Question 1

Many economists think that, in the long run, the economy generally tends to move toward:

Accepted Answer

A)  ​an accelerating inflation rate.
B)  ​a stable price level.
C)  ​the natural or full-employment rate of inflation.
D)  ​the natural or full-employment rate of unemployment.E) All of the above
F) None of the above

Question 2

The novelty of Phillips' article was his finding of a ____ correlation between ____ and ____.

Accepted Answer

A)  ​positive; unemployment; the interest rate
B)  ​negative; inflation; the exchange rate
C)  ​negative; unemployment; inflation
D)  ​positive; the rate of growth of the money supply; inflationE) B) and D)
F) A) and B)

Question 3

Why is indexing not commonly adopted in spite of the fact that it eliminates most of the wealth transfers associated with unexpected inflation?

Accepted Answer

Indexing is not frequently used because ...

Question 4

An increase in aggregate demand would move the economy up and to the right along a short run aggregate supply curve and up and to the left along a Phillips Curve.

Accepted Answer

A) True 
 B)False

Question 5

According to the Phillips curve analysis, if policy makers reduce aggregate demand growth, they can lower inflation, but only at the cost of a:

Accepted Answer

A)  ​permanent increase in the natural rate of unemployment.
B)  ​permanent increase in the actual unemployment rate.
C)  ​temporary increase in unemployment.
D)  ​temporary decrease in the natural level of unemployment.E) A) and D)
F) All of the above

Question 6

In the rational expectation model, government control over aggregate demand:

Accepted Answer

A)  ​gives it the power to alter real output and employment even when the effects of government policies are expected.
B)  ​can affect real output in the short-run only if policies are unexpected.
C)  ​has potential to change long-run real output as long as the aggregate supply curve is vertical.
D)  ​has highly unpredictable effects on real output in the long run.E) A) and C)
F) None of the above

Question 7

Proponents of the monetary growth rule believe that a constant growth rate in the money supply will lead to less uncertainty and greater credibility than with activist policies.

Accepted Answer

A) True 
 B)False

Question 8

If people have rational expectations and correctly estimate the effects of a change in government policy, when the economy is initially at full employment, any anticipated increase in aggregate demand will result in:

Accepted Answer

A)  ​a decrease in both aggregate demand and short-run aggregate supply.
B)  ​an increase in short-run aggregate supply that will maintain full employment.
C)  ​higher prices that will reduce aggregate demand to its original level.
D)  ​a decrease in short-run aggregate supply that will maintain full employment.E) All of the above
F) A) and C)

Question 9

The Phillips curve relationship can also be seen indirectly from the AD/AS model.

Accepted Answer

A) True 
 B)False

Question 10

Rational expectations theory implies that the more completely the effects of policy makers are foreseen, the smaller their short run effects on real output and unemployment, and the greater their short run effects on the price level.

Accepted Answer

A) True 
 B)False

Question 11

The intent of indexing is to:

Accepted Answer

A)  ​reduce inflation gradually.
B)  ​shift the long-run Phillips curve to the right.
C)  ​take most of the sting out of inflation.
D)  ​raise tax revenue automatically during inflation.E) A) and B)
F) B) and C)

Question 12

According to the rational expectation view, the government can change real output:

Accepted Answer

A)  ​with appropriate, well-publicized fiscal and monetary policies.
B)  ​with appropriate, well-publicized fiscal and monetary policies in the short run, but not in the long run.
C)  ​only by making unexpected changes in aggregate demand.
D)  ​without ever affecting the price level.E) A) and B)
F) All of the above

Question 13

Which of the following is false?

Accepted Answer

A)  ​If people can anticipate the plans of policy makers and alter their behavior quickly, their behavior could neutralize the intended impact of government action on real GDP.
B)  ​The theory of rational expectations leads to optimistic conclusions regarding macroeconomic policy's ability to achieve its intended economic goals.
C)  ​Rational expectation economists believe that wages and prices are flexible, and that workers and consumers incorporate the likely consequences of government policy changes quickly into their expectations.
D)  ​Catching consumers and businessmen off-guard with macroeconomic policy changes gets harder the more you try to do it.E) B) and C)
F) A) and C)

Question 14

The expectation of a higher inflation rate will cause:

Accepted Answer

A)  ​the short-run Phillips curve to become vertical.
B)  ​the short-run Phillips curve to shift leftward.
C)  ​a movement up along a short-run Phillips curve.
D)  ​the short-run Phillips curve to shift rightward.E) All of the above
F) A) and D)

Question 15

If an increase in the growth rate of AD leads to an increase in real GDP in the short run:

Accepted Answer

A)  ​the increase in AD was correctly anticipated.
B)  ​the increase in AD was greater than anticipated.
C)  ​the increase in AD was less than anticipated.
D)  ​the increase in AD could have been any of the above.E) A) and D)
F) B) and C)

Question 16

If the rational expectation theory is accurate, equilibrium real GDP will change in the short run:

Accepted Answer

A)  ​whenever the aggregate demand curve shifts.
B)  ​only if discretionary fiscal policy is used.
C)  ​only if there is a shift in aggregate demand that could not have been predicted from the information available to the public.
D)  ​only if discretionary monetary policy is used.E) B) and D)
F) A) and B)

Question 17

Critics of the extreme rational expectations theory argue that wages and input prices do not adjust instantaneously.

Accepted Answer

A) True 
 B)False

Question 18

There is a tendency for inflation rates to fall in countries that use inflation targeting.

Accepted Answer

A) True 
 B)False

Question 19

If the public has correct rational expectations and the Fed reduces the level of banking reserves, it would be expected to result in:

Accepted Answer

A)  ​a higher level of real output and a lower price level.
B)  ​a lower price level but no change in real output.
C)  ​a higher price level and a reduced level of real output.
D)  ​a higher price level but no change in real output.E) A) and D)
F) A) and C)

Question 20

Which of the following would move the economy down and to the right along a short run Phillips Curve?​

Accepted Answer

A)  ​Increases in the required reserve ratio by the Fed.
B)  ​Increases in taxes by the federal government.
C)  ​Increases in the interest rate that the Fed pays on bank reserves.
D)  ​All of the above.E) None of the above
F) A) and B)

Exam 19: Measuring Economic Performance

Critics of the extreme rational expectations theory argue that wages and input prices do not adjust instantaneously.

Correct AnswerverifiedShow Answer

In the rational expectation model, government control over aggregate demand:

Correct AnswerverifiedShow Answer

If people have rational expectations and correctly estimate the effects of a change in government policy, when the economy is initially at full employment, any anticipated increase in aggregate demand will result in:

Correct AnswerverifiedShow Answer

If the rational expectation theory is accurate, equilibrium real GDP will change in the short run:

Correct AnswerverifiedShow Answer

Rational expectations theory implies that the more completely the effects of policy makers are foreseen, the smaller their short run effects on real output and unemployment, and the greater their short run effects on the price level.

Correct AnswerverifiedShow Answer

Proponents of the monetary growth rule believe that a constant growth rate in the money supply will lead to less uncertainty and greater credibility than with activist policies.

Correct AnswerverifiedShow Answer

According to the Phillips curve analysis, if policy makers reduce aggregate demand growth, they can lower inflation, but only at the cost of a:

Correct AnswerverifiedShow Answer

If an increase in the growth rate of AD leads to an increase in real GDP in the short run:

Correct AnswerverifiedShow Answer

The expectation of a higher inflation rate will cause:

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According to the rational expectation view, the government can change real output:

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There is a tendency for inflation rates to fall in countries that use inflation targeting.

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Which of the following is false?

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The Phillips curve relationship can also be seen indirectly from the AD/AS model.

Correct AnswerverifiedShow Answer

Many economists think that, in the long run, the economy generally tends to move toward:

Correct AnswerverifiedShow Answer

An increase in aggregate demand would move the economy up and to the right along a short run aggregate supply curve and up and to the left along a Phillips Curve.

Correct AnswerverifiedShow Answer

Which of the following would move the economy down and to the right along a short run Phillips Curve?​

Correct AnswerverifiedShow Answer

If the public has correct rational expectations and the Fed reduces the level of banking reserves, it would be expected to result in:

Correct AnswerverifiedShow Answer

The intent of indexing is to:

Correct AnswerverifiedShow Answer

The novelty of Phillips' article was his finding of a ____ correlation between ____ and ____.

Correct AnswerverifiedShow Answer

Why is indexing not commonly adopted in spite of the fact that it eliminates most of the wealth transfers associated with unexpected inflation?

Correct AnswerverifiedIndexing is not frequently used because ...View AnswerShow Answer

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Which of the following would move the economy down and to the right along a short run Phillips Curve?

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The novelty of Phillips' article was his finding of a correlation between and .

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Indexing is not frequently used because ...
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