Question 1

If monetary and fiscal policy are going to promote economic stability,they must _________ during a recession,and _________ during an economic boom.(Fill in the blank)

Accepted Answer

A)  add stimulus;apply restraint
B)  apply restraint;add stimulus
C)  add stimulus;add stimulus
D)  apply restraint;apply restraint

Question 2

Figure 15-3
 
-As shown in Figure 15-3,if people behave according to rational expectations theory,an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move

Accepted Answer

A)  directly from 100 to 105 and then remain at 105.
B)  directly from 100 to 110 and then remain at 110.
C)  from 100 to 105 initially and then eventually move back to 100.
D)  from 100 to 105 initially and then eventually move to 110.

Question 3

If the index of leading indicators and other forecasting devices suggested that the economy is moving into an inflationary boom,activists' economic policy would call for

Accepted Answer

A)  a decrease in money supply growth and a tax increase.
B)  an increase in money supply growth and a shift toward a budget deficit.
C)  an increase in money supply growth and a tax decrease.
D)  a continuation of the policies already in place.

Question 4

According to the theory of rational expectations,errors in predicting inflation will

Accepted Answer

A)  be biased upward more often than not.
B)  be purely random.
C)  tend to be biased downward when inflation is rising,and tend to be biased upward when inflation is falling.
D)  tend to be biased upward when inflation is rising,and tend to be biased downward when inflation is falling.

Question 5

Under the adaptive expectations hypothesis,which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Accepted Answer

A)  higher prices and no change in real output
B)  higher prices and expansion in real output
C)  no change in prices but an expansion in real output
D)  no change in either prices or real output

Question 6

Between 1983 and 2007,the U.S.economy was in recession ___________ share of the time,compared to ___________ share of the time during 1910-1959.(Fill in the blank)

Accepted Answer

A)  6 percent;33 percent
B)  20 percent;10 percent
C)  33 percent;12 percent
D)  15 percent;50 percent

Question 7

(I) In the 1960s and 1970s,most economists believed that there was a permanent trade-off between inflation and unemployment.
(II) Today,most economists believe there is no permanent trade-off between inflation and unemployment.

Accepted Answer

A)  Both I and II are true.
B)  Both I and II are false.
C)  I is true;II is false.
D)  I is false;II is true.

Question 8

When the effects of a more expansionary macroeconomic policy are quickly and accurately anticipated,the policy will

Accepted Answer

A)  increase inflation without reducing unemployment.
B)  increase unemployment while exerting little impact on inflation.
C)  decrease unemployment while exerting little impact on inflation.
D)  fail to exert a significant impact on either unemployment or inflation.

Question 9

Which of the following contributed to the weak recovery from the 2008-2009 recession?

Accepted Answer

A)  constant policy changes that generated uncertainty and undermined private investment
B)  the restrictive monetary policy followed by the Fed
C)  the tax increases instituted by a Congress intent on balancing the budget
D)  the inability of the federal government to borrow because of the sharply higher interest rates

Question 10

Under the rational expectations hypothesis,which of the following is the most likely effect of a shift to a more expansionary monetary policy?

Accepted Answer

A)  In the short run,the real rate of output will be unaffected,but in the long run,it will increase.
B)  In the short run,the real rate of output will increase,but in the long run,it will be unchanged.
C)  There will be a permanent increase in the real rate of output,but the inflation rate will also be a little higher.
D)  In the short run,the impact on the real rate of output is uncertain;in the long run,it will remain unchanged.

Question 11

Which of the following factors substantially reduces the effectiveness of discretionary changes in tax rates or government expenditures as a stabilization tool?

Accepted Answer

A)  Even though computer models have enhanced our forecasting ability,policy makers at the Federal Reserve have been reluctant to utilize information supplied by the models.
B)  When fiscal policy is altered,the Fed generally shifts monetary policy in a manner that offsets the impact of the fiscal action.
C)  Changes in government expenditures and taxes are always offset by equal changes in private spending.
D)  Since it takes time for fiscal policy to work and since the future is difficult to forecast,it is difficult to time fiscal policy changes correctly.

Question 12

Use the Modern Expectational Phillips curve diagram below to answer the following question(s) .
Figure 15-4
 
-Refer to Figure 15-4.According to the modern expectational Phillips curve,actual unemployment will generally fall below the natural rate of unemployment if

Accepted Answer

A)  inflation falls to zero.
B)  inflation exceeds what was anticipated by decision makers.
C)  inflation is less than anticipated by decision makers.
D)  people fully anticipate the inflationary side effects of expansionary macroeconomic policies.

Question 13

Which of the following is most important for the achievement of long-term prosperity and strong economic growth?

Accepted Answer

A)  expansionary monetary policy
B)  expansionary fiscal policy
C)  price stability
D)  a balanced federal budget

Question 14

Use the table below to choose the correct answer.

According to the adaptive expectations hypothesis,at the beginning of period 3,decision makers would expect inflation during period 3 to be

Accepted Answer

A)  2.5 percent.
B)  5 percent.
C)  7.5 percent.
D)  8 percent.

Question 15

When there is an abrupt reduction in the rate of inflation,

Accepted Answer

A)  the actual rate of unemployment will tend to fall below the natural rate.
B)  the actual rate of unemployment will tend to rise above the natural rate.
C)  the actual and natural rate of unemployment will generally be equal.
D)  the natural rate of unemployment will tend to rise.

Question 16

The modern view of the Phillips curve indicates that in the long run there

Accepted Answer

A)  is no trade-off between inflation and unemployment.
B)  is a definite trade-off between unemployment and inflation.
C)  will be a trade-off if the rational expectations hypothesis is correct.
D)  may be a long-run trade-off between unemployment and inflation,but there is no such trade-off in the short run.

Question 17

According to the adaptive expectations hypothesis,people will

Accepted Answer

A)  anticipate that what has happened in the immediate past will continue.
B)  systematically overestimate inflation when inflation is increasing.
C)  use all available information,including information on the expected impact of economic policy,when they formulate expectations about economic events.
D)  systematically underestimate inflation when inflation is declining.

Question 18

Assume that during the last several years,the annual rate of inflation was 4 percent and the annual growth rate of the money supply was 5 percent.During the last 12 months,however,the monetary authorities have increased the money supply at a 12 percent annual rate.The expected inflation rate for the next period will be

Accepted Answer

A)  higher than 4 percent under the rational expectations hypothesis.
B)  4 percent under the adaptive expectations hypothesis.
C)  higher than 4 percent under both the adaptive and rational expectations hypotheses.
D)  both a and b.

Question 19

The proponents of adaptive expectations believe that

Accepted Answer

A)  there will be a substantial time lag before people anticipate the effects of a shift to a more expansionary macro-policy.
B)  macro-policies that stimulate demand and place upward pressure on the general level of prices will temporarily increase output and employment.
C)  discretionary changes in macro-policy can be made in a manner that will reduce the economic ups and downs of a market economy.
D)  all of the above are true.

Question 20

Most economists believe that

Accepted Answer

A)  a monetary policy that achieves price stability will reduce uncertainty and provide the framework for strong economic growth.
B)  demand stimulus policies will reduce the long-term average rate of unemployment.
C)  expansionary monetary policy,if persistently followed,will reduce nominal interest rates.
D)  inflation is primarily the result of large budget deficits and other elements of expansionary fiscal policy.

Exam 15: Stabilization Policy, output, and Employment

When the effects of a more expansionary macroeconomic policy are quickly and accurately anticipated,the policy will

Correct Answer
verified

Under the rational expectations hypothesis,which of the following is the most likely effect of a shift to a more expansionary monetary policy?

Correct Answer
verified

According to the theory of rational expectations,errors in predicting inflation will

Correct Answer
verified

If monetary and fiscal policy are going to promote economic stability,they must _ during a recession,and _ during an economic boom.(Fill in the blank)

Correct Answer
verified

Between 1983 and 2007,the U.S.economy was in recession _ share of the time,compared to _ share of the time during 1910-1959.(Fill in the blank)

Correct Answer
verified

Which of the following is most important for the achievement of long-term prosperity and strong economic growth?

Correct Answer
verified

Under the adaptive expectations hypothesis,which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Correct Answer
verified

(I) In the 1960s and 1970s,most economists believed that there was a permanent trade-off between inflation and unemployment. (II) Today,most economists believe there is no permanent trade-off between inflation and unemployment.

Correct Answer
verified

Which of the following factors substantially reduces the effectiveness of discretionary changes in tax rates or government expenditures as a stabilization tool?

Correct Answer
verified

Use the table below to choose the correct answer. According to the adaptive expectations hypothesis,at the beginning of period 3,decision makers would expect inflation during period 3 to be

Correct Answer
verified

Use the Modern Expectational Phillips curve diagram below to answer the following question(s) . Figure 15-4 -Refer to Figure 15-4.According to the modern expectational Phillips curve,actual unemployment will generally fall below the natural rate of unemployment if

Correct Answer
verified

The modern view of the Phillips curve indicates that in the long run there

Correct Answer
verified

Correct Answer
verified

Figure 15-3 -As shown in Figure 15-3,if people behave according to rational expectations theory,an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move

Correct Answer
verified

According to the adaptive expectations hypothesis,people will

Correct Answer
verified

If the index of leading indicators and other forecasting devices suggested that the economy is moving into an inflationary boom,activists' economic policy would call for

Correct Answer
verified

When there is an abrupt reduction in the rate of inflation,

Correct Answer
verified

Which of the following contributed to the weak recovery from the 2008-2009 recession?

Correct Answer
verified

The proponents of adaptive expectations believe that

Correct Answer
verified

Most economists believe that

Correct Answer
verified

Exam 15: Stabilization Policy, output, and Employment

When the effects of a more expansionary macroeconomic policy are quickly and accurately anticipated,the policy will

Correct AnswerverifiedShow Answer

Under the rational expectations hypothesis,which of the following is the most likely effect of a shift to a more expansionary monetary policy?

Correct AnswerverifiedShow Answer

According to the theory of rational expectations,errors in predicting inflation will

Correct AnswerverifiedShow Answer

If monetary and fiscal policy are going to promote economic stability,they must _________ during a recession,and _________ during an economic boom.(Fill in the blank)

Correct AnswerverifiedShow Answer

Between 1983 and 2007,the U.S.economy was in recession ___________ share of the time,compared to ___________ share of the time during 1910-1959.(Fill in the blank)

Correct AnswerverifiedShow Answer

Which of the following is most important for the achievement of long-term prosperity and strong economic growth?

Correct AnswerverifiedShow Answer

Under the adaptive expectations hypothesis,which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?

Correct AnswerverifiedShow Answer

(I) In the 1960s and 1970s,most economists believed that there was a permanent trade-off between inflation and unemployment. (II) Today,most economists believe there is no permanent trade-off between inflation and unemployment.

Correct AnswerverifiedShow Answer

Which of the following factors substantially reduces the effectiveness of discretionary changes in tax rates or government expenditures as a stabilization tool?

Correct AnswerverifiedShow Answer

Use the table below to choose the correct answer. According to the adaptive expectations hypothesis,at the beginning of period 3,decision makers would expect inflation during period 3 to be

Correct AnswerverifiedShow Answer

Use the Modern Expectational Phillips curve diagram below to answer the following question(s) . Figure 15-4 -Refer to Figure 15-4.According to the modern expectational Phillips curve,actual unemployment will generally fall below the natural rate of unemployment if

Correct AnswerverifiedShow Answer

The modern view of the Phillips curve indicates that in the long run there

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 15-3 -As shown in Figure 15-3,if people behave according to rational expectations theory,an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move

Correct AnswerverifiedShow Answer

According to the adaptive expectations hypothesis,people will

Correct AnswerverifiedShow Answer

If the index of leading indicators and other forecasting devices suggested that the economy is moving into an inflationary boom,activists' economic policy would call for

Correct AnswerverifiedShow Answer

When there is an abrupt reduction in the rate of inflation,

Correct AnswerverifiedShow Answer

Which of the following contributed to the weak recovery from the 2008-2009 recession?

Correct AnswerverifiedShow Answer

The proponents of adaptive expectations believe that

Correct AnswerverifiedShow Answer

Most economists believe that

Correct AnswerverifiedShow Answer

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verified

Correct Answer
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Correct Answer
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If monetary and fiscal policy are going to promote economic stability,they must _ during a recession,and _ during an economic boom.(Fill in the blank)

Correct Answer
verified

Between 1983 and 2007,the U.S.economy was in recession _ share of the time,compared to _ share of the time during 1910-1959.(Fill in the blank)

Correct Answer
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