Question 1

Inflation and the rate of interest are positively correlated.

Accepted Answer

A) True 
 B)False

Question 2

If the central bank increases the target inflation rate,then

Accepted Answer

A)  the monetary policy rule line will become steeper.
B)  there will be movement along the monetary policy rule line.
C)  the monetary policy rule line will shift down.
D)  the monetary policy rule line will shift up.
E)  the monetary policy rule line will become flatter.

Question 3

The AD curve slopes down because there is more spending when inflation is lower.

Accepted Answer

A) True 
 B)False

Question 4

Because of various shocks to the economy,the central bank cannot control the inflation rate perfectly,particularly in the short run.

Accepted Answer

A) True 
 B)False

Question 5

The equation for the real interest rate indicates that,other being things equal,

Accepted Answer

A)  as inflation increases,the nominal interest rate will fall.
B)  as inflation increases,the real interest rate will rise.
C)  as inflation decreases,real income will fall.
D)  as inflation changes,the real interest rate will not change.
E)  as inflation decreases,the real interest rate will rise.

Question 6

Aggregate expenditures depend on the nominal interest rate because that is the rate that must be paid to the borrower.

Accepted Answer

A) True 
 B)False

Question 7

The Fed issues a statement right after every FOMC meeting whether the interest rate changes or not.Economists and financial analysts study the wording of the statements carefully,trying to ascertain what the Fed's next move is going to be.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 24-2 1 to E2 in Exhibit 24-2? A) A decline in government purchases B) An increase in taxes C) An increase in the interest rate D) A decline in the value of the dollar E) A fall in world interest rates" class="answers-bank-image d-inline" rel="preload" >
-Which of the following is a valid explanation of the expenditure line shift from E1 to E2 in Exhibit 24-2?

Accepted Answer

A)  A decline in government purchases
B)  An increase in taxes
C)  An increase in the interest rate
D)  A decline in the value of the dollar
E)  A fall in world interest rates

Question 9

When the Fed takes action to change nominal interest rates,it does so by

Accepted Answer

A)  buying and selling bonds.
B)  mandating that banks change the prime rate.
C)  recommending that the president change the interest rate.
D)  recommending that Congress change the interest rate.
E)  increasing the required reserve ratio.

Question 10

The intersection of the inflation adjustment line and the aggregate demand curve may give values of real GDP that may be above potential GDP,but never below.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 24-3 
-If the central bank changes its monetary policy rule from A to B as shown in Exhibit 24-3,

Accepted Answer

A)  the AD curve will shift to the left.
B)  there will be a downward movement along the AD curve.
C)  there will be no change since the real rate of interest does not change.
D)  the AD curve will shift to the right.
E)  there will be an upward movement along the AD curve.

Question 12

Real interest rates and investment are

Accepted Answer

A)  negatively correlated because higher real interest rates make it easier for the firm to borrow funds.
B)  negatively correlated because higher real interest rates will increase the firm's profits.
C)  positively correlated because higher real interest rates make it easier for the firm to borrow funds.
D)  negatively correlated because higher real interest rates make borrowing by firms more costly.
E)  positively correlated because higher real interest rates make borrowing by firms less costly.

Question 13

In the United States,inflation is the responsibility of

Accepted Answer

A)  the market.
B)  the president.
C)  the Federal Reserve.
D)  Congress.
E)  the U.S.Treasury.

Question 14

The economic fluctuations model is older than the supply and demand model.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following would be most likely to result in an upward shift of the inflation adjustment line?

Accepted Answer

A)  A fall in the target interest rate
B)  An increase in taxes
C)  A fall in consumer confidence
D)  An increase in imports
E)  An increase in commodity prices

Question 16

The housing boom that took place during the first half of the 2000s best illustrates how

Accepted Answer

A)  investment spending by households is insensitive to changes in the real interest rate.
B)  fixed investment spending by businesses is sensitive to changes in the real rate of interest.
C)  investment spending by households is sensitive to changes in the real rate of interest.
D)  consumption expenditures are sensitive to changes in the real rate of interest.
E)  fixed investment spending by businesses is insensitive to changes in the real rate of interest.

Question 17

Which of the following facts about investment is not true?

Accepted Answer

A)  Investment is the component of expenditure that is least sensitive to the real interest rate.
B)  Investment represents the purchase of new equipment or a new factory by a business firm.
C)  Investment generally decreases when the real interest rate increases.
D)  All of the above represent true facts about investment.
E)  None of the above represent true facts about investment.

Question 18

The inflation adjustment line IA will shift down if

Accepted Answer

A)  the local currency depreciates against foreign currencies.
B)  real GDP rises above potential GDP.
C)  real GDP falls below potential GDP.
D)  All of the above
E)  None of the above

Question 19

The aggregate demand curve and the inflation adjustment line intersect where real GDP is

Accepted Answer

A)  less than,equal to,or greater than potential GDP.
B)  less than potential GDP.
C)  greater than or equal to potential GDP.
D)  greater than potential GDP.
E)  equal to potential GDP.

Question 20

If a change in interest rates will affect real GDP,the Fed should focus on the change in the nominal interest rate.

Accepted Answer

A) True 
 B)False

Exam 24: The Economic Fluctuations Model

When the Fed takes action to change nominal interest rates,it does so by

Correct AnswerverifiedShow Answer

If the central bank increases the target inflation rate,then

Correct AnswerverifiedShow Answer

Aggregate expenditures depend on the nominal interest rate because that is the rate that must be paid to the borrower.

Correct AnswerverifiedShow Answer

The AD curve slopes down because there is more spending when inflation is lower.

Correct AnswerverifiedShow Answer

In the United States,inflation is the responsibility of

Correct AnswerverifiedShow Answer

The equation for the real interest rate indicates that,other being things equal,

Correct AnswerverifiedShow Answer

If a change in interest rates will affect real GDP,the Fed should focus on the change in the nominal interest rate.

Correct AnswerverifiedShow Answer

Which of the following facts about investment is not true?

Correct AnswerverifiedShow Answer

The aggregate demand curve and the inflation adjustment line intersect where real GDP is

Correct AnswerverifiedShow Answer

The Fed issues a statement right after every FOMC meeting whether the interest rate changes or not.Economists and financial analysts study the wording of the statements carefully,trying to ascertain what the Fed's next move is going to be.

Correct AnswerverifiedShow Answer

Inflation and the rate of interest are positively correlated.

Correct AnswerverifiedShow Answer

The housing boom that took place during the first half of the 2000s best illustrates how

Correct AnswerverifiedShow Answer

Exhibit 24-3 -If the central bank changes its monetary policy rule from A to B as shown in Exhibit 24-3,

Correct AnswerverifiedShow Answer

The economic fluctuations model is older than the supply and demand model.

Correct AnswerverifiedShow Answer

Which of the following would be most likely to result in an upward shift of the inflation adjustment line?

Correct AnswerverifiedShow Answer

Exhibit 24-2 -Which of the following is a valid explanation of the expenditure line shift from E1 to E2 in Exhibit 24-2?

Correct AnswerverifiedShow Answer

The inflation adjustment line IA will shift down if

Correct AnswerverifiedShow Answer

Real interest rates and investment are

Correct AnswerverifiedShow Answer

The intersection of the inflation adjustment line and the aggregate demand curve may give values of real GDP that may be above potential GDP,but never below.

Correct AnswerverifiedShow Answer

Because of various shocks to the economy,the central bank cannot control the inflation rate perfectly,particularly in the short run.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Exhibit 24-2 -Which of the following is a valid explanation of the expenditure line shift from E₁ to E₂ in Exhibit 24-2?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified