Question 1

Exhibit 16-10 
-Refer to Exhibit 16-10.Assume that the starting point is point 1.Suppose that the government implements expansionary fiscal policy that raises aggregate demand.Which of the following best goes with the diagram shown?

Accepted Answer

A)  New classical theory with policy incorrectly anticipated,bias downward
B)  New classical theory with policy incorrectly anticipated,bias upward
C)  Real business cycle theory
D)  New classical theory with policy unanticipated
E)  Policy ineffectiveness proposition (PIP)

Question 2

Suppose that the Fed implements expansionary monetary policy that raises aggregate demand,but individuals incorrectly anticipate the policy measure (bias downward) .According to new classical theory,in the short run the price level would ____________ and Real GDP would ______________.In the long run,new classical theory would predict that the price level would ___________compared to its original long-run equilibrium level and that Real GDP would ____________.

Accepted Answer

A)  rise;decline;rise;remain unchanged
B)  rise;rise;rise;remain unchanged
C)  rise;decline;remain unchanged;rise
D)  fall;rise;remain unchanged;rise

Question 3

Rational expectations theory is also known as the Friedman fooling theory.

Accepted Answer

A) True 
 B)False

Question 4

New classical economists believe that if policy is correctly anticipated and if rational expectations hold,when the Fed increases the money supply the result will be a(n) ______________ in the price level and ____________________________.

Accepted Answer

A)  decrease;no change in Real GDP
B)  decrease;decrease in Real GDP
C)  increase;no change in Real GDP
D)  increase;increase in Real GDP

Question 5

The original Phillips curve suggests a(n) __________ relationship between the rate of change in __________ and the __________.

Accepted Answer

A)  direct;prices;unemployment rate
B)  inverse;money wage rates;unemployment rate
C)  inverse;prices;unemployment
D)  direct;money wage rates;money supply
E)  inverse;money wage rates;money supply

Question 6

Suppose that the Fed expects to increase the money supply by $49 billion,but economic agents expect that the increase will be closer to $75 billion.Using rational expectations theory,the result will be ______________ Real GDP and a ________________ price level.

Accepted Answer

A)  lower;higher
B)  lower;lower
C)  higher;higher
D)  higher;lower

Question 7

The economy was in long-run equilibrium when aggregate demand increased.At this point in time,the expected inflation has started to adjust to the new higher actual inflation rate.According to the (Friedman) natural rate theory,this means the unemployment rate in the economy must currently be

Accepted Answer

A)  decreasing.
B)  increasing.
C)  higher than it was in long-run equilibrium.
D)  equal to what it was in long-run equilibrium.
E)  There is not enough information to answer the question.

Question 8

According to real business cycle theorists,if the long-run aggregate supply (LRAS) curve shifts to the left,Real GDP __________,the price level __________,the demand for labor __________,money wages __________,real wages __________,and workers choose to work __________.

Accepted Answer

A)  falls;falls;rises;fall;fall;less
B)  falls;rises;rises;fall;rise;more
C)  falls;rises;falls;fall;fall;less
D)  rises;rises;falls;fall;rise;more
E)  rises;falls;rises;fall;fall;more

Question 9

Starting from long-run equilibrium,if the public anticipates that policymakers will increase aggregate demand by less than policymakers do increase aggregate demand,and if the short-run aggregate supply curve fully adjusts to the (incorrectly) anticipated increase in aggregate demand,then Real GDP will __________ and the price level will __________.

Accepted Answer

A)  rise;rise
B)  decline;fall
C)  stay constant;rise
D)  decline;rise

Question 10

Expectations theory tells us that what people think can impact the economy.

Accepted Answer

A) True 
 B)False

Question 11

New Keynesian theorists argue that

Accepted Answer

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

Question 12

In the 1970s and early 1980s,the U.S.economy experienced

Accepted Answer

A)  stagflation.
B)  low inflation and low unemployment.
C)  high inflation and low unemployment.
D)  high inflation and high unemployment.
E)  a and d

Question 13

Exhibit 16-4 
-The economy is initially in long-run equilibrium.Expectations are adaptive,prices and wages are flexible,and there is an unanticipated increase in aggregate demand.In the short run,the price level will be __________ than it was in long-run equilibrium and Real GDP will be __________ than it was in long-run equilibrium.

Accepted Answer

A)  higher;lower
B)  lower;higher
C)  lower;lower
D)  higher;higher

Question 14

For the period 1961 to 1969,the Phillips curve for the United States displayed the same shape that A.W.Phillips found for the United Kingdom for the period 1861 to 1913---it was

Accepted Answer

A)  horizontal.
B)  vertical.
C)  downward sloping.
D)  upward sloping.

Question 15

The Samuelson-Solow version of the Phillips curve states that

Accepted Answer

A)  there is an inverse relationship between the wage inflation rate and unemployment.
B)  there is a direct relationship between the wage inflation rate and unemployment.
C)  there is an inverse relationship between price inflation and unemployment.
D)  there is a direct relationship between price inflation and unemployment.
E)  a and b

Question 16

Exhibit 16-8 
-Refer to Exhibit 16-8.Assume that the starting point is point 1.Suppose that the Fed implements expansionary monetary policy that raises aggregate demand.Which of the following best goes with the diagram shown?

Accepted Answer

A)  New classical theory with policy incorrectly anticipated,bias downward
B)  New classical theory with policy incorrectly anticipated,bias upward
C)  Real business cycle theory
D)  New classical theory with policy unanticipated
E)  Policy ineffectiveness proposition (PIP)

Question 17

Exhibit 16-4 1 to SRAS2,then LRAS1 to LRAS2. B) AD1 to AD2,then LRAS1 to LRAS2. C) LRAS1 to LRAS2,then AD1 to AD2. D) LRAS1 to LRAS2,then SRAS1 to SRAS2. E) none of the above" class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 16-4.The economy is initially at point A,in long run equilibrium.A real business cycle would be represented by the following sequence of curve shifts:

Accepted Answer

A)  SRAS1 to SRAS2,then LRAS1 to LRAS2.
B)  AD1 to AD2,then LRAS1 to LRAS2.
C)  LRAS1 to LRAS2,then AD1 to AD2.
D)  LRAS1 to LRAS2,then SRAS1 to SRAS2.
E)  none of the above

Question 18

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

Accepted Answer

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

Question 19

Real business cycle theory would emphasize the ability of a beneficial supply shock to shift the __________ curve rightward and __________ Real GDP.

Accepted Answer

A)  AD;lower
B)  AD;raise
C)  LRAS;lower
D)  LRAS;raise

Question 20

Stagflation implies that

Accepted Answer

A)  a tradeoff between inflation and unemployment may not always exist.
B)  policymakers can choose to have less unemployment if they are willing to accept a higher rate of inflation.
C)  the short-run Phillips curve is stable.
D)  the short-run Phillips curve is vertical.

Exam 16: Expectations Theory and the Economy

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

Correct Answer
verified

New classical economists believe that if policy is correctly anticipated and if rational expectations hold,when the Fed increases the money supply the result will be a(n) in the price level and ______________.

Correct Answer
verified

Rational expectations theory is also known as the Friedman fooling theory.

Correct Answer
verified

Correct Answer
verified

According to real business cycle theorists,if the long-run aggregate supply (LRAS) curve shifts to the left,Real GDP ,the price level ,the demand for labor ,money wages ,real wages ,and workers choose to work .

Correct Answer
verified

Exhibit 16-10 -Refer to Exhibit 16-10.Assume that the starting point is point 1.Suppose that the government implements expansionary fiscal policy that raises aggregate demand.Which of the following best goes with the diagram shown?

Correct Answer
verified

Correct Answer
verified

For the period 1961 to 1969,the Phillips curve for the United States displayed the same shape that A.W.Phillips found for the United Kingdom for the period 1861 to 1913---it was

Correct Answer
verified

Expectations theory tells us that what people think can impact the economy.

Correct Answer
verified

Real business cycle theory would emphasize the ability of a beneficial supply shock to shift the curve rightward and Real GDP.

Correct Answer
verified

Exhibit 16-4 -Refer to Exhibit 16-4.The economy is initially at point A,in long run equilibrium.A real business cycle would be represented by the following sequence of curve shifts:

Correct Answer
verified

New Keynesian theorists argue that

Correct Answer
verified

Stagflation implies that

Correct Answer
verified

The economy was in long-run equilibrium when aggregate demand increased.At this point in time,the expected inflation has started to adjust to the new higher actual inflation rate.According to the (Friedman) natural rate theory,this means the unemployment rate in the economy must currently be

Correct Answer
verified

Suppose that the Fed expects to increase the money supply by $49 billion,but economic agents expect that the increase will be closer to $75 billion.Using rational expectations theory,the result will be Real GDP and a __ price level.

Correct Answer
verified

The original Phillips curve suggests a(n) relationship between the rate of change in and the __.

Correct Answer
verified

The Samuelson-Solow version of the Phillips curve states that

Correct Answer
verified

Exhibit 16-8 -Refer to Exhibit 16-8.Assume that the starting point is point 1.Suppose that the Fed implements expansionary monetary policy that raises aggregate demand.Which of the following best goes with the diagram shown?

Correct Answer
verified

In the 1970s and early 1980s,the U.S.economy experienced

Correct Answer
verified

Correct Answer
verified

Exam 16: Expectations Theory and the Economy

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

Correct AnswerverifiedShow Answer

New classical economists believe that if policy is correctly anticipated and if rational expectations hold,when the Fed increases the money supply the result will be a(n) ______________ in the price level and ____________________________.

Correct AnswerverifiedShow Answer

Rational expectations theory is also known as the Friedman fooling theory.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to real business cycle theorists,if the long-run aggregate supply (LRAS) curve shifts to the left,Real GDP __________,the price level __________,the demand for labor __________,money wages __________,real wages __________,and workers choose to work __________.

Correct AnswerverifiedShow Answer

Exhibit 16-10 -Refer to Exhibit 16-10.Assume that the starting point is point 1.Suppose that the government implements expansionary fiscal policy that raises aggregate demand.Which of the following best goes with the diagram shown?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For the period 1961 to 1969,the Phillips curve for the United States displayed the same shape that A.W.Phillips found for the United Kingdom for the period 1861 to 1913---it was

Correct AnswerverifiedShow Answer

Expectations theory tells us that what people think can impact the economy.

Correct AnswerverifiedShow Answer

Real business cycle theory would emphasize the ability of a beneficial supply shock to shift the __________ curve rightward and __________ Real GDP.

Correct AnswerverifiedShow Answer

Exhibit 16-4 -Refer to Exhibit 16-4.The economy is initially at point A,in long run equilibrium.A real business cycle would be represented by the following sequence of curve shifts:

Correct AnswerverifiedShow Answer

New Keynesian theorists argue that

Correct AnswerverifiedShow Answer

Stagflation implies that

Correct AnswerverifiedShow Answer

The economy was in long-run equilibrium when aggregate demand increased.At this point in time,the expected inflation has started to adjust to the new higher actual inflation rate.According to the (Friedman) natural rate theory,this means the unemployment rate in the economy must currently be

Correct AnswerverifiedShow Answer

Suppose that the Fed expects to increase the money supply by $49 billion,but economic agents expect that the increase will be closer to $75 billion.Using rational expectations theory,the result will be ______________ Real GDP and a ________________ price level.

Correct AnswerverifiedShow Answer

The original Phillips curve suggests a(n) __________ relationship between the rate of change in __________ and the __________.

Correct AnswerverifiedShow Answer

The Samuelson-Solow version of the Phillips curve states that

Correct AnswerverifiedShow Answer

Exhibit 16-8 -Refer to Exhibit 16-8.Assume that the starting point is point 1.Suppose that the Fed implements expansionary monetary policy that raises aggregate demand.Which of the following best goes with the diagram shown?

Correct AnswerverifiedShow Answer

In the 1970s and early 1980s,the U.S.economy experienced

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

New classical economists believe that if policy is correctly anticipated and if rational expectations hold,when the Fed increases the money supply the result will be a(n) in the price level and ______________.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

According to real business cycle theorists,if the long-run aggregate supply (LRAS) curve shifts to the left,Real GDP ,the price level ,the demand for labor ,money wages ,real wages ,and workers choose to work .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Real business cycle theory would emphasize the ability of a beneficial supply shock to shift the curve rightward and Real GDP.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Suppose that the Fed expects to increase the money supply by $49 billion,but economic agents expect that the increase will be closer to $75 billion.Using rational expectations theory,the result will be Real GDP and a __ price level.

Correct Answer
verified

The original Phillips curve suggests a(n) relationship between the rate of change in and the __.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified