Question 1

Milton Friedman argued that there

Accepted Answer

A)  are two Phillips curves,a short-run one and a long-run one.
B)  are three Phillips curves,a short-run one,a long-run one,and one in stagflation.
C)  is one Phillips curve,and it is vertical.
D)  is one Phillips curve,and it is nearly flat or horizontal.E) A) and B)
F) A) and C)

Question 2

The concept of rational expectations first appeared on the economic scene in _______,but it wasn't until the _____________ that it received more significant notice in the economics profession.

Accepted Answer

A)  1931;early 1970s
B)  1961;early 1970s
C)  1981;early 1990s
D)  1991;early 2000s
E)  1921;early 1980sF) D) and E)
G) C) and E)

Question 3

New classical economists believe that it is possible under certain circumstances for an increase in the money supply to lead to a decrease in Real GDP in the short run.

Accepted Answer

A) True 
 B)False

Question 4

The short-run Phillips curve holds that

Accepted Answer

A)  high inflation and high unemployment can occur together.
B)  low inflation and low unemployment can occur together.
C)  high inflation and low unemployment can occur together.
D)  b and cE) A) and B)
F) A) and C)

Question 5

The original Phillips curve depicted an inverse relationship between wage inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 6

Describe the sequence of events that real business cycle theorists would use to explain how an adverse supply shock would impact the economy.Use your answer to explain why it is easy to confuse cause and effect between changes originating on the supply side and those that begin on the demand side.

Accepted Answer

An adverse supply shock would reduce the...

Question 7

Stagflation is the simultaneous occurrence of

Accepted Answer

A)  low inflation and high unemployment.
B)  high inflation and low unemployment.
C)  low inflation and low unemployment.
D)  high inflation and high unemployment.E) A) and D)
F) All of the above

Question 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

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

Question 10

The economy is in long-run equilibrium when there is an incorrectly anticipated increase in aggregate demand brought about by expansionary monetary policy.Specifically,aggregate demand increases by more than people anticipate (bias downward) .According to new classical theory,the price level will __________ and Real GDP will __________ in the short run.In the long run,the price level will be __________ than it was before aggregate demand increased.

Accepted Answer

A)  rise;fall;higher
B)  rise;rise;higher
C)  fall;rise;lower
D)  fall;rise;higher
E)  rise;rise;lowerF) B) and C)
G) C) and E)

Question 11

Exhibit 16-5 
-Refer to Exhibit 16-5.If the economy is at point 3,and the natural unemployment rate exists at points 1,4,and 5,it follows that

Accepted Answer

A)  Real GDP is greater than Natural Real GDP.
B)  Real GDP is less than Natural Real GDP.
C)  Real GDP is the same as Natural Real GDP.
D)  the economy is in a recessionary gap.
E)  b and dF) C) and E)
G) A) and B)

Question 12

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

Accepted Answer

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

Question 13

A person's real wage will fall if the nominal wage falls,the price level rises,or both.

Accepted Answer

A) True 
 B)False

Question 14

According to new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

Accepted Answer

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

Question 15

The economy is in long-run equilibrium when government unexpectedly increases aggregate demand.The expected inflation rate is slow to adjust to the higher (actual) inflation rate.If follows that in the short run,according to the Friedman natural rate theory,__________ rises and the __________ falls.

Accepted Answer

A)  the unemployment rate,price level
B)  Real GDP rises,unemployment rate
C)  nominal interest rate,real interest rate
D)  the unemployment rate,Real GDP level
E)  none of the aboveF) B) and E)
G) C) and D)

Question 16

Although the possibility exists for an economy to experience stagflation,it has never actually happened in the United States.

Accepted Answer

A) True 
 B)False

Question 17

A fall in the expected price level leads to an expectation that real wages will ____________,which will cause people to work __________,shifting the SRAS curve _______________.

Accepted Answer

A)  rise;more;rightward
B)  rise;less;leftward
C)  fall;more;rightward
D)  fall;less;leftwardE) All of the above
F) B) and C)

Question 18

An unexpected decrease in aggregate demand will cause

Accepted Answer

A)  a movement up the short-run Phillips curve.
B)  a movement down the short-run Phillips curve.
C)  an upward shift in the short-run Phillips curve.
D)  a downward shift in the short-run Phillips curve.E) C) and D)
F) A) and B)

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

A)  rises;more
B)  rises;less
C)  falls;more
D)  falls;lessE) A) and C)
F) B) and C)

Exam 16: Expectations Theory and the Economy

Correct Answer
verified

Describe the sequence of events that real business cycle theorists would use to explain how an adverse supply shock would impact the economy.Use your answer to explain why it is easy to confuse cause and effect between changes originating on the supply side and those that begin on the demand side.

Correct Answer
verified
An adverse supply shock would reduce the...
View Answer

The short-run Phillips curve holds that

Correct Answer
verified

A fall in the expected price level leads to an expectation that real wages will ,which will cause people to work ,shifting the SRAS curve _____.

Correct Answer
verified

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

Correct Answer
verified

An unexpected decrease in aggregate demand will cause

Correct Answer
verified

The concept of rational expectations first appeared on the economic scene in _,but it wasn't until the _______ that it received more significant notice in the economics profession.

Correct Answer
verified

Exhibit 16-5 -Refer to Exhibit 16-5.If the economy is at point 3,and the natural unemployment rate exists at points 1,4,and 5,it follows that

Correct Answer
verified

The economy is in long-run equilibrium when government unexpectedly increases aggregate demand.The expected inflation rate is slow to adjust to the higher (actual) inflation rate.If follows that in the short run,according to the Friedman natural rate theory, rises and the falls.

Correct Answer
verified

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

Correct Answer
verified

Stagflation is the simultaneous occurrence of

Correct Answer
verified

Although the possibility exists for an economy to experience stagflation,it has never actually happened in the United States.

Correct Answer
verified

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

Correct Answer
verified

Milton Friedman argued that there

Correct Answer
verified

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

Correct Answer
verified

According to new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

Correct Answer
verified

New classical economists believe that it is possible under certain circumstances for an increase in the money supply to lead to a decrease in Real GDP in the short run.

Correct Answer
verified

The original Phillips curve depicted an inverse relationship between wage inflation and unemployment.

Correct Answer
verified

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

Correct Answer
verified

A person's real wage will fall if the nominal wage falls,the price level rises,or both.

Correct Answer
verified

Exam 16: Expectations Theory and the Economy

Correct AnswerverifiedShow Answer

Describe the sequence of events that real business cycle theorists would use to explain how an adverse supply shock would impact the economy.Use your answer to explain why it is easy to confuse cause and effect between changes originating on the supply side and those that begin on the demand side.

Correct AnswerverifiedAn adverse supply shock would reduce the...View AnswerShow Answer

The short-run Phillips curve holds that

Correct AnswerverifiedShow Answer

A fall in the expected price level leads to an expectation that real wages will ____________,which will cause people to work __________,shifting the SRAS curve _______________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An unexpected decrease in aggregate demand will cause

Correct AnswerverifiedShow Answer

The concept of rational expectations first appeared on the economic scene in _______,but it wasn't until the _____________ that it received more significant notice in the economics profession.

Correct AnswerverifiedShow Answer

Exhibit 16-5 -Refer to Exhibit 16-5.If the economy is at point 3,and the natural unemployment rate exists at points 1,4,and 5,it follows that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Stagflation is the simultaneous occurrence of

Correct AnswerverifiedShow Answer

Although the possibility exists for an economy to experience stagflation,it has never actually happened in the United States.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Milton Friedman argued that there

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

Correct AnswerverifiedShow Answer

New classical economists believe that it is possible under certain circumstances for an increase in the money supply to lead to a decrease in Real GDP in the short run.

Correct AnswerverifiedShow Answer

The original Phillips curve depicted an inverse relationship between wage inflation and unemployment.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A person's real wage will fall if the nominal wage falls,the price level rises,or both.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
An adverse supply shock would reduce the...
View Answer

Correct Answer
verified

A fall in the expected price level leads to an expectation that real wages will ,which will cause people to work ,shifting the SRAS curve _____.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

The concept of rational expectations first appeared on the economic scene in _,but it wasn't until the _______ that it received more significant notice in the economics profession.

Correct Answer
verified

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