverifiedShow Answer

The policy irrelevance proposition suggests that the policy effects on the economy primarily occur as a result of

Correct AnswerverifiedShow Answer

-In the above figure, if we start at AD₁ and SRAS₁, and the money supply increases unexpectedly, what would be the short-run equilibrium even with rational expectations?

Correct AnswerverifiedShow Answer

Available evidence about price adjustments across U.S. industries indicates that

Correct AnswerverifiedShow Answer

Your friend recently graduated from college and is actively looking for employment. The economy has completely recovered from the last recession and your friend is taking her time, looking for the "perfect" job. In the meantime, the unemployment she is experiencing is categorized as

Correct AnswerverifiedShow Answer

Suppose the natural rate of unemployment is 5 percent. If the actual unemployment rate is 4 percent, then the cyclical unemployment rate is

Correct AnswerverifiedShow Answer

Explain the rational expectations hypothesis.

Correct AnswerverifiedThe rational expectations hypothesis ass...View AnswerShow Answer

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The natural rate of unemployme...
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The rational expectations hypothesis ass...
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