Question 1

The economist who,in his presidential address to the American Economic Association in 1967,attacked the idea of a permanent downward-sloping Phillips curve was

Accepted Answer

A)   A. W. Phillips.
B)   Paul Samuelson.
C)   Milton Friedman.
D)   Robert Lucas.
E)   Thomas Sargent.F) C) and D)
G) B) and D)

Question 2

Suppose that in a new classical model the public anticipates that policymakers will increase aggregate demand.However,aggregate demand increases by less than what the public anticipated.The result in the short run is that Real GDP ____________ and the price level ____________.

Accepted Answer

A)   decreases; decreases
B)   increases; increases
C)   increases; decreases
D)   decreases; increasesE) A) and B)
F) None of the above D

Question 3

As the price level falls,real wage ____________and people choose to work ___________.

Accepted Answer

A)   rises; more
B)   rises; less
C)   falls; more
D)   falls; lessE) None of the above
F) C) and D)

Question 4

The real business cycle theory holds that the business cycle

Accepted Answer

A)   originates as a result of factors affecting aggregate supply.
B)   originates as a result of factors affecting aggregate demand.
C)   is the result of correctly anticipated policies.
D)   is the result of incorrectly anticipated policies.E) C) and D)
F) A) and D)

Question 5

Exhibit 16-2
 1 to AD2.What happens,instead,is that the Fed does not raise aggregate demand as much as the public expects (bias upward) . Instead the Fed pushes the AD curve from AD1 to AD3.As a result,according to new classical theory in the short run the economy moves to point A)  A. B)  B. C)  C. D)  D." class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 16-2.Suppose the economy starts out at point A.Next,the public anticipates that the Fed will use expansionary monetary policy to shift the AD curve from AD1 to AD2.What happens,instead,is that the Fed does not raise aggregate demand as much as the public expects (bias upward) . Instead the Fed pushes the AD curve from AD1 to AD3.As a result,according to new classical theory in the short run the economy moves to point

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.E) B) and C)
F) All of the above

Question 6

Exhibit 16-1
 
-Refer to Exhibit 16-1.Suppose the economy is currently at point A on the short-run Phillips curve,SRPC?.What could get the economy to move to point B?

Accepted Answer

A)   an increase in aggregate demand combined with an unchanged expected inflation rate
B)   an increase in aggregate demand combined with a rise in the expected inflation rate
C)   a rise in the expected inflation rate
D)   a decrease in aggregate demand combined with an unchanged expected inflation rate
E)   none of the aboveF) B) and D)
G) B) and C)

Question 7

If expectations are formed rationally,wages and prices are completely flexible in the short run and policy is correctly anticipated,increases in aggregate demand will

Accepted Answer

A)   cause lower short-run price level increases than a Keynesian would expect.
B)   cause higher short-run price level increases than a Keynesian would expect.
C)   not impact the general price level.
D)   produce both increases and decreases in the price level at different times.E) B) and D)
F) C) and D)

Question 8

The main difference between new classical and new Keynesian theory is with respect to the assumption of

Accepted Answer

A)   how expectations are formed.
B)   how flexible wages and prices are.
C)   the slope of the SRAS curve.
D)   the slope of the AD curve.E) A) and C)
F) C) and D) B

Question 9

Stagflation

Accepted Answer

A)   is highly unlikely if the Phillips curve is downward sloping.
B)   implies that a tradeoff between inflation and unemployment may not always exist.
C)   is the simultaneous occurrence of high rates of inflation and unemployment.
D)   b and c
E)   a, b, and cF) A) and E)
G) None of the above

Question 10

If there is a stable downward-sloping Phillips curve,it follows that an economy can choose the combination of

Accepted Answer

A)   high unemployment and low inflation.
B)   low unemployment and high inflation.
C)   moderate unemployment and moderate inflation.
D)   low inflation and low unemployment.
E)   a, b, and cF) B) and E)
G) A) and B) E

Question 11

The original (1958) Phillips curve differed from the Samuelson-Solow Phillips curve in that

Accepted Answer

A)   the former was based on American data, while the latter was based on British data.
B)   the former measured price inflation rates, while the latter used wage inflation rates.
C)   the former was based on British data, while the latter was based on American data.
D)   the former measured nominal GDP, while the latter used Real GDP.
E)   a and bF) A) and E)
G) C) and D)

Question 12

The Samuelson-Solow version of the Phillips curve states that

Accepted Answer

A)   there is an inverse relationship between the wage inflation rateAnd unemployment.
B)   there is a direct relationship between the wage inflation rateAnd unemployment.
C)   there is an inverse relationship between price inflation andUnemployment.
D)   there is a direct relationship between price inflation and unemployment.
E)   a and bF) B) and C)
G) A) and E)

Question 13

New Keynesian theorists argue that

Accepted Answer

A)   price and wage adjustments in response to policy changes often overcompensate and cause further price disruptions.
B)   prices and wages may not be free to adjust in response to policy changes.
C)   unions and big business have considerable power and often choose not to change wages and prices so as to deliberately offset policy changes enacted by the government.
D)   the Fed and the Congress rarely do what they say they will do, so one should never listen to what they say.
E)   new classical rational expectations theories about how expectations are formed are completely wrong.F) A) and B)
G) D) and E)

Question 14

If expectations are formed rationally,wages and prices are not completely flexible in the short run,and policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

Accepted Answer

A)   the short run or the long run.
B)   neither the short run nor the long run.
C)   the short run, but not in the long run.
D)   the long run, but in not the short run.E) A) and B)
F) B) and C)

Question 15

Which theory of the business cycle emphasizes initiating changes in aggregate supply?

Accepted Answer

A)   the Friedman "fooling" theory
B)   the real business cycle theory
C)   the Keynesian theory
D)   the new classical theoryE) None of the above
F) A) and B)

Question 16

Exhibit 16-6
 
-Refer to Exhibit 16-6.The economy is initially at point B.There is an unanticipated increase in aggregate demand,prices and wages are flexible,the economy is self-regulating,and people hold adaptive expectations.In the short run the economy will move to point __________ and in the long run the economy will be at point __________.

Accepted Answer

A)   F, C
B)   F, D
C)   E, B
D)   E, C
E)   E, AF) A) and B)
G) A) and E)

Question 17

Stagflation implies that

Accepted Answer

A)   a tradeoff between inflation and unemployment may not always exist.
B)   policymakers can choose to have less unemployment if they are willing to accept a higher rate of inflation.
C)   the short-run Phillips curve is stable.
D)   the short-run Phillips curve is vertical.E) None of the above
F) All of the above

Question 18

The economy is initially in long-run equilibrium.Expectations are adaptive,prices and wages are flexible,and there is an unanticipated increase in aggregate demand.In the short run,the price level will be __________ than it was in long-run equilibrium and Real GDP will be __________ than it was in long-run equilibrium.

Accepted Answer

A)   higher; lower
B)   lower; higher
C)   lower; lower
D)   higher; higherE) A) and D)
F) A) and C)

Question 19

As incorrectly low inflation expectations catch up with the higher actual inflation rate,the SRAS curve shifts __________ and the short-run Phillips curve shifts __________.

Accepted Answer

A)   leftward; downward
B)   rightward; upward
C)   leftward; upward
D)   rightward; downwardE) B) and C)
F) All of the above

Question 20

In real business cycle theory,business cycle expansions begin as a result of changes in

Accepted Answer

A)   GDP.
B)   long-run aggregate supply.
C)   aggregate demand.
D)   consumption.
E)   investment demand.F) B) and C)
G) D) and E)

Exam 16: Expectations Theory and the Economy

The economist who,in his presidential address to the American Economic Association in 1967,attacked the idea of a permanent downward-sloping Phillips curve was

Correct Answer
verified

Suppose that in a new classical model the public anticipates that policymakers will increase aggregate demand.However,aggregate demand increases by less than what the public anticipated.The result in the short run is that Real GDP and the price level .

Correct Answer
verified
D

As the price level falls,real wage __and people choose to work _.

Correct Answer
verified

The real business cycle theory holds that the business cycle

Correct Answer
verified

Correct Answer
verified

Exhibit 16-1 -Refer to Exhibit 16-1.Suppose the economy is currently at point A on the short-run Phillips curve,SRPC?.What could get the economy to move to point B?

Correct Answer
verified

If expectations are formed rationally,wages and prices are completely flexible in the short run and policy is correctly anticipated,increases in aggregate demand will

Correct Answer
verified

The main difference between new classical and new Keynesian theory is with respect to the assumption of

Correct Answer
verified
B

Stagflation

Correct Answer
verified

If there is a stable downward-sloping Phillips curve,it follows that an economy can choose the combination of

Correct Answer
verified
E

The original (1958) Phillips curve differed from the Samuelson-Solow Phillips curve in that

Correct Answer
verified

The Samuelson-Solow version of the Phillips curve states that

Correct Answer
verified

New Keynesian theorists argue that

Correct Answer
verified

If expectations are formed rationally,wages and prices are not completely flexible in the short run,and policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

Correct Answer
verified

Which theory of the business cycle emphasizes initiating changes in aggregate supply?

Correct Answer
verified

Correct Answer
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Stagflation implies that

Correct Answer
verified

The economy is initially in long-run equilibrium.Expectations are adaptive,prices and wages are flexible,and there is an unanticipated increase in aggregate demand.In the short run,the price level will be than it was in long-run equilibrium and Real GDP will be than it was in long-run equilibrium.

Correct Answer
verified

As incorrectly low inflation expectations catch up with the higher actual inflation rate,the SRAS curve shifts and the short-run Phillips curve shifts .

Correct Answer
verified

In real business cycle theory,business cycle expansions begin as a result of changes in

Correct Answer
verified

Exam 16: Expectations Theory and the Economy

The economist who,in his presidential address to the American Economic Association in 1967,attacked the idea of a permanent downward-sloping Phillips curve was

Correct AnswerverifiedShow Answer

Suppose that in a new classical model the public anticipates that policymakers will increase aggregate demand.However,aggregate demand increases by less than what the public anticipated.The result in the short run is that Real GDP ____________ and the price level ____________.

Correct AnswerverifiedD

As the price level falls,real wage ____________and people choose to work ___________.

Correct AnswerverifiedShow Answer

The real business cycle theory holds that the business cycle

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Exhibit 16-1 -Refer to Exhibit 16-1.Suppose the economy is currently at point A on the short-run Phillips curve,SRPC?.What could get the economy to move to point B?

Correct AnswerverifiedShow Answer

If expectations are formed rationally,wages and prices are completely flexible in the short run and policy is correctly anticipated,increases in aggregate demand will

Correct AnswerverifiedShow Answer

The main difference between new classical and new Keynesian theory is with respect to the assumption of

Correct AnswerverifiedB

Stagflation

Correct AnswerverifiedShow Answer

If there is a stable downward-sloping Phillips curve,it follows that an economy can choose the combination of

Correct AnswerverifiedE

The original (1958) Phillips curve differed from the Samuelson-Solow Phillips curve in that

Correct AnswerverifiedShow Answer

The Samuelson-Solow version of the Phillips curve states that

Correct AnswerverifiedShow Answer

New Keynesian theorists argue that

Correct AnswerverifiedShow Answer

If expectations are formed rationally,wages and prices are not completely flexible in the short run,and policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

Correct AnswerverifiedShow Answer

Which theory of the business cycle emphasizes initiating changes in aggregate supply?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Stagflation implies that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

As incorrectly low inflation expectations catch up with the higher actual inflation rate,the SRAS curve shifts __________ and the short-run Phillips curve shifts __________.

Correct AnswerverifiedShow Answer

In real business cycle theory,business cycle expansions begin as a result of changes in

Correct AnswerverifiedShow Answer

Correct Answer
verified

Suppose that in a new classical model the public anticipates that policymakers will increase aggregate demand.However,aggregate demand increases by less than what the public anticipated.The result in the short run is that Real GDP and the price level .

Correct Answer
verified
D

As the price level falls,real wage __and people choose to work _.

Correct Answer
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Correct Answer
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Correct Answer
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B

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E

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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As incorrectly low inflation expectations catch up with the higher actual inflation rate,the SRAS curve shifts and the short-run Phillips curve shifts .

Correct Answer
verified

Correct Answer
verified