Question 1

Which of the following does not help to explain differences in growth rates across countries?

Accepted Answer

A)   Differences in labor growth rates
B)   Differences in capital growth rates
C)   Differences in labor productivity growth rates
D)   Differences in total factor productivity growth rates
E)   Differences in inflation rates

Question 2

In the short run, expansionary monetary policy by the Fed would

Accepted Answer

A)   reduce unemployment at the cost of higher inflation.
B)   reduce inflation at the cost of a rise in the natural rate of unemployment.
C)   reduce inflation and leave the natural unemployment rate unchanged.
D)   reduce both inflation and unemployment.
E)   increase both inflation and unemployment.

Question 3

The long-run Phillips curve assumes that every unemployed worker who is looking for a job has a constant reservation wage.

Accepted Answer

A) True 
 B)False

Question 4

We can say that the potential level of real GDP is fixed because the long-run aggregate supply curve is a vertical line.

Accepted Answer

A) True 
 B)False

Question 5

Suppose that unemployed workers expect inflation to be 10 percent, but inflation actually turns out to be 12 percent. If the workers do not revise their reservation wages and wage offers are in line with the actual inflation rate, then a movement up the short-run Phillips curve should take place.

Accepted Answer

A) True 
 B)False

Question 6

The "government budget constraint"

Accepted Answer

A)   indicates how a budget deficit can be balanced by decreasing money growth.
B)   defines the interdependency between monetary and fiscal policy.
C)   states that the amount of government spending is always equal to the money supply.
D)   shows that fiscal deficits are not affected by changes in monetary policy.
E)   states that the national debt cannot rise beyond 15 percent of real GDP.

Question 7

If the inflation rate has risen 2 percent a year for the past three years, then using this experience to forecast a 2 percent rise in the coming year's inflation rate is an example of

Accepted Answer

A)   traditional expectations.
B)   rational expectations.
C)   adaptive expectations.
D)   reflective expectations.
E)   deductive expectations.

Question 8

Which of the following would be likely to trigger a real business cycle?

Accepted Answer

A)   A decrease in income tax rates
B)   Expansionary monetary policy
C)   A decrease in the money supply
D)   A large government surplus
E)   A labor strike in the steel industry

Question 9

The long-run Phillips curve at the natural rate of unemployment is analogous to the

Accepted Answer

A)   short-run Phillips curve at the natural rate of unemployment.
B)   long-run aggregate supply curve at potential national income.
C)   short-run aggregate demand curve at potential national income.
D)   long-run aggregate demand curve at each price level.
E)   horizontal portion of the aggregate supply curve.

Question 10

A six-month strike by U.S. farmers would

Accepted Answer

A)   have no impact on real GDP but would result in higher food prices.
B)   cause aggregate demand to fall.
C)   cause a recession that is limited to the farming industry.
D)   cause the Phillips curve to shift inward.
E)   increase prices at every level of output.

Question 11

The long-run Phillips curve corresponds to a horizontal long-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 12

Other things being equal, advances in technology allow resources to be more productive.

Accepted Answer

A) True 
 B)False

Question 13

If aggregate demand rises unexpectedly, inventories fall, inflation is higher than expected, and unemployment rises.

Accepted Answer

A) True 
 B)False

Question 14

Figure 16.4
 
-Refer to Figure 16.4. Suppose the economy is located at point A, but the government increases spending because it believes that 6 percent unemployment is unacceptably high. If the adaptive expectations hypothesis holds, in the short run, the economy would move to point

Accepted Answer

A)   B.
B)   C.
C)   D.
D)   E.
E)   F.

Question 15

Because the average annual population growth is higher in developing countries than in industrial nations,

Accepted Answer

A)   economic growth is higher in developing countries.
B)   the investment in education is higher in developing countries.
C)   the total size of the labor force is higher in industrial countries.
D)   productivity is higher in developing countries.
E)   the growth in the labor supply is lower in industrial countries.

Question 16

The hypothesis of political business cycles asserts that

Accepted Answer

A)   politicians can produce a favorable short-run tradeoff between inflation and unemployment to improve their chances of reelection.
B)   political popularity is not a function of the business cycle.
C)   an economic recession takes place before every national election.
D)   political manipulation of the business cycle is an effective way to increase permanent economic growth.
E)   economic expansions or contractions are a function of congressional support for the president's economic policy.

Question 17

Because the growth in the money supply is unrelated to government spending, fiscal policy and monetary policy can be conducted independently.

Accepted Answer

A) True 
 B)False

Question 18

Oil price shocks, technological improvements, and expansionary fiscal policy are all examples of real business-cycle shocks.

Accepted Answer

A) True 
 B)False

Question 19

The money supply increases when, other things being equal,

Accepted Answer

A)   the government surplus rises.
B)   the amount of government borrowing rises.
C)   tax revenues increase.
D)   government spending increases.
E)   the government deficit falls.

Question 20

According to the theory of adaptive expectations, if the inflation rate has been 10 percent for the last ten years, people will expect next year's inflation rate to be

Accepted Answer

A)   10 percent.
B)   higher than 10 percent.
C)   lower than 10 percent.
D)   whatever the government announces.
E)   zero.

Exam 16: Macroeconomic Policy, Business Cycles, and Growth

According to the theory of adaptive expectations, if the inflation rate has been 10 percent for the last ten years, people will expect next year's inflation rate to be

Correct AnswerverifiedShow Answer

Other things being equal, advances in technology allow resources to be more productive.

Correct AnswerverifiedShow Answer

A six-month strike by U.S. farmers would

Correct AnswerverifiedShow Answer

The long-run Phillips curve assumes that every unemployed worker who is looking for a job has a constant reservation wage.

Correct AnswerverifiedShow Answer

Which of the following would be likely to trigger a real business cycle?

Correct AnswerverifiedShow Answer

Suppose that unemployed workers expect inflation to be 10 percent, but inflation actually turns out to be 12 percent. If the workers do not revise their reservation wages and wage offers are in line with the actual inflation rate, then a movement up the short-run Phillips curve should take place.

Correct AnswerverifiedShow Answer

The hypothesis of political business cycles asserts that

Correct AnswerverifiedShow Answer

Because the growth in the money supply is unrelated to government spending, fiscal policy and monetary policy can be conducted independently.

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Which of the following does not help to explain differences in growth rates across countries?

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The money supply increases when, other things being equal,

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Figure 16.4 -Refer to Figure 16.4. Suppose the economy is located at point A, but the government increases spending because it believes that 6 percent unemployment is unacceptably high. If the adaptive expectations hypothesis holds, in the short run, the economy would move to point

Correct AnswerverifiedShow Answer

The "government budget constraint"

Correct AnswerverifiedShow Answer

Because the average annual population growth is higher in developing countries than in industrial nations,

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The long-run Phillips curve at the natural rate of unemployment is analogous to the

Correct AnswerverifiedShow Answer

The long-run Phillips curve corresponds to a horizontal long-run aggregate supply curve.

Correct AnswerverifiedShow Answer

We can say that the potential level of real GDP is fixed because the long-run aggregate supply curve is a vertical line.

Correct AnswerverifiedShow Answer

If aggregate demand rises unexpectedly, inventories fall, inflation is higher than expected, and unemployment rises.

Correct AnswerverifiedShow Answer

If the inflation rate has risen 2 percent a year for the past three years, then using this experience to forecast a 2 percent rise in the coming year's inflation rate is an example of

Correct AnswerverifiedShow Answer

In the short run, expansionary monetary policy by the Fed would

Correct AnswerverifiedShow Answer

Oil price shocks, technological improvements, and expansionary fiscal policy are all examples of real business-cycle shocks.

Correct AnswerverifiedShow Answer

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