Question 1

If the government accelerates money supply growth and enlarges the budget deficit to stimulate aggregate demand, the rational expectations hypothesis indicates that decision makers will

Accepted Answer

A)   ignore the policy until it exerts an observable impact on prices, output, and employment.
B)   quickly take steps to adjust their decision making in light of the more expansionary policies.
C)   be fooled at the outset but eventually adjust their decision making in accordance with the change in policy.
D)   be unaware that this policy change has been implemented until a higher rate of inflation is observed.E) B) and C)
F) All of the above

Question 2

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 ratesE) B) and D)
F) B) and C)

Question 3

Which of the following variables are included in the index of leading indicators?

Accepted Answer

A)   new orders placed with manufacturers, length of average workweek, permits for new housing starts
B)   changes in the M1 money supply, number of new credit cards, political stance of current politicians
C)   average worker salary, average number of children per family, current standard of living
D)   labor-force participation rate, household debt as a share of disposable income, the real interest rateE) B) and C)
F) A) and B)

Question 4

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

Accepted Answer

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

Question 5

Which combination of signals is indicative that Fed policy is restrictive and that a shift to a more expansionary policy is in order?

Accepted Answer

A)   Commodity prices are falling, and the dollar is appreciating.
B)   Commodity prices are rising, and the dollar is appreciating.
C)   Commodity prices are rising, and the dollar is depreciating.
D)   Commodity prices are falling, and the dollar is depreciating.E) None of the above
F) B) and D)

Question 6

According to the rational expectations theory, expansionary monetary policy is fully effective only if

Accepted Answer

A)   the policy is anticipated by workers and firms.
B)   aggregate supply shifts to the left.
C)   the economy is operating at or above its potential output level.
D)   policy makers follow through on their previously announced plans.
E)   the effects of the policy are unexpected.F) D) and E)
G) All of the above

Question 7

Under which of the following conditions will the actual rate of unemployment tend to rise above the natural rate of unemployment?

Accepted Answer

A)   Prices are stable and have been for the last four years.
B)   Inflation is 3 percent and was widely anticipated more than a year ago.
C)   Expansionary monetary policies lead to an unexpected increase in inflation from 3 percent to 7 percent.
D)   Restrictive monetary policies lead to an unexpected reduction in inflation from 6 percent to 2 percent.E) B) and C)
F) A) and D)

Question 8

According to the modern view of the Phillips curve, expansionary macroeconomic policy that leads to inflation will reduce unemployment

Accepted Answer

A)   only if people underestimate the inflationary side effects of the policy.
B)   only if people overestimate the inflationary side effects of the policy.
C)   if people accurately anticipate the inflationary side effects of the policy.
D)   only if monetary policy provides the macroeconomic stimulus.E) A) and B)
F) None of the above

Question 9

Starting from an initial long-run equilibrium, under the adaptive expectations hypothesis, a shift to a more expansionary policy will increase

Accepted Answer

A)   prices and unemployment in the long run.
B)   real output in the short run but not in the long run.
C)   real output in the long run but not in the short run.
D)   real output in both the long run and the short run.E) None of the above
F) A) and B)

Question 10

The rational expectations hypothesis assumes that individuals will

Accepted Answer

A)   never make forecasting errors.
B)   be as likely to overestimate as to underestimate the future rate of inflation.
C)   continually make systematic forecasting errors.
D)   ignore past forecasting errors when formulating predictions.E) A) and D)
F) B) and D)

Question 11

Which of the following contributed the most to the economic stability and strong growth of real GDP during the 1980s and 1990s?

Accepted Answer

A)   the rapid growth of government expenditures throughout most of the period
B)   congressional policies that persistently balance the budget
C)   modifications in fiscal policy that stimulated aggregate demand during economic slowdowns and restrained it during periods of economic boom
D)   Federal Reserve policies that kept the inflation rate low and relatively stableE) A) and B)
F) All of the above

Question 12

Figure 15-4
 
-Refer to Figure 15-4. According to the modern expectational Phillips curve, unemployment will temporarily be above the natural rate of unemployment when

Accepted Answer

A)   any inflation is present.
B)   people expected inflation to be higher than what actually occurred.
C)   people expected inflation to be lower than what actually occurred.
D)   people correctly anticipated the inflation rate.E) A) and D)
F) A) and C)

Question 13

Economic analysis suggests that countercyclical macro-policy will

Accepted Answer

A)   be difficult to time properly because of uncertainty about the future direction of the economy.
B)   be difficult to implement because we do not know whether monetary policy is transmitted through the interest rate, or whether it affects aggregate demand directly.
C)   reduce the natural rate of unemployment when macro-policy is persistently expansionary.
D)   help reduce economic instability if, and only if, we are willing to tolerate double-digit inflation.E) A) and B)
F) A) and C)

Question 14

Which group is most likely to argue that an increase in government spending will be more effective than a reduction in taxes as a tool to promote recovery?

Accepted Answer

A)   monetarists
B)   Keynesian economists
C)   supply-side economists
D)   new classical economists
E)   All of the above; there is a consensus on this issue.F) B) and C)
G) A) and B)

Question 15

Stop-go policy that shifts between expansionary monetary policy and restrictive monetary policy will most likely

Accepted Answer

A)   promote economic stability and attract investment.
B)   lead to price stability because the restrictive policies will offset the effects of expansionary policies.
C)   create an environment of uncertainty, which will result in economic instability.
D)   help promote economic stability because changes in monetary policy will quickly exert a predictable impact on the economy.E) All of the above
F) B) and C)

Question 16

The theory according to which individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy)  is called

Accepted Answer

A)   the adaptive expectations hypothesis.
B)   the permanent income theory.
C)   the rational expectations hypothesis.
D)   Laffer curve analysis.E) A) and B)
F) A) and C)

Question 17

An unanticipated shift to a more expansionary monetary policy that permanently increases the rate of inflation from 2 to 6 percent will

Accepted Answer

A)   reduce unemployment in the short run, but unemployment will return to the natural rate in the long run.
B)   reduce unemployment in the short run, but unemployment will exceed the natural rate in the long run.
C)   increase unemployment in the short run, but unemployment will return to the natural rate in the long run.
D)   exert an unpredictable impact on unemployment in the short run, but unemployment will return to the natural rate in the long run.E) C) and D)
F) All of the above

Exam 15: Stabilization Policy, Output, and Employment

Which of the following variables are included in the index of leading indicators?

Correct Answer
verified

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

Correct Answer
verified

According to the modern view of the Phillips curve, expansionary macroeconomic policy that leads to inflation will reduce unemployment

Correct Answer
verified

Figure 15-4 -Refer to Figure 15-4. According to the modern expectational Phillips curve, unemployment will temporarily be above the natural rate of unemployment when

Correct Answer
verified

Economic analysis suggests that countercyclical macro-policy will

Correct Answer
verified

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

Correct Answer
verified

The theory according to which individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy) is called

Correct Answer
verified

According to the rational expectations theory, expansionary monetary policy is fully effective only if

Correct Answer
verified

Which combination of signals is indicative that Fed policy is restrictive and that a shift to a more expansionary policy is in order?

Correct Answer
verified

Which of the following contributed the most to the economic stability and strong growth of real GDP during the 1980s and 1990s?

Correct Answer
verified

Under which of the following conditions will the actual rate of unemployment tend to rise above the natural rate of unemployment?

Correct Answer
verified

Stop-go policy that shifts between expansionary monetary policy and restrictive monetary policy will most likely

Correct Answer
verified

The rational expectations hypothesis assumes that individuals will

Correct Answer
verified

Which group is most likely to argue that an increase in government spending will be more effective than a reduction in taxes as a tool to promote recovery?

Correct Answer
verified

If the government accelerates money supply growth and enlarges the budget deficit to stimulate aggregate demand, the rational expectations hypothesis indicates that decision makers will

Correct Answer
verified

Starting from an initial long-run equilibrium, under the adaptive expectations hypothesis, a shift to a more expansionary policy will increase

Correct Answer
verified

An unanticipated shift to a more expansionary monetary policy that permanently increases the rate of inflation from 2 to 6 percent will

Correct Answer
verified

Exam 15: Stabilization Policy, Output, and Employment

Which of the following variables are included in the index of leading indicators?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the modern view of the Phillips curve, expansionary macroeconomic policy that leads to inflation will reduce unemployment

Correct AnswerverifiedShow Answer

Figure 15-4 -Refer to Figure 15-4. According to the modern expectational Phillips curve, unemployment will temporarily be above the natural rate of unemployment when

Correct AnswerverifiedShow Answer

Economic analysis suggests that countercyclical macro-policy will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The theory according to which individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy) is called

Correct AnswerverifiedShow Answer

According to the rational expectations theory, expansionary monetary policy is fully effective only if

Correct AnswerverifiedShow Answer

Which combination of signals is indicative that Fed policy is restrictive and that a shift to a more expansionary policy is in order?

Correct AnswerverifiedShow Answer

Which of the following contributed the most to the economic stability and strong growth of real GDP during the 1980s and 1990s?

Correct AnswerverifiedShow Answer

Under which of the following conditions will the actual rate of unemployment tend to rise above the natural rate of unemployment?

Correct AnswerverifiedShow Answer

Stop-go policy that shifts between expansionary monetary policy and restrictive monetary policy will most likely

Correct AnswerverifiedShow Answer

The rational expectations hypothesis assumes that individuals will

Correct AnswerverifiedShow Answer

Which group is most likely to argue that an increase in government spending will be more effective than a reduction in taxes as a tool to promote recovery?

Correct AnswerverifiedShow Answer

If the government accelerates money supply growth and enlarges the budget deficit to stimulate aggregate demand, the rational expectations hypothesis indicates that decision makers will

Correct AnswerverifiedShow Answer

Starting from an initial long-run equilibrium, under the adaptive expectations hypothesis, a shift to a more expansionary policy will increase

Correct AnswerverifiedShow Answer

An unanticipated shift to a more expansionary monetary policy that permanently increases the rate of inflation from 2 to 6 percent will

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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