Question 1

Between 1983 and 2015, the U.S. economy experienced  ___________ recessions and the economy was in recession  ___________ of the time.  (Fill in the blanks)

Accepted Answer

A)   no; 0 percent
B)   1; 2 percent
C)   3; 9 percent
D)   5; 22 percentE) B) and D)
F) B) and C)

Question 2

Regarding the issue of economic stability, nonactivists believe that

Accepted Answer

A)   consumption is highly unstable over the business cycle.
B)   the highest possible level of investment must be maintained over all phases of the business cycle.
C)   minor economic disturbances often feed on themselves, leading to severe swings in the business cycle.
D)   the self-correcting properties of a market economy work reasonably well.E) C) and D)
F) B) and C)

Question 3

After an extended period of steady inflation at a constant rate,

Accepted Answer

A)   people will anticipate inflation.
B)   actual unemployment will approximate the natural rate of unemployment.
C)   actual unemployment will be less than the natural rate of unemployment.
D)   both a and b are true.E) A) and B)
F) All of the above

Question 4

Suppose the annual rate of inflation has been 3 percent and the annual growth rate of the money supply has been 5 percent during the last few years. In the last twelve 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)   lower than 3 percent under both the adaptive and rational expectations hypotheses.
B)   3 percent under the adaptive expectations hypothesis.
C)   3 percent under the rational expectations hypothesis.
D)   higher than 3 percent under both the adaptive and rational expectations hypotheses.E) None of the above
F) A) and D)

Question 5

Incorporation of expectations into economic decision making and the economic experience of recent decades indicate that in the long run

Accepted Answer

A)   inflation relates directly to unemployment.
B)   inflation is inversely related to unemployment.
C)   there is no trade-off between inflation and unemployment.
D)   high unemployment is a primary cause of inflation.E) B) and D)
F) C) and D)

Question 6

When it comes to macro-policy, most economists now agree that

Accepted Answer

A)   policy should be constantly changing in response to business cycle conditions.
B)   policy changes should exert stimulus during inflationary booms and restraint during downturns.
C)   given our ability to forecast economic conditions, policy changes easily can be implemented in a timely manner.
D)   policy changes are difficult to time correctly, and therefore constant shifts in policy are likely to be a source of economic instability.E) None of the above
F) A) and B)

Question 7

Which of the following is true of the national debt?

Accepted Answer

A)   A budget deficit will reduce the national debt.
B)   A budget deficit will increase the national debt.
C)   A balanced budget will increase the national debt.
D)   A budget surplus will increase the national debt.E) All of the above
F) A) and B)

Question 8

The U.S. Treasury both pays and receives almost all of the interest on that portion of the national debt that is held by

Accepted Answer

A)   domestic investors.
B)   foreign investors.
C)   government agencies and the Federal Reserve system.
D)   commercial banks.E) B) and C)
F) A) and D)

Question 9

Which of the following portions of the national debt impose a net interest burden on the federal government?

Accepted Answer

A)   Treasury bonds held by government agencies.
B)   Treasury bonds held by private investors.
C)   Treasury bonds held by the Federal Reserve system.
D)   Treasury bonds held in the Social Security Trust Fund.E) A) and C)
F) A) and D)

Question 10

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) A) and B)
F) A) and C)

Question 11

What will actual unemployment be (in relation to the natural rate) in each of the following cases? Use a graph of the modern Phillips curve in your answer.
a.Decision makers underestimate inflation.
b.Decision makers overestimate inflation.
c.Decision makers correctly forecast inflation.

Accepted Answer

a.Actual unemployment will fal...

Question 12

(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.E) All of the above
F) A) and B)

Question 13

The Phillips curve illustrates the relationship between

Accepted Answer

A)   change in the money supply and change in unemployment.
B)   tax rates and tax revenues.
C)   the equilibrium level of income and the employment rate.
D)   inflation and unemployment.E) All of the above
F) B) and C)

Question 14

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) C) and E)
G) A) and D)

Question 15

If decision makers adjust fully to demand stimulus policies, persistent expansionary macro-policy will lead to

Accepted Answer

A)   inflation with no lasting reductions in unemployment.
B)   a permanent reduction in unemployment.
C)   lower interest rates.
D)   more rapid economic growth.E) None of the above
F) A) and D)

Question 16

Most economists agree that

Accepted Answer

A)   fiscal policy is a more effective stabilization tool than monetary policy.
B)   it is difficult to time discretionary changes in macro-policy in a manner that will promote stability.
C)   monetary policy should focus on reducing unemployment, while fiscal policy should focus on the control of inflation.
D)   discretionary macro-policy can easily be instituted in a manner that will promote economic stability.E) None of the above
F) A) and B)

Question 17

Modern Phillips curve analysis indicates that if people

Accepted Answer

A)   underestimate inflation, actual unemployment will be below the natural rate.
B)   overestimate inflation, actual unemployment will be below the natural rate.
C)   accurately estimate inflation, actual unemployment will be less than the natural rate.
D)   accurately estimate inflation, actual unemployment will be below the natural rate.E) A) and D)
F) B) and D)

Question 18

Widespread acceptance of the Keynesian theory of fiscal policy

Accepted Answer

A)   caused most economists to reject the public choice view of budget deficits.
B)   relaxed the political pressure to balance the budget and, hence, paved the way for the persistent budget deficits of the last five decades.
C)   was based on the view that continual budget deficits would help stabilize the economy.
D)   increased the pressure for a constitutional amendment mandating that the federal government balance its budget.E) A) and B)
F) A) and C)

Question 19

The variables in the index of leading indicators are included in the index because

Accepted Answer

A)   they turn down prior to a deflation and turn up prior to an inflation.
B)   they generally lag behind turns in the business cycle.
C)   they turn down prior to a recession and turn up before the beginning of a business expansion.
D)   they provide a comprehensive measure of the current state of the economy.E) All of the above
F) B) and C)

Question 20

(I)   Rational expectations adherents believe that decision makers base their future expectations on actual outcomes observed during recent periods.
(II)   The adaptive expectations hypothesis states that decision makers weigh all available evidence when forming expectations about future economic events.

Accepted Answer

A)   I is true; II is false.
B)   I is false; II is true.
C)   Both I and II are true.
D)   Both I and II are false.E) A) and C)
F) None of the above

Exam 15: Stabilization Policy, Output, and Employment

Between 1983 and 2015, the U.S. economy experienced _ recessions and the economy was in recession _ of the time. (Fill in the blanks)

Correct Answer
verified

Most economists agree that

Correct Answer
verified

The variables in the index of leading indicators are included in the index because

Correct Answer
verified

What will actual unemployment be (in relation to the natural rate) in each of the following cases? Use a graph of the modern Phillips curve in your answer. a.Decision makers underestimate inflation. b.Decision makers overestimate inflation. c.Decision makers correctly forecast inflation.

Correct Answer
verified
a.Actual unemployment will fal...
View Answer

If decision makers adjust fully to demand stimulus policies, persistent expansionary macro-policy will lead to

Correct Answer
verified

Widespread acceptance of the Keynesian theory of fiscal policy

Correct Answer
verified

Which of the following is true of the national debt?

Correct Answer
verified

After an extended period of steady inflation at a constant rate,

Correct Answer
verified

Which of the following portions of the national debt impose a net interest burden on the federal government?

Correct Answer
verified

The Phillips curve illustrates the relationship between

Correct Answer
verified

Regarding the issue of economic stability, nonactivists believe that

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

When it comes to macro-policy, most economists now agree that

Correct Answer
verified

Incorporation of expectations into economic decision making and the economic experience of recent decades indicate that in the long run

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

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

The U.S. Treasury both pays and receives almost all of the interest on that portion of the national debt that is held by

Correct Answer
verified

Modern Phillips curve analysis indicates that if people

Correct Answer
verified

Exam 15: Stabilization Policy, Output, and Employment

Between 1983 and 2015, the U.S. economy experienced ___________ recessions and the economy was in recession ___________ of the time. (Fill in the blanks)

Correct AnswerverifiedShow Answer

Most economists agree that

Correct AnswerverifiedShow Answer

The variables in the index of leading indicators are included in the index because

Correct AnswerverifiedShow Answer

What will actual unemployment be (in relation to the natural rate) in each of the following cases? Use a graph of the modern Phillips curve in your answer. a.Decision makers underestimate inflation. b.Decision makers overestimate inflation. c.Decision makers correctly forecast inflation.

Correct Answerverifieda.Actual unemployment will fal...View AnswerShow Answer

If decision makers adjust fully to demand stimulus policies, persistent expansionary macro-policy will lead to

Correct AnswerverifiedShow Answer

Widespread acceptance of the Keynesian theory of fiscal policy

Correct AnswerverifiedShow Answer

Which of the following is true of the national debt?

Correct AnswerverifiedShow Answer

After an extended period of steady inflation at a constant rate,

Correct AnswerverifiedShow Answer

Which of the following portions of the national debt impose a net interest burden on the federal government?

Correct AnswerverifiedShow Answer

The Phillips curve illustrates the relationship between

Correct AnswerverifiedShow Answer

Regarding the issue of economic stability, nonactivists believe that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When it comes to macro-policy, most economists now agree that

Correct AnswerverifiedShow Answer

Incorporation of expectations into economic decision making and the economic experience of recent decades indicate that in the long run

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 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

The U.S. Treasury both pays and receives almost all of the interest on that portion of the national debt that is held by

Correct AnswerverifiedShow Answer

Modern Phillips curve analysis indicates that if people

Correct AnswerverifiedShow Answer

Between 1983 and 2015, the U.S. economy experienced _ recessions and the economy was in recession _ of the time. (Fill in the blanks)

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified
a.Actual unemployment will fal...
View Answer

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Correct Answer
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Correct Answer
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