macro final

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A rise in the price of a bond causes the yield of the bond to A. rise. B. fall. Your answer is correct. C. remain unchanged. D. rise if it's a short-term bond, fall if it's a long-term bond.

Which of the following changes shifts the SRAS curve up? A. An increase in firms' costs. Your answer is correct. B. An increase in the labor force. C. An increase in the money supply. D. A decrease in government purchases.

A temporary decline in productivity would cause the IS curve to A. shift down and to the left. B. remain unchanged. Your answer is correct. C. shift up and to the right only if people face borrowing constraints. D. shift up and to the right.

A temporary supply shock, such as a bumper crop, would A. shift the FE line to the left and shift the IS curve up and to the right. B. shift the FE line to the right and leave the IS curve unchanged. Your answer is correct. C. shift the FE line to the left and leave the IS curve unchanged. D. have no effect on the FE line.

Any change that reduces desired saving relative to desired investment (for a given level of output) causes the real interest rate to ________ and shifts the IS curve ________. A. increase; down and to the left B. increase; up and to the right Your answer is correct. C. decrease; up and to the right D. decrease; down and to the left

Consumer expenditures on durable goods such as cars and furniture, as well as purchases of new houses, fall much more than expenditures on nondurable goods and services during most recessions. Why do you think that is? A. because the government increase taxes on cars, furniture, and houses in recessions B. because people can more easily change the timing of their expenditure on durables Your answer is correct. C. because prices of cars, furniture, and houses rise sharply in recessions D. because companies stop making cars, furniture, and houses in recessions

You have just read that the Federal Reserve has increased the money supply to avoid a recession. For a given price level, you would expect the LM curve to A. shift down and to the right as the real money supply rises. Your answer is correct. B. shift up and to the left as the real money supply rises. C. shift down and to the right as the real money supply falls. D. shift up and to the left as the real money supply falls.

Which of the following is NOT an example of an intermediate target of the Fed? A. short-term interest rates B. core inflation Your answer is correct. C. monetary aggregates D. All of these are examples of intermediate targets. These intermediate targets are macroeconomic variables the Fed can directly control. A. True B. False

B B

An increase in the expected future marginal product of capital would cause the IS curve to A. remain unchanged. B. remain unchanged if firms face borrowing constraints; otherwise, shift down and to the left. C. shift up and to the right. Your answer is correct. D. shift down and to the left.

Looking only at the asset market, an increase in output would cause A. the LM curve to shift down and to the right. B. a decrease in the real interest rate along the LM curve. C. the LM curve to shift up and to the left. D. an increase in the real interest rate along the LM curve. Your answer is correct.

Persistence is A. the tendency for declines in economic activity to be followed by further declines, and for growth in economic activity to be followed by more growth. Your answer is correct. B. the idea that the standard pattern of contraction-trough-expansion-peak occurs again and again in industrial economies. C. the idea that peaks and troughs of the business cycle occur at regular intervals. D. the tendency of many economic variables to move together in a predictable way over the business cycle.

The IS curve represents: A. combinations of output and the real interest rate such that desired national saving is equal to desired investment. Your answer is correct. B. combinations of output and the real interest rate such that the real interest rate is equal to the full-employment interest rate. C. combinations of output and the real interest rate such that money demand is equal to money supply. D. combinations of output and the real interest rate such the output is equal to full-employment output.

The aggregate demand curve shows the combinations of output and the price level that put the economy on A. the IS curve and the LM curve. Your answer is correct. B. the FE line, the IS curve, and the LM curve. C. the IS curve. D. the FE line and the IS curve.

Price stickiness is: A. the concept that prices only rise, but do not fall, over time. B. the tendency of prices to adjust in unison with changes in GDP. C. the notion that prices never change over time. D. the tendency of prices to adjust slowly to changes in the economy

The National Bureau of Economic Research (NBER) identifies and dates U.S. business cycles strictly on the basis of changes in real GDP.

False

The fact that business cycles are recurrent but not periodic means that A. the business cycle's standard contraction-trough-expansion-peak pattern has been observed to occur over and over again, but not at predictable intervals. Your answer is correct. B. business cycles last a predetermined length of time, but do not all follow a standard contraction-trough-expansion- peak pattern. C. business cycles occur at predictable intervals, but do not last a predetermined length of time. D. business cycles occur at predictable intervals, but do not all follow a standard contraction-trough-expansion-peak pattern.

Banks decide to raise the interest rate they pay on checking accounts from 1% to 2%. This action would A. increase money demand, shifting the LM curve up and to the left. Your answer is correct. B. decrease money demand, shifting the LM curve up and to the left. C. decrease money demand, shifting the LM curve down and to the right. D. increase money demand, shifting the LM curve down and to the right.

Comovement is A. the tendency of many economic variables to move together in a predictable way over the business cycle. Your answer is correct. B. the tendency for declines in economic activity to be followed by further declines, and for growth in economic activity to be followed by more growth. C. the idea that the standard pattern of contraction-trough-expansion-peak occurs again and again in industrial economies. D. the idea that peaks and troughs of the business cycle occur at regular intervals.

How could changes in the labor market lead to lower overall economic volatility? A. Less volatility in employment demand reduces the probability of a worker losing his or her job. Your answer is correct. B. Greater volatility in employment demand reduces the probability of a worker losing his or her job. C. Less volatility in employment demand increases the probability of a worker losing his or her job. D. Greater volatility in employment demand increases the probability of a worker losing his or her job.

In classical IS−LM analysis, the effects of a decline in desired investment include A. a decline in the real interest rate. Your answer is correct. B. an increase in unemployment. C. a decline in output. D. an increase in the price level.

Is money neutral in the short run or the long run, according to the AD-AS model? A. In the short run, money is not neutral, but in the long run it is neutral Your answer is correct. B. In the short run, money is neutral, but in the long run it is not neutral C. In both the short run and the long run, money is not neutral D. In both the short run and the long run, money is neutral

According to Keynesian business cycle theory, A. the procyclical behavior of labor productivity occurs due to firms' labor hoarding practices. This is the correct answer. B. the procyclical movement of investment is well explained when shocks to durable goods are themselves a main source of the cycle (so-called "animal spirits"), but not when cycles are caused by fluctuations in the LM curve. C. inflation is procyclical and leading. D. adverse aggregate demand shocks, regardless of whether they shift the IS curve or the LM curve, will decrease both output and the real interest rate.

At a given output level, a temporary reduction in government purchases will A. increase desired saving, causing the IS curve to shift down and to the left. Your answer is correct. B. increase desired saving, causing the IS curve to shift up and to the right. C. decrease desired saving, causing the IS curve to shift up and to the right. D. decrease desired saving, causing the IS curve to shift down and to the left.

The full-employment level of employment is: A. the equilibrium level of employment reached after all wages and prices have fully adjusted. Your answer is correct. B. the level of employment where there is no structural or frictional unemployment. C. the level of employment when aggregate demand is equal to short-run aggregate supply.

What is the effect on the monetary base when the Federal Reserve purchases U.S. Treasury securities in the open market? A. The monetary base increases. Your answer is correct. B. The monetary base decreases. C. The monetary base does not change. D. You have insufficient information to answer this question. What is the effect on the money supply? A. The money supply increases. Your answer is correct. B. The money supply decreases. C. The money supply does not change. D. You have insufficient information to answer this question.

A A

In the event of a recession, a Keynesian economist is likely to recommend _____ the money supply or temporarily _____ government spending. A. increasing; increasing Your answer is correct. B. increasing; decreasing C. decreasing; decreasing D. decreasing; increasing In the event of a recession, a Keynesian economist might recommend _____ taxes because Ricardian equivalence _____. A. cutting; does not hold Your answer is correct. B. raising; holds C. cutting; holds D. raising; does not hold

A A

The position of the FE line is determined by: A. the labor market and the production function. Your answer is correct. B. the price level and interest rate. C. the money supply and government purchases. D. consumption and investment. All of the following will shift the FE line except: A. an increase in the price level. Your answer is correct. B. a beneficial supply shock. C. an increase in the capital stock. D. an increase in labor supply.

A A

A trade war between the United States and China causes reduced trade between both countries. Suppose there is no ultimate effect on net exports for either country but the main economic impact is the loss of comparative advantage because each country now produces goods less efficiently than before. In the IS/LM model, this shock is most likely to affect the A. FE line. This is the correct answer. B. IS curve. C. LM curve. Your answer is not correct. In general equilibrium, in the United States, output _____ and the price level _____. Assume a classical model with no effect on the labor supply. A. increases; falls B. declines; rises Your answer is correct. C. declines; falls D. increases; rises

A B

Who determines monetary policy in the United States? A. The Federal Reserve System Your answer is correct. B. The U.S. Congress C. The Department of Commerce D. The President How is the Board of Governors of the Federal Reserve system appointed? A. All members of the Board of Governors are appointed by the Secretary of the Treasury. B. All members of the Board of Governors, including the Chairman, are appointed by the President. Your answer is correct. C. The Chairman is appointed by the President, while other governors are appointed by the states in each bank region. D. None of the above describe the process in which the Board of Governors is appointed.

A B

Why do foreigners demand dollars in the foreign exchange market? A. to be able to buy U.S. goods, services, and assets. Your answer is correct. B. to speculate that U.S. inflation will increase more than expected. C. to speculate on a depreciation of the dollar. D. to gain economic advantage over the United States. Why do U.S. residents supply dollars to the foreign exchange market? A. to gain economic advantage over other countries. B. to be able to buy foreign goods, services, and assets. Your answer is correct. C. to speculate on an appreciation of the dollar. D. to speculate that U.S. inflation will decrease below what is expected

A B

In each of the following cases, what is the effect on the IS curve? An increase in the effective tax rate on capital A. shifts the IS curve down and to the left. Your answer is correct. B. shifts the IS curve up and to the right. C. does not change the IS curve. An increase in the money supply A. shifts the IS curve down and to the left. B. does not change the IS curve. This is the correct answer. C. shifts the IS curve up and to the right. Your answer is not correct. A temporary increase in goverment spending A. does not change the IS curve. B. shifts the IS curve up and to the right. Your answer is correct. C. shifts the IS curve down and to the left.

A B B

Classical economists think the price level adjusts _____ to restore general equilibrium and think that government intervention in the economy is _____. A. rapidly; not warranted Your answer is correct. B. slowly; not warranted C. slowly; vital D. rapidly; vital Classical economists think the most important shock are _____ shocks and think that the most useful model is _____. A. aggregate supply; an aggregate model B. aggregate demand; an aggregate model C. aggregate supply; a model with microeconomic foundations Your answer is correct. D. aggregate demand; a model with microeconomic foundations

A C

The Dodd-Frank Act sought to strengthen banks' capital holdings by A. imposing stress tests. Your answer is correct. B. reducing the size of banks. C. reducing the asset holdings of banks. D. increasing banks' liabilities. The Dodd-Frank Act introduced a new group to oversee systemic risk in the economy, called the A. Stress and Relief Action Group. B. Federal Bank Insurance Corporation. C. Financial Stability Oversight Council. Your answer is correct. D. Federal National Monitoring Group.

A C

Which of the following macroeconomic variables is procyclical and coincident with the business cycle? A. Industrial production. Your answer is correct. B. Nominal interest rates. C. Unemployment. D. Residential investment.

A industrial prod

Describe three alternative responses available to policymakers when the economy is in recession. A. (1) make no change in macroeconomic policy, (2) increase the money supply, or (3) increase government purchases. Your answer is correct. B. (1) make no change in macroeconomic policy, (2) decrease the money supply, or (3) increase government purchases. C. (1) make no change in macroeconomic policy, (2) increase the money supply, or (3) decrease government purchases. D. (1) make no change in macroeconomic policy, (2) decrease the money supply, or (3) decrease government purchases. What happens in the long run if policymakers make no change in macroeconomic policy? A. the price level will be unchanged and employment will be lower B. the price level will be unchanged and employment will return to its full-employment level C. the price level will be lower and employment will return to its full-employment level Your answer is correct. D. the price level will be lower and employment will be lower What happens in the long run if policymakers increase the money supply appropriately? A. the price level will be lower and employment will be lower B. the price level will be unchanged and employment will return to its full-employment level Your answer is correct. C. the price level will be lower and employment will return to its full-employment level D. the price level will be unchanged and employment will be lower What happens in the long run if policymakers increase government purchases appropriately? A. the price level will be lower and employment will be lower B. the price level will be lower and employment will return to its full-employment level C. the price level will be unchanged and employment will be lower D. the price level will be unchanged and employment will return to its full-employment level

A C B D

Describe the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve. A. the SRAS curve is horizontal and the LRAS curve is vertical Your answer is correct. B. the SRAS curve is horizontal and the LRAS curve is upward sloping C. the SRAS curve is vertical and the LRAS curve is upward sloping D. the SRAS curve is vertical and the LRAS curve is horizontal Why is the short-run aggregate supply curve horizontal? A. because the real interest rate is fixed in the short run B. because capital is fixed in the short run C. because prices remain fixed in the short run Your answer is correct. D. because output is fixed in the short run Why is the long-run aggregate supply curve vertical? A. because the capital stock changes to produce the fixed amount of output in the long run B. because prices are fixed in the long run C. because the aggregate amount of output supplied is the full-employment level, regardless of the price level Your answer is correct. D. because the price level depends on the amount of output

A C C

To prepare for this problem, read carefully the Application box on The Oil Price Shock of 2008. Then, answer the following questions. 1.) The key factor influencing the effect of an oil price shock on the real interest rate is A. whether the price shock is expected to be temporary or permanent. This is the correct answer. B. the size of the price shock. C. the direction of the oil price shock (whether prices rose or fell). Your answer is not correct. D. the time since the last oil price shock. Specifically, A. a price shock expected to be temporary will result in a larger decrease in the real interest rate. Your answer is not correct. B. a price shock expected to be permanent will result in a larger increase in the real interest rate. C. a price shock expected to be temporary will result in a larger increase in the real interest rate. This is the correct answer. D. a price shock expected to be permanent will result in a larger decrease in the real interest rate. 2.) In 2008 there was an oil price shock resulting from a large increase in oil prices. Why was the negative impact on the economy after this shock much larger than usual? A. At the same time as the oil price shock the government began supplying more oil by releasing oil from the country's strategic reserves. B. The increase in oil prices that caused the shock was the largest in history, causing more negative impacts than normal. C. At the same time as the oil price shock there was a crisis in the housing and financial sectors. Your answer is correct. D. Consumers did not react to the change in oil prices as predicted. Instead of demanding less oil the demand for oil rose significantly. Of the oil price shocks mentioned, the real interest rate rose significantly A. after the shock of 1973-1974 only B. after the shock of 1979-1980 only Your answer is correct. C. after the shock of both 1973-1974 and 1979-1980 D. after the shock of neither 1973-1974 nor 1979-1980 3.) Working with the data given in the application, the model suggests that A. people expected only the 1973-1974 oil shock to be permanent Your answer is correct. B. people expected only the 1979-1980 oil shock to be permanent C. people expected both of the oil shocks to be permanent D. people expected neither of the oil shocks to be permanent If indeed this was their expectation, time has shown that they were correct.

A C C B A

Inflation targeting is A. a strategy for conducting monetary policy. Your answer is correct. B. required by U.S. law. C. a component of the Taylor rule. D. not used in Canada. A disadvantage of inflation targeting is A. that people do not know what inflation is. B. the inflation rate is not measured well, leaving people uncertain about what the target means. C. that people cannot observe the inflation rate. D. it is difficult for the central bank to judge what policy actions are needed.

A D

What does the Keynesian model predict about the cyclical behavior of average labor productivity? A. The Keynesian theory assumes that demand shocks cause most cyclical fluctuations. This means that during expansions when employment rises, average labor productivity declines, so it is countercyclical. Your answer is correct. B. The Keynesian theory assumes that demand shocks cause most cyclical fluctuations. This means that during expansions when employment rises, average labor productivity increases, so it is procyclical. C. The Keynesian theory assumes that supply shocks cause most cyclical fluctuations. This means that during expansions when employment rises, average labor productivity increases, so it is procyclical. D. The Keynesian theory assumes that supply shocks cause most cyclical fluctuations. This means that during expansions when employment rises, average labor productivity declines, so it is countercyclical. How does the idea of labor hoarding help bring the prediction of the model into conformity with the business cycle facts? A. The business cycle fact is that average labor productivity is mildly countercyclical. If labor hoarding occurs, so that a given measured amount of employment produces less output during recessions and more output during expansions, then measured average labor productivity would be countercyclical. B. The business cycle fact is that average labor productivity is mildly procyclical. If labor hoarding occurs, so that a given measured amount of employment produces less output during recessions and more output during expansions, then measured average labor productivity would be countercyclical. C. The business cycle fact is that average labor productivity is mildly countercyclical. If labor hoarding occurs, so that a given measured amount of employment produces less output during recessions and more output during expansions, then measured average labor productivity would be procyclical. D. The business cycle fact is that average labor productivity is mildly procyclical. If labor hoarding occurs, so that a given measured amount of employment produces less output during recessions and more output during expansions, then measured average labor productivity would be procyclical.

A D

Consider the impact of a decrease in taxes if Ricardian equivalence does not hold. The shock is most likely to affect the A. IS curve. Your answer is correct. B. FE line. C. AS curve. D. LM curve. In the short run, before general equilibrium is restored, the IS curve shifts _____ and causes _____. A. down and to the left; no change in output or the price level B. down and to the left; output to decline and the price level to decline C. up and to the right; no change in output or the price level D. up and to the right; output to rise and the price level to remain unchanged Your answer is correct. After general equilibrium is restored, output is _____ and the price level is _____. (Compare with the situation before the shock.) A. unchanged; higher Your answer is correct. B. unchanged; unchanged C. higher; higher D. lower; lower

A D A

Which of the following macroeconomic variables is countercyclical? A. Unemployment Your answer is correct. B. Consumption C. Money growth D. Real interest rates

A unemployment

The long boom began in A. 1982. Your answer is correct. B. 2008. C. 1996. D. 1973. The long boom ended in A. 1996. B. 2001. Your answer is correct. C. 2015. D. 2007.

A. 1982 B. 2001

When aggregate economic activity is increasing, the economy is said to be in A. an expansion. Your answer is correct. B. a turning point. C. a peak. D. a contraction.

A. expansion

After World War II, the probability that an economic expansion of a given age would end in the next month A. remained fairly steady as the age of the expansion increased. This is the correct answer. B. decreased as the age of the expansion increased. Your answer is not correct. C. was not associated with the age of the expansion. D. increased as the age of the expansion decreased.

A. steady

A decrease in wealth would cause the IS curve to A. remain unchanged. B. shift down and to the left. Your answer is correct. C. shift up and to the right. D. shift up and to the right only if people face borrowing constraints.

For constant output, if the real money supply exceeds the real quantity of money demanded at some initial real interest rate, A. people with excess money balances purchase nonmonetary assets, thus increasing the market price of the nonmonetary assets and increasing the real interest rate until an equilibrium is reached. B. people with excess money balances purchase nonmonetary assets, thus increasing the market price of the nonmonetary assets and reducing the real interest rate until an equilibrium is reached. Your answer is correct. C. the price level in the economy increases until a new equilibrium is reached. D. nothing happens until output adjusts.

Suppose the intersection of the IS and LM curves is to the right of the FE line. What would most likely eliminate a disequilibrium among the asset, labor, and goods markets? A. A fall in the price level, shifting the IS curve down and to the left. B. A rise in the price level, shifting the LM curve up and to the left. Your answer is correct. C. A rise in the price level, shifting the IS curve up and to the right. D. A fall in the price level, shifting the LM curve down and to the right.

The aggregate supply curve shows the relation between A. the inflation rate and the unemployment rate. B. the price level and the aggregate amount of output that firms supply. Your answer is correct. C. the real interest rate and the aggregate amount of output that firms supply. D. the supply of goods by firms and the price of goods relative to the price of nonmonetary assets.

The long boom occurred in the A. 1960s and 1970s. B. 1980s and 1990s. Your answer is correct. C. 1920s and 1930s. D. 1940s and 1950s.

What is comovement? A. Macroeconomic variables the change independently of each another over time. B. Macroeconomic variables that tend to move in the same direction over time. Your answer is correct. C. Macroeconomics variables that are always perfectly correlated with each another

Which market adjusts the quickest in response to shocks to the economy? A. The goods market. B. The asset market. Your answer is correct. C. The asset, labor, and goods markets adjust at about the same speed to eliminate a disequilibrium in the macroeconomy. D. The labor market.

Which of the following changes shifts the long-run aggregate supply curve to the right? A. A decrease in the demand for labor. B. A demographic change that increases the labor supply. Your answer is correct. C. A decrease in taxes (assuming Ricardian equivalence doesn't hold). D. An increase in consumer confidence.

Which of the following is NOT a reasonable explanation for the Great Moderation? A. changes in technology B. higher oil prices Your answer is correct. C. improved supply-chain management D. changes in the behavior of the labor marke

You have just read that Australia has suffered a drought, destroying its wheat crop for this year. The effect of this adverse supply shock on Australia would probably be A. a decrease in prices and a decrease in real interest rates. B. an increase in prices and an increase in real interest rates. Your answer is correct. C. a decrease in prices, a decrease in nominal interest rates, but an increase in real interest rates. D. an increase in prices, an increase in nominal interest rates, but a decrease in real interest rates.

Privately owned banks and thrift institutions that accept deposits from and make loans directly to the public are known as A. credit unions. B. depository institutions. Your answer is correct. C. monetary commencers. D. money makers. Depository institutions create money when they have _____ and _____. A. excess reserves; make loans Your answer is correct. B. excess reserves; buy government bonds C. free reserves; buy government bonds D. free reserves; make loans

B A

What are the two main types of exchange-rate systems? A. A fixed-exchange-rate system and a general-equilibrium-exchange-rate system. B. A fixed-exchange-rate system and a flexible-exchange-rate system. Your answer is correct. C. A crawling-peg-exchange-rate system and a flexible-exchange-rate system. D. A crawling-peg-exchange-rate system and a general-equilibrium-exchange-rate system. Currently, which type of system determines the values of the major currencies, such as the dollar, yen, and euro? A. flexible-exchange-rate system Your answer is correct. B. fixed-exhange-rate system C. general-equilibrium-exchange-rate system D. crawling-peg-exchange-rate system

B A

In the efficiency-wage model, a decrease in productivity would cause the real wage to A. rise. B. be unchanged. Your answer is correct. C. fall. In the efficiency-wage model, a decrease in productivity would cause output to A. be unchanged. B. fall. Your answer is correct. C. rise.

B B

Suppose a new cryptocurrency replaces all need for dollars in the U.S. economy. As a result, there will be ____ in money _____. (You may assume that holdings of the cryptocurrency are not counted as money.) A. an increase; demand B. a decrease; demand Your answer is correct. C. a decrease; supply D. an increase; supply A decrease in money demand causes the _____ curve to shift _____. A. LM; up and to the left B. LM; down and to the right Your answer is correct. C. IS; up and to the right D. IS; down and to the left

B B

Use the Keynesian model to explain the cyclical behavior of employment and investment. A. employment is procyclical and investment is acyclical B. employment is procyclical and investment is procyclical Your answer is correct. C. employment is acyclical and investment is procyclical D. employment is countercyclical and investment is acyclical Use the Keynesian model to explain the procyclical behavior of money and inflation. A. money is acyclical and inflation is acyclical B. money is procyclical and inflation is procyclical Your answer is correct. C. money is countercyclical and inflation is countercyclical D. money is procyclical and inflation is acyclical

B B

When many European countries agreed to use the same currency, they were said to have formed a A. currency agreement. B. currency union. Your answer is correct. C. trade agreement. D. fixed-exchange-rate system. One requirement of a currency union is that all countries must A. share a common fiscal policy. B. share a common monetary policy. Your answer is correct. C. agree on how to regulate banks. D. form a new government with power over all countries.

B B

What is the impact on the money supply when the Federal Reserve increases reserve requirements? A. The money supply increases. B. The money supply decreases. Your answer is correct. What is the impact on the money supply when banks reduce the amount of borrowing from the discount window? A. The money supply increases. B. The money supply decreases. Your answer is correct. What is the impact on the money supply when the Federal Reserve decreases the discount rate? A. The money supply increases. Your answer is correct. B. The money supply decreases. What is the impact on the money supply when the Federal Reserve increases the interest rate it pays on reserves? A. The money supply increases. B. The money supply decreases.

B B A B

In each of the following cases, what is the effect on the LM curve? An increase in the expected inflation rate A. does not shift the LM curve. B. shifts the LM curve down and to the right. Your answer is correct. C. shifts the LM curve up and to the left. An increase in government spending A. shifts the LM curve up and to the left. B. does not shift the LM curve. Your answer is correct. C. shifts the LM curve down and to the right. An increase in the price level A. does not shift the LM curve. B. shifts the LM curve up and to the left. Your answer is correct. C. shifts the LM curve down and to the right.

B B B

Monetary neutrality means that A. money can be traded on the Internet. B. a change in the money supply has no effect on real variables. Your answer is correct. C. changes in the money supply do not affect the price level or the inflation rate. D. monetary policy is impotent. If money is neutral, then monetary policy A. determines real interest rates but not output. B. determines nominal interest rates but not the inflation rate. C. has real effects only in the short run. This is the correct answer. D. is pointless. Your answer is not correct.

B C

Suppose the United States imposes tariffs on Canadian goods. As a result, U.S. firms believe that Canada will retaliate. Because Canada is an important export market for many U.S. industries, fear of a trade war causes firms to reduce investment spending. In addition, suppose consumers reduce spending on goods imported from Canada because prices have become higher because of the tariffs. In the IS/LM model, this shock is most likely to affect the A. FE line. B. IS curve. Your answer is correct. C. LM curve. In short run, in a Keynesian model for the United States, output _____ and the real interest rate _____. A. declines; rises Your answer is not correct. B. increases; falls C. declines; falls This is the correct answer. D. increases; rises

B C

According to the classical model, after an economic disturbance, which of the following is true? A. The economy will be unable to return to general equilibrium without intervention by the Federal Reserve. B. The economy will rapidly return to general equilibrium as prices adjust quickly. Your answer is correct. C. Price adjustment will eventually return the economy to general equilibrium, but this may take several years. D. The economy will be unable to return to general equilibrium without government intervention. According to the Keynesian model, after an economic disturbance, which of the following is true? A. The economy will be unable to return to general equilibrium without intervention by the Federal Reserve. B. The economy will rapidly return to general equilibrium as prices adjust quickly. C. The economy will be unable to return to general equilibrium without government intervention. D. Price adjustment will eventually return the economy to general equilibrium, but this may take several years. Your answer is correct.

B D

Keynesian economists think the price level adjusts _____ to restore general equilibrium and think that government intervention in the economy is _____. A. rapidly; not warranted B. slowly; vital Your answer is correct. C. rapidly; vital D. slowly; not warranted Keynesian economists think the most important shock are _____ shocks and think that the most useful model is _____. A. aggregate demand; a model with microeconomic foundations B. aggregate supply; an aggregate model C. aggregate supply; a model with microeconomic foundations D. aggregate demand; an aggregate model

B D

What implications do these differences in beliefs have for the types of shocks that cause most recessions? Classical economists think that _____ shocks cause recessions, whereas Keynesian economists think that _____ shocks cause recessions. A. both aggregate demand and aggregate supply; aggregate demand B. aggregate supply; both aggregate demand and aggregate supply Your answer is correct. C. aggregate demand; both aggregate demand and aggregate supply D. both aggregate demand and aggregate supply; aggregate supply

B aggregate supply; both aggregate demand and aggregate supply

The deepest contraction in U.S. history occurred A. in the 1970s. B. during the 1930s. Your answer is correct. C. from 2007 to 2009. D. in the 1960s. Since World War II, the longest U.S. recession occurred A. in the 2000s. Your answer is correct. B. in the 1990s. C. in the 1980s. D. in the 1970s.

B. During the 1930s A in the 2000s

Which of the following would represent a cost during a period of disinflation? A. Increased shoe leather costs B. Decline in output This is the correct answer. C. Transfer of wealth from lenders to borrowers Your answer is not correct. D. Hyperinflation

B. decline in output

A rise in the price of a bond causes the yield of the bond to A. rise if it's a short-term bond, fall if it's a long-term bond. B. remain unchanged. C. fall. Your answer is correct. D. rise.

In what ways would you expect inflation-targeting countries to do better than non-inflation-targeting countries? A. Although there is typically an increase in the volatility of output, inflation is expected to be more stable in countries that use inflation targeting. B. Although inflation is expected to be less stable in countries that use inflation targeting, there is typically a reduction in the volatility of output. C. Inflation is expected to be more stable in countries that use inflation targeting, without an increase in the volatility of output. Your answer is correct. D. Inflation targeting has not proven to be a successful policy tool as inflation is expected to be less stable in countries that use inflation targeting, and there is an increase in the volatility of output.

Keynesian economists believe that in the short run, A. money neutrality exists and prices do not adjust rapidly. B. money neutrality does not exist and prices adjust rapidly. C. money neutrality does not exist and prices do not adjust rapidly. Your answer is correct. D. money neutrality exists and prices adjust rapidly.

Menu costs are, by definition A. the variety of costs (or prices) of different goods and services. B. the costs associated with reprinting menus in the restaurant industry. C. the costs of changing prices. Your answer is correct. D. a measure of inefficiency in an inflationary market economy.

The Great Recession began in _____ and ended in _____. A. October 2008; December 2011 B. December 2007; December 2011 C. December 2007; June 2009 Your answer is correct. D. October 2008; June 2009

The likely effect of introducing an increased number of automatic teller machines is to A. increase money demand, shifting the LM curve down and to the right. B. increase money demand, shifting the LM curve up and to the left. C. decrease money demand, shifting the LM curve down and to the right. Your answer is correct. D. decrease money demand, shifting the LM curve up and to the left.

The trough of a business cycle occurs when ________ hits its lowest point. A. inflation. B. the unemployment rate. C. aggregate economic activity. Your answer is correct. D. the money supply.

The long-run aggregate supply curve A. slopes upward. B. is horizontal. C. is vertical. Your answer is correct. D. slopes downward.

What is the J curve? A. The J curve shows the response of net exports to a real appreciation, in which at first net exports decline, but later they rise. B. The J curve shows the response of net exports to a real depreciation, in which at first net exports rise, but later they decline. C. The J curve shows the response of net exports to a real depreciation, in which at first net exports decline, but later they rise. Your answer is correct. D. The J curve shows the response of net exports to a real appreciation, in which at first net exports are unchanged, but later they decline.

What is the evidence that there was a reduction in economic volatility around 1984? A. Inflation declined significantly around 1984. B. The standard deviation of GDP growth increased significantly around 1984. C. The standard deviation of GDP growth declined significantly around 1984. Your answer is correct. D. Inflation increased significantly around 1984. 05.

When economists say that money is neutral, this means that: A. a change in the money supply changes real variables but not nominal variables. B. a change in the money supply will stall the economy, preventing further growth. C. a change in the money supply changes nominal variables but not real variables. Your answer is correct. D. a change in the money supply has no effect on the economy.

When the money supply declines by 10%, in the short run (before the price level adjusts to restore general equilibrium), output ________ and the price level ________. A. falls; falls B. is unchanged; is unchanged C. falls; is unchanged Your answer is correct. D. is unchanged; falls

Which of the following best describes a general equilibrium? A. The level of output is equal to full-employment output. B. The asset market is in equilibrium, but the goods market might not be in equilibrium. C. All markets are simultaneously in equilibrium. Your answer is correct. D. Aggregate supply is equal to aggregate demand. E. The goods market is in equilibrium, but the asset market might not be in equilibrium.

Which of the following changes shifts the AD curve down and to the left? A. A rise in the nominal money supply. B. A temporary increase in government purchases. C. A decrease in consumer confidence. Your answer is correct. D. A decrease in corporate taxes.

Which of the following is NOT a source of uncertainty affecting monetary policy? A. difficulty evaluating the current state of the economy B. the impact of policy actions on public expectations C. the size of the central bank's balance sheet Your answer is correct. D. incomplete models of the economy

According to the Keynesian analysis, in what two ways does an adverse supply shock reduce output? A. the supply shock increases the marginal product of labor and shifts the LM curve down and to the right B. the supply shock increases the marginal product of labor and shifts the LM curve up and to the left C. the supply shock reduces the marginal product of labor and shifts the LM curve up and to the left Your answer is correct. D. the supply shock reduces the marginal product of labor and shifts the LM curve down and to the right What problems do supply shocks create for Keynesian stabilization policies? A. policy can do nothing to affect the location of the FE line; and using expansionary policy risks worsening the already-high rate of inflation Your answer is correct. B. policy can affect the location of the FE line; and using expansionary policy poses no danger for worsening the already-high rate of inflation C. policy can affect the location of the FE line; but using expansionary policy risks worsening the already-high rate of inflation D. policy can do nothing to affect the location of the FE line; and using expansionary policy poses no danger for worsening the already-high rate of inflation.

C A

The LM curve shows A. the combinations of the real interest rate and output such that the goods market is in equilibrium. B. the combinations of the price level and output such that both the goods market and the money market are in equilibrium. C. the combinations of the real interest rate and output such that the asset market is in equilibrium. Your answer is correct. D. the combinations of price level and output that maintain labor market equilibrium. All of the following can shift the LM curve down and to the right except A. a reduction in money supply. Your answer is correct. B. a decrease in the risk of holding alternative assets relative to the risk of holding money. C. an increase in excepted inflation. D. a reduction in price level.

C A

In each of the following cases, what is the effect on the AD curve? An increase in the effective tax rate on capital A. shifts the AD curve up and to the right. B. does not shift the AD curve. C. shifts the AD curve down and to the left. Your answer is correct. An increase in the money supply A. shifts the AD curve up and to the right. Your answer is correct. B. does not shift the AD curve. C. shifts the AD curve down and to the left. An increase in the price level A. does not shift the AD curve. Your answer is correct. B. shifts the AD curve up and to the right. C. shifts the AD curve down and to the left.

C A A

Define money multiplier. A. The reciprocal of the reserve-deposit ratio. B. The number of dollars that can be issued by the Federal Reserve. C. The number of dollars that can be created from each dollar of monetary base. Your answer is correct. D. All of the above are correct. If the public elects to increase their holdings of currency, what happens to the money multiplier, all else equal? A. It decreases Your answer is correct. B. It increases C. It remains the same - the desire by the public to hold more or less currency does not affect the money multiplier. If banks choose to hold more reserves, what happens to the money multiplier, all else equal? A. It decreases Your answer is correct. B. It increases C. It remains the same - the desire by banks to hold more or less reserves does not affect the money multiplier. Does the fact that the public and banks can affect the money multiplier imply that the central bank cannot control the money supply? A. Yes B. No

C A A B

During the Great Depression, A. the currency-deposit ratio fell, the reserve-deposit ratio fell, and the money multiplier rose. B. the currency-deposit ratio fell, the reserve-deposit ratio fell, and the money multiplier fell. C. the currency-deposit ratio rose, the reserve-deposit ratio rose, and the money multiplier fell. Your answer is correct. D. the currency-deposit ratio rose, the reserve-deposit ratio rose, and the money multiplier rose. 2.) As a result of those changes during the Great Depression, A. the monetary base rose and the money multiplier fell. Your answer is correct. B. both the monetary base and the money multiplier fell. C. the monetary base fell and the money multiplier rose. D. both the monetary base and the money multiplier rose. In theory, the effect on the money supply would be ambiguous. But, in practice, the money supply fell as a result of the changes in the monetary base and multiplier. 3.) During the 2008 financial crisis, A. the currency-deposit ratio rose, the reserve-deposit ratio fell, and the money multiplier rose. B. the currency-deposit ratio fell, the reserve-deposit ratio rose, and the money multiplier fell. Your answer is correct. C. the currency-deposit ratio fell, the reserve-deposit ratio fell, and the money multiplier fell. D. the currency-deposit ratio rose, the reserve-deposit ratio rose, and the money multiplier rose.

C A B

As an economy moves from left to right along an effective labor demand curve, output is A. unchanged. B. falling. C. rising. Your answer is correct. As an economy moves from left to right along an effective labor demand curve, employment is A. unchanged. B. rising. Your answer is correct. C. falling.

C B

The idea behind the effective labor demand curve is that A. the marginal product of labor is not equal to the nominal wage. B. the marginal product of labor is not equal to the real wage. C. firms are willing to meet the demand for their output at a specific price. Your answer is correct. D. demand is more effective than supply. When the economy is not on the FE line and the price level is fixed, the level of employment is given on the A. equilibrium of labor supply and demand. B. effective labor demand curve. Your answer is correct. C. production function. D. Beveridge curve.

C B

To reduce panic during the Great Recession, the Federal government created _____, designed to _____. A. ABCPFF; help asset-backed commercial property lenders. B. HAMP; help mortgage brokers C. TARP; purchase financial assets thought to be undervalued Your answer is correct. D. FDIC; provide deposit insurance TARP funds were used to A. support the stock market. B. increase banks' capital. Your answer is correct. C. increase banks' profits. D. reduce interest rates.

C B

In each of the following cases, what is the effect on the FE line? An adverse supply shock A. does not change the FE line. B. shifts the FE line rightward. C. shifts the FE line leftward. Your answer is correct. An increase in the labor supply A. does not change the FE line. B. shifts the FE line rightward. Your answer is correct. C. shifts the FE line leftward. An increase in the money supply A. does not change the FE line. Your answer is correct. B. shifts the FE line leftward. C. shifts the FE line rightward.

C B A

In each of the following cases, what is the effect on the short-run aggregate supply (SRAS) curve? An increase in firm costs A. does not shift the SRAS curve. B. shifts the SRAS curve downward. C. shifts the SRAS curve upward. Your answer is correct. An increase in the money supply A. shifts the SRAS curve upward. B. does not shift the SRAS curve. Your answer is correct. C. shifts the SRAS curve downward. An increase in consumption A. shifts the SRAS curve downward. B. does not shift the SRAS curve. Your answer is correct. C. shifts the SRAS curve upward.

C B B

What are the major characteristics of an inflation targeting regime? A. Inflation targeting is a system in which a central bank uses wage and price controls to keep inflation pegged. B. Inflation targeting is a system in which no company is allowed to raise prices by more than the inflation target. C. Inflation targeting is a system in which a central bank is concerned only about the inflation rate, and puts no weight on the unemployment rate or the growth rate of real GDP. D. Inflation targeting is a system in which a central bank decides on a specific numerical target for inflation and a plan for achieving it.

To prepare for this problem, read carefully the In Touch with Data and Research box on Henry Ford's Efficiency Wage. Then, answer the following questions. 1.) The Application is about Henry Ford and the Ford Motor Company and A. how an increase in the price of a complement can decrease demand for a good. B. how unions can increase wages for workers. C. how an increase in wages can be good for profitability. Your answer is correct. D. the efficiency gains that can result from having workers each specialize in a small part of the production process. 2.) Which of the following is true about the results of Ford's $5 day? A. Wages decreased, productivity decreased, and profitability decreased. B. Wages increased, productivity increased, and profitability increased. Your answer is correct. C. Wages increased, productivity decreased, and profitability increased. D. Wages increased, productivity decreased, and profitability decreased. 3.) Which of the following was an observed effect of Ford's "efficiency wage?" A. Increased worker slowdowns. B. Increased productivity. Your answer is correct. C. Increased absenteeism. D. All of the above.

C B B

Consider the impact of a decrease in effective tax rate on capital. The shock is most likely to affect the A. FE line. B. LM curve. C. IS curve. Your answer is correct. D. AS curve. In the short run, before general equilibrium is restored, the IS curve shifts _____ and causes _____. A. up and to the right; no change in the real interest rate or the price level B. down and to the left; the real interest rate to decline and the price level to decline C. up and to the right; the real interest rate to rise and the price level to remain unchanged Your answer is correct. D. down and to the left; no change in the real interest rate or the price level After general equilibrium is restored, the real interest rate is _____ and the price level is _____. (Compare with the situation before the shock.) A. higher; higher This is the correct answer. B. unchanged; higher C. lower; lower Your answer is not correct. D. unchanged; unchanged

C C A

Consider the impact of a decrease in the money supply. The shock is most likely to affect the A. FE line. B. IS curve. C. LM curve. Your answer is correct. D. AS curve. In the short run, before general equilibrium is restored, the LM curve shifts _____ and causes _____. A. down and to the right; no change in output or the price level B. down and to the right; output to rise and the price level to decline C. up and to the left; output to decline and the price level to remain unchanged Your answer is correct. D. up and to the left; no change in output or the price level After general equilibrium is restored, output is _____ and the price level is _____. (Compare with the situation before the shock.) A. higher; lower B. lower; lower C. unchanged; unchanged D. unchanged; lower Your answer is correct.

C C D

How is full-employment output determined in the Keynesian model with efficiency wages? A. the amount of output produced by firms with employment determined by the labor demand curve at the point where the unemployment rate is zero B. the amount of output produced by firms with employment determined by the labor supply curve at the point where workers do not shirk C. the amount of output produced by firms with employment determined by the labor demand curve at the point where the marginal product of labor equals the efficiency wage Your answer is correct. D. the amount of output produced by firms with employment determined where the labor demand curve intersects the labor supply curve In this model, how is full-employment output affected by changes in productivity (supply shocks)? A. A productivity shock changes the efficiency wage, since it affects work effort, so employment changes B. A productivity shock does not lead to a change in the efficiency wage, so employment does not change C. A productivity shock does not affect the marginal product of labor, so employment does not change D. A productivity shock affects the marginal product of labor, so employment changes Your answer is correct. How is full-employment output affected by changes in labor supply? A. Labor supply changes affect the efficiency wage and employment; so they change full-employment output. B. Labor supply changes have no effect on the efficiency wage or employment; so they have no impact on full-employment output. Your answer is correct. C. Labor supply changes have no effect on the efficiency wage but they change employment; so they affect full-employment output. D. Labor supply changes have no effect on employment, despite changing the efficiency wage; so they have no impact on full-employment output.

C D B

Stock and Watson found that monetary policy was responsible for about ________ % of the reduction in output volatility that occurred in the mid-1980s. A. 10 to 20 B. 0 to 10 C. 20 to 30 Your answer is correct. D. 30 to 40

C 20 to 30

The deep recession of 1973-1975 was mainly caused by A. an unexplained drop in business optimism. B. flawed technology that caused a drop in TFP. C. higher oil prices. Your answer is correct. D. slower money growth.

C higher oil prices

What terms are used to describe the timing of cyclical changes in economic variables? A. peak and trough B. procyclical and countercyclical C. leading, coincident, and lagging Your answer is correct. D. stable and unstable

C leading

The widespread decline in the volatility of many macroeconomic variables after 1984 led economists to term this period the A. Long Boom. B. Low Volatility Era. C. Great Moderation. Your answer is correct. D. Steady State.

C moderation

Wars, inventions, and droughts are examples of A. leading indicators. B. propagation mechanisms. C. shocks. Your answer is correct. D. endogenous variables.

C shocks

Which of the following best represents the relationship between inflation and the unemployment rate? A. The aggregate demand curve B. The short-run aggregate supply curve C. The Phillips curve Your answer is correct. D. The long-run aggregate supply curve

C. phillips curve

Suppose that the economy is in general equilibrium, and a temporary beneficial supply shock occurs which raises output above its previous full-employment level. Which of the following graphs correctly shows the new equilibrium? A. Y, outputr, real interest rateFELMISFE1LM1 The image shows a graph that depicts the relationship between output and the real interest rate. The horizontal axis measures Y, output. The vertical axis measures r, the real interest rate. There is an upward-sloping straight line labeled LM. There is a downward-sloping straight line labeled IS. There is a straight line labeled FE that is parallel to the vertical axis. LM, IS, and FE intersect at a point. There is an upward-sloping dotted straight line labeled LM1 that lies to the left of LM. There is another dotted straight line, labeled FE1, that is parallel to the vertical axis. FE1 lies to the left of FE. LM1 and FE1 intersect at a point that lies to the left of and above the point of intersection of FE, LM, and IS. B. Y, outputr, real interest rateFELMISFE1IS1 The image shows a graph that depicts the relationship between output and the real interest rate. The horizontal axis measures Y, output. The vertical axis measures r, the real interest rate. There is an upward-sloping straight line labeled LM. There is a downward-sloping straight line labeled IS. There is a straight line labeled FE that is parallel to the vertical axis. LM, IS, and FE intersect at a point. There is a downward-sloping dotted straight line labeled IS1 that lies to the right of IS. There is another dotted straight line, labeled FE1, that is parallel to the vertical axis. FE1 lies to the right of FE. IS1, LM, and FE1 intersect at a point that lies to the right of and above the point of intersection of FE, LM, and IS. C. Y, outputr, real interest rateFELMISFE1LM1 The image shows a graph that depicts the relationship between output and the real interest rate. The horizontal axis measures Y, output. The vertical axis measures r, the real interest rate. There is an upward-sloping straight line labeled LM. There is a downward-sloping straight line labeled IS. There is a straight line labeled FE that is parallel to the vertical axis. LM, IS, and FE intersect at a point. The graph also shows an upward-sloping dotted straight line labeled LM1. LM1 lies to the right of LM. There is another dotted straight line, labeled FE1, which is parallel to the vertical axis. FE1 lies to the right of FE. LM1, FE1, and IS intersect at a point that lies to the right of and below the point of intersection of FE, LM, and IS. Your answer is correct. D. Y, outputr, real interest rateFELMISFE1IS1 The image shows a graph that depicts the relationship between output and the real interest rate. The horizontal axis measures Y, output. The vertical axis measures r, the real interest rate. There is an upward-sloping straight line labeled LM. There is a downward-sloping straight line labeled IS. There is a straight line labeled FE that is parallel to the vertical axis. LM, IS, and FE intersect at a point. There is a downward-sloping dotted straight line labeled IS1 that lies to the left of IS. There is another dotted straight line, labeled FE1, that is parallel to the vertical axis. FE1 lies to the left of FE. IS1 and FE1 intersect at a point that lies to the left of and below the point of intersection of FE, LM, and IS.

C. the FE1 is to the right and the LM1 is also down below LM

A beneficial supply shock would cause the FE line to A. remain unchanged. B. remain unchanged if the shock is temporary; shift to the right if the shock is permanent. C. shift to the left. D. shift to the right.

A financial innovation, such as the introduction of money market mutual funds, which increases the liquidity of alternatives to money, would A. increase money demand, shifting the LM curve up and to the left. B. increase money demand, shifting the LM curve down and to the right. C. decrease money demand, shifting the LM curve up and to the left. D. decrease money demand, shifting the LM curve down and to the right. Your answer is correct.

A shock that reduces the full-employment level of output is A. a temporary shock. B. a permanent shock. C. an aggregate demand shock. D. an aggregate supply shock

During the period 1973-1975, the United States experienced a deep recession with a simultaneous sharp rise in the price level. Would you conclude that the recession was the result of a supply shock or a demand shock? A. a supply shock, because if it was a demand shock, output would have increased B. a demand shock, because if it was a supply shock, output would have increased C. a demand shock, because if it was a supply shock, the price level would have declined D. a supply shock, because if it was a demand shock, the price level would have declined

Industries that are extremely sensitive to the business cycle are the A. capital goods and nondurable goods sectors. B. durable goods and service sectors. C. nondurable goods and service sectors. D. capital goods and durable goods sectors.

Keynesians contend that in a recession caused by a decline in aggregate demand, a policy of increasing the nominal money supply would A. lower the level of aggregate demand, which would help return the economy to full-employment output. B. not affect the position of the LM curve, because the real money supply would not change. C. shift the LM curve to the left, which would help return the economy to full-employment output. D. raise the level of aggregate demand, which would help return the economy to full-employment output. Your answer is correct.

What effects does expansionary monetary policy have on the nominal exchange rate in both the short and long run? A. In the short run, the nominal exchange rate depreciates, but in the long run, the nominal exchange rate returns to its original level. B. In both the short run and the long run, the nominal exchange rate appreciates. C. In the short run, the nominal exchange rate appreciates, but in the long run, the nominal exchange rate returns to its original level. D. In both the short run and the long run, the nominal exchange rate depreciates.

Which of the following best describes the FE line? A. The FE line is horizontal at the equilibrium real interest rate. B. The FE line slopes upward. C. The FE line slopes downward. D. The FE line is vertical at the full-employment level of output.

Which of the following changes shifts the AD curve up and to the right? A. A decrease in the future marginal productivity of capital. B. An increase in the risk on nonmonetary assets. C. An increase in income taxes. D. A rise in the nominal money supply. Your answer is correct.

Define monetary base: A. The total amount of money held by the non-bank public. B. The total amount of money held by banks as reserves. C. The total amount of money held by the Federal Reserve. D. The total amount of currency held by the non-bank public and money held by banks as reserves. Your answer is correct. E. The total amount of money held by the non-bank public, private banks as reserves, and the Federal Reserve. F. The total amount of money held by private banks as reserves and the Federal Reserve. G. The total amount of currency held by the non-bank public and money held by the Federal Reserve. How does the monetary base differ from the money supply? A. The money supply equals the monetary base times the money multiplier. Your answer is correct. B. The monetary base is equal to all money held in banks. C. The monetary base is zero, because the reserve ratio is zero. D. The monetary base equals the money supply.

D A

Suppose the Federal Reserve announces that it will target an inflation rate of 2% but people do not believe the Fed's announcement because of the Fed's failure to hit its targets in the past. The Fed is said to A. need a stronger leader. B. be in non-compliance. C. need authority. D. lack credibility. Your answer is correct. Credibility matters because A. it affects how quickly people's inflation expectations can change. Your answer is correct. B. people can be fooled more easily. C. inflation is a direct function of credibility. D. a lack of credibility leads to bad foreign policy.

D A

To prepare for this problem, read carefully the In Touch with Data and Research box on Econometric Models and Macroeconomic Forecasts for Monetary Policy Analysis. Then, answer the following questions. 1.) An economist studies the effect of changes in tax laws on consumption, assuming that the average household spends about $800 of every additional $1,000 earned. In this study, the tax laws are acting as A. a parameter. B. an MPS variable. C. an endogenous variable. D. an exogenous variable. Your answer is correct. In the above study, the amount the average household spends of additional income is acting as A. a parameter. Your answer is correct. B. an MPS variable. C. an endogenous variable. D. an exogenous variable. 2.) One of the differences between the FRB/US model and its predecessor the MPS is that A. the MPS model is better at incorporating people's expectations. B. the FRB/US model, unlike the MPS model, was developed from the theoretical IS-LM model. C. the MPS model is better at showing how economic agents react to shocks. D. the FRB/US model uses newer statistical techniques than the MPS did. Your answer is correct. 3.) The FRB/US model's forecasts A. are reviewed and often modified by the staff of the Federal Reserve Board, but private sector forecasts have been found to be superior to those made with the FRB/US model. B. do not involve any review or modification by members of the Federal Reserve Board, and private sector forecasts have been found to be superior to those made with the FRB/US model. C. do not involve any review or modification by members of the Federal Reserve Board, and yet the forecasts made using the model have been found to be superior to private sector forecasts. D. are reviewed and often modified by the staff of the Federal Reserve Board, and the forecasts made using the model have been found to be superior to private sector forecasts. Your answer is correct.

D A D D

How does the IS-LM model for an open economy differ from the IS-LM model for a closed economy? A. International influences may shift the FE line. B. International influences may shift the SRAS curve. C. International influences may shift the LM curve. D. International influences may shift the IS curve. Your answer is correct. Describe how a recession in one country may be transmitted to other countries. A. A recession in one country increases the net exports of other countries, shifting their IS curves down and to the left. B. A recession in one country reduces the net exports of other countries, shifting their IS curves down and to the left. Your answer is correct. C. A recession in one country increases the money supply of other countries, shifting their LM curves up and to the left. D. A recession in one country reduces the money supply of other countries, shifting their LM curves up and to the left.

D B

In September 2008, mortgage lenders Fannie Mae and Freddie Mac A. began buying subprime mortgage loans. B. stopped buying all mortgage loans. C. were merged to make them stronger. D. were placed into government receivership. Your answer is correct. In September 2008, major investment bank Lehman Brothers A. was purchased by Fannie Mae. B. filed for bankruptcy. Your answer is correct. C. was bailed out by the Federal government. D. was purchased by Bank of America.

D B

For a given real exchange rate, how are a country's net exports affected by an increase in domestic income? A. An increase in domestic income leads foreigners to buy more goods, including exported goods, so net exports increase. B. An increase in domestic income leads foreigners to buy fewer goods, including exported goods, so net exports decline. C. An increase in domestic income leads people to buy fewer goods, including imported goods, so net exports increase. D. An increase in domestic income leads people to buy more goods, including imported goods, so net exports decline. Your answer is correct. For a given real exchange rate, how are a country's net exports affected by an increase in foreign income? A. An increase in foreign income leads people to buy more goods, including imported goods, so net exports decline. B. An increase in foreign income leads foreigners to buy more goods, including exported goods, so net exports increase. Your answer is correct. C. An increase in foreign income leads people to buy fewer goods, including imported goods, so net exports increase. D. An increase in foreign income leads foreigners to buy fewer goods, including exported goods, so net exports decline. How does an increase in the domestic real interest rate affect the real exchange rate and net exports? A. The real exchange rate rises and net exports decline. Your answer is correct. B. The real exchange rate rises and net exports rise. C. The real exchange rate declines and net exports rise. D. The real exchange rate declines and net exports decline.

D B A

a. The aggregate demand (AD) curve shows the relationship between: A. the real interest rate and output. B. the real wage rate and the demand for labor. C. the price level and the aggregate supply of goods and services. D. the price level and the aggregate demand for goods and services. Your answer is correct. b. The aggregate demand curve slopes downward: A. because with a fixed nominal supply of money, an increase in the price level shifts the IS curve down and to the left, leading to lower output at the intersection of the IS and LM curves. B. due to the law of demand. C. because with fixed nominal supply of money, an increase in the price level shifts the LM curve up and to the left, leading to lower output at the intersection of the IS and LM curves. D. because as the price level rises, resources become costly and GDP falls.

D C

If people reduce their expectations of inflation from 4% to 2%, then there will be ____ in money _____. A. a decrease; demand B. a decrease; supply C. an increase; supply D. an increase; demand Your answer is correct. An increase in money demand causes the _____ curve to shift _____. A. IS; up and to the right B. LM; down and to the right C. LM; up and to the left Your answer is correct. D. IS; down and to the left An increase in people's inflation expectations from 2% to 4% causes _____ and causes the _____. A. a decrease in money demand; LM curve to shift down and to the right Your answer is correct. B. an increase in money demand; LM curve to shift up and to the left C. a decrease in money demand; LM curve to shift up and to the left D. an increase in money demand; LM curve to shift down and to the right

D C A

General equilibrium occurs at which point in the IS−LM diagram? A. the point at which the FE line and the IS curve intersect B. the point at which the FE line and the LM curve intersect C. the point at which the IS and LM curves intersect D. the point at which the FE line and the IS and LM curves intersect Your answer is correct. If the economy isn't in general equilibrium, what determines output and the real interest rate? A. the point at which the FE line and the LM curve intersect B. the point at which the FE line and the IS curve intersect C. the point at which the IS and LM curves intersect Your answer is correct. D. the point at which the FE line and the IS and LM curves intersect What economic forces act to bring the economy back to general equilibrium? A. adjustment of the real interest rate moves the IS curve B. adjustment of output moves the LM curve C. adjustment of the price level moves the LM curve Your answer is correct. D. adjustment of future income moves the IS curve

D C C

Money is said to be neutral if: A. if a change in the money supply changes the price level and all real variables proportionately. B. if a change in the money supply does not change the price level or other nominal variables. C. if a change in the money supply does not change the level of full-employment output. D. if a change in the money supply changes the price level and other nominal variables but has no effect on real variables. Your answer is correct. After prices adjust, money is neutral in the IS-LM model because: A. when the economy returns to the full-employment level, there is no net change in the price level. B. any shift in the aggregate demand curve caused by the change in the money supply is offset by a shift of the aggregate supply curve. C. any change in money supply that shifts the LM curve is finally matched by a proportional change in the price level that shifts the LM curve to its original position. Your answer is correct. D. the shift in the LM curve due to the change in the money supply is matched by an equal shift of the IS curve. Regarding neutrality of money: A. classical economists believe that money is neutral in both the short run and the long run, but Keynesians believe that money is neutral only in the short run but not in the long run. B. Keynesian economists believe that money is neutral in both the short run and the long run, but classical economists believe that money is neutral only in the long run but not in the short run. C. classical economists believe that money is neutral in both the short run and the long run, but Keynesians believe that money is neutral only in the long run but not in the short run due to sluggish adjustment of the price level in the short run. Your answer is correct. D. both classical and Keynesian economists agree that money is neutral only in the long run but not in the short run.

D C C

All of the following are equal to the monetary base EXCEPT A. currency held by the nonbank public plus reserves held by banks. B. high-powered money. C. the money supply divided by the money multiplier. Your answer is not correct. D. bank deposits minus currency held by the nonbank public. This is the correct answer. The money multiplier equals A. total reserves minus required reserves. B. free reserves plus the monetary base. C. high-powered money minus the monetary base. D. the money supply divided by the monetary base.

D D

An IS curve shows the combinations of the A. price level and output for which the labor market is in equilibrium. B. nominal interest rate and output for which the money market is in equilibrium. C. price level and output for which both the goods market and the money market are in equilibrium. D. real interest rate and output for which the goods market is in equilibrium. Your answer is correct. All of the following will cause the IS curve to shift down and to the left, except A. a temporary reduction in government purchases. B. a reduction in expected future output. C. an increase in taxes if Ricardian equivalence does not hold. D. a reduction in money supply.

D D

Keynesians believe that, in a recession, the government could help the economy improve by A. decreasing the money supply. B. reducing government spending. C. increasing taxes. D. increasing the money supply. Your answer is correct. Increasing the money supply shifts the ____ curve _____. A. IS; down and to the left B. LM; up and to the left C. IS; up and to the right D. LM; down and to the right Your answer is correct.

D D

The efficiency wage is: A. the equilibrium wage rate determined in competitive labor markets. B. an amount equal to or just above the minimum wage. C. an amount that maximizes effort or efficiency per dollar of money wages. D. an amount that maximizes effort or efficiency per dollar of real wages. Your answer is correct. An assumption about worker behavior behind the efficiency wage theory is that effort is directly related to the worker compensation.

D directly

The NBER's Business Cycle Dating Committee picks recession dates by looking at many variables, the four most important of which are industrial production, manufacturing and trade sales, nonfarm employment, and real personal income. These variables are known as A. leading indicators. B. recession indicators. C. lagging indicators. D. coincident indicators.

D confidence

The law passed in the aftermath of the Great Recession to try to prevent further financial and banking crises was the A. FDIC Improvement Act. B. Okun's Law. C. Glass-Steagall Act. D. Dodd-Frank Act. Your answer is correct. One of the main elements relating to bank safety of the Dodd-Frank Act was to A. increase reserve requirements for banks. B. increase capital requirements for banks. Your answer is correct. C. reduce fees paid by banks to the government. D. increase the number of people on banks' boards of directors.

D dodd B inc cap

Various explanations have been suggested for real-wage rigidity in the Keynesian model. Which is NOT one of them? A. Turnover costs B. Legal and institutional factors C. The efficiency-wage model D. Labor hoarding

D labor

How do Keynesians and classicals differ in their beliefs about how long it takes the economy to reach long-run equilibrium? What implications do these differences in beliefs have for Keynesian and classical views about the usefulness of antirecessionary policies? Classical economists think prices adjust _____ and that antirecessionary policies are _____, whereas Keynesian economists think the opposite. A. rapidly; necessary B. slowly; not necessary C. slowly; necessary D. rapidly; not necessary

D rapidly not neccessary

Which of the following macroeconomic variables is procyclical and leads the business cycle? A. Unemployment. B. Nominal interest rates. C. Business fixed investment. D. Residential investment.

D residential investment

Research on the effects of recessions on the real level of GDP shows that A. recessions cause large, permanent reductions in the real level of GDP. B. recessions cause both temporary and permanent declines in real GDP, but most of the decline is permanent. C. recessions cause only temporary reductions in real GDP, which are offset by growth during the expansion phase. D. recessions cause both temporary and permanent declines in real GDP, but most of the decline is temporary.

In the Great Depression, the financial sector collapsed as A. banks engaged in ruinous competition. B. the stock market boomed, so people withdrew most of their funds from banks and invested heavily in stocks. C. the bond market boomed, so people withdrew most of their funds from banks and invested heavily in bonds. D. many banks closed.

D. banks closed

One of the first organizations to investigate the business cycle was A. the Federal Reserve System. B. the Brookings Institution. C. the Council of Economic Advisors. D. the National Bureau of Economic Research

D. national bureau

What terms are used to describe the way a variable moves in terms of direction when economic activity is rising or falling? A. peak and trough B. stable and unstable C. leading, coincident, and lagging D. procyclical and countercyclical

D. procyclical

Economists use the term shocks to mean A. sudden rises in oil prices. B. the business cycle. C. unexpected government actions that affect the economy. D. typically unpredictable forces that have major impacts on the economy.

D. unpredictable

Consider the general-equilibrium effects of a temporary adverse supply shock. For each of the following variables, select whether you would expect it to increase, decrease, or remain constant in general equilibrium as a result of the temporary supply shock. Output will decrease. The real interest rate will increase. The price level will increase. For each of the following variables, select whether you would expect it to increase, decrease, or remain constant as a result of the temporary adverse supply shock. Consumption will decrease. Investment will decrease. Government spending will stay the same. The nominal money supply will stay the same.

Decrease increase increase decrease dec stay stay

In the AD-AS model, the short-run effect of a decrease in the money supply is A. a shift up and to the right of the AD curve and a shift up of the SRAS curve, causing output and the price level to rise. B. a shift up and to the right of the AD curve, causing output to rise at an unchanged price level. C. a shift down and to the left of the AD curve and a shift down of the SRAS curve, causing output and the price level to fall. D. no change, because money is neutral in the short run. E. a shift down and to the left of the AD curve, causing output to fall at an unchanged price level. Your answer is correct. In the AD-AS model, the long-run effect of a decrease in the money supply is A. a proportionate increase in the price level, but no changes to real variables such as output. B. a proportionate fall in the price level and in output. C. a proportionate increase in the price level and in output. D. no change at all, because money is neutral in the long run. E. a proportionate fall in the price level, but no changes to real variables such as output. Your answer is correct.

E E

Define purchasing power parity, or PPP. A. the idea that similar foreign and domestic goods, or baskets of goods, should have the same price when priced in terms of the same currency. This is the correct answer. B. the notion that the percentage change in the exchange rate will equal the difference between two country's exchange rates. C. the condition that occurs when the real exchange rate is constant over time. D. the result that the percentage change in the nominal exchange rate equals the difference between the inflation rates in two countries.

Output, total hours worked, and average labor productivity all are procyclical. Which variable, output or total hours worked, increases by a larger percentage in expansions and falls by a larger percentage in recessions?

output

According to the Keynesian IS−LM model, what is the effect of the following on output, the real interest rate, employment, and the price level of an economy? Distinguish between effects in the short-run and in the long-run. Your answers in each column should be relative to the original long-run equilibrium levels of each variable. increased tax incentives for saving

output -shortrun: dec -longrun: unchan real interest rate -shortrun: dec -longrun: dec employment -shortrun: dec -longrun: unchan price level: -shortrun: unchan -longrun: dec

What does the Keynesian model predict about monetary neutrality? In the short run, changes in the money supply will affect output and the real interest rate while in the long run, these changes will only affect the price level.

output and real interest price level

In the Keynesian model, how does a temporary increase in government purchases affect the following? Your answers in each column should be relative to the original long-run equilibrium levels of each variable. How is a temporary increase in government purchases likely to affect the composition of output in the long-run?

output: -shortrun: increase -longrun: remain unchanged real interest rate: -shsortrun: increase -longrun: increase Consumption expenditure: decrease investment expenditure: decrease

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