Question 1

Which of the following is NOT one of the criticisms of real business cycle theory?

Accepted Answer

A)   Inter- temporal substitution is too weak.
B)   The theory is built on weak microeconomic foundations.
C)   The money wage rate is sticky in the short run.
D)   Productivity fluctuations are the result of the business cycle, not the cause of business cycles.E) A) and D)
F) B) and C)

Question 2

The short- run Phillips curve intersects the long- run Phillips curve at the actual inflation rate.

Accepted Answer

A) True 
 B)False

Question 3

The anticipated inflation rate is 5 percent. In order for purchasing power to remain constant, the money wage rate must rise by

Accepted Answer

A)   7 percent.
B)   5 percent.
C)   12 percent.
D)   2 percent.E) A) and C)
F) All of the above

Question 4

A key element of the new classical model of the business cycle is

Accepted Answer

A)   sticky prices.
B)   rational expectations.
C)   a horizontal SAS curve.
D)   random fluctuations in technology.E) All of the above
F) A) and B)

Question 5

In the short- run, an increase in the price of raw materials will the price level and
Real GDP.

Accepted Answer

A)   lower; decrease
B)   raise; increase
C)   raise; decrease
D)   lower; increaseE) C) and D)
F) A) and D)

Question 6

According to the real business cycle theory, technological change

Accepted Answer

A)   is increasing in recent years at an increasing rate.
B)   happens at an uneven pace.
C)   occurs at a constant rate.
D)   happens only occasionally.E) A) and B)
F) A) and C)

Question 7

Increases in government expenditure can create cost- push inflation.

Accepted Answer

A) True 
 B)False

Question 8

If people correctly anticipate an increase in aggregate demand, a result is

Accepted Answer

A)   there are no predictable results associated with an anticipated increase in aggregate demand.
B)   an increase in the real value of outstanding government debt.
C)   a lower rate of inflation in the current time period.
D)   workers demanding higher money wages to keep the real wage unchanged.E) A) and D)
F) A) and B)

Question 9

In a demand- pull inflation, the AD curve shifts and the SAS curve shifts .

Accepted Answer

A)   rightward; rightward
B)   leftward; rightward
C)   leftward; leftward
D)   rightward; leftwardE) A) and B)
F) A) and C)

Question 10

In the above figure, suppose the economy is at point A initially. For real GDP to increase to and
Consistently remain above $12 trillion,
I. the price level must increase to above 90.
II. there must be continued increases in the quantity of money.

Accepted Answer

A)   only I
B)   only II
C)   Neither I nor II is correct.
D)   Both I and II are correct.E) B) and C)
F) A) and D)

Question 11

Stagflation occurs when the

Accepted Answer

A)   price level and real GDP increase at the same time.
B)   price level increases and real GDP decreases.
C)   price level decreases and real GDP increases.
D)   price level and real GDP decrease at the same time.E) All of the above
F) C) and D)

Question 12

In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. The money wage rate will

Accepted Answer

A)   fall because a labor surplus now exists.
B)   rise because a labor surplus now exists.
C)   fall because a labor shortage now exists.
D)   rise because a labor shortage now exists.E) C) and D)
F) All of the above

Question 13

Which of the following could lead to demand- pull inflation?

Accepted Answer

A)   an increase in the quantity of money
B)   an increase in the money wage rate
C)   a decrease in exports
D)   an increase in oil pricesE) A) and B)
F) B) and C)

Question 14

How does the expected inflation rate affect the short- run Phillips curve tradeoff between inflation and unemployment?

Accepted Answer

The expected inflation rate affects the ...

Question 15

Which of the following is a criticism of real business cycle theory?

Accepted Answer

A)   Real business cycle theory assumes that money wage rates are sticky.
B)   Real business cycle theory believes that productivity changes are caused by technology changes when in fact they are caused by changes in aggregate demand.
C)   Real business cycle theory fails to explain the phenomenon of economic growth.
D)   None of the above are criticisms of real business cycle theory.E) C) and D)
F) A) and C)

Question 16

The monetarist theory of the business cycle views fluctuations in the growth rate of the quantity of money as the main source of economic fluctuations.

Accepted Answer

A) True 
 B)False

Question 17

Today, the real wage rate is $10 an hour and the real interest rate is 5 percent a year. People expect the real wage rate to be $10.05 an hour in one year. The $10 an hour earned now will be worth
A year from now. The intertemporal substitution effect tells us that people will want to work .

Accepted Answer

A)   $10.05 an hour; more both now and next year
B)   $10.50 an hour; more now and less next year
C)   $10.50 an hour; more next year and less now
D)   $15.00 an hour; the same amount now and next yearE) A) and C)
F) A) and B)

Question 18

By itself, an increase in the price of oil shifts the

Accepted Answer

A)   aggregate demand curve leftward and does not shift the short- run aggregate supply curve.
B)   short- run aggregate supply curve leftward and does not shift the aggregate demand curve.
C)   short- run aggregate supply curve rightward and does not shift the aggregate demand curve.
D)   aggregate demand curve rightward and does not shift the short- run aggregate supply curve.E) A) and C)
F) A) and B)

Question 19

What is the Phillips curve? Discuss both the short- run and long- run Phillips curve.

Accepted Answer

In general, a Phillips curve shows a rel...

Question 20

Suppose the expected inflation rate is 12 percent and the unemployment rate is 5 percent. If the expected inflation rate increases to 13 percent,

Accepted Answer

A)   the short- run Phillips curve will shift downward.
B)   there will be a movement along the short- run Phillips curve.
C)   the natural unemployment rate will rise.
D)   the short- run Phillips curve will shift upward.E) C) and D)
F) A) and C)

Exam 12: U.S. Inflation, Unemployment, and Business Cycle

How does the expected inflation rate affect the short- run Phillips curve tradeoff between inflation and unemployment?

Correct AnswerverifiedThe expected inflation rate affects the ...View AnswerShow Answer

What is the Phillips curve? Discuss both the short- run and long- run Phillips curve.

Correct AnswerverifiedIn general, a Phillips curve shows a rel...View AnswerShow Answer

Stagflation occurs when the

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Which of the following is a criticism of real business cycle theory?

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The anticipated inflation rate is 5 percent. In order for purchasing power to remain constant, the money wage rate must rise by

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In the short- run, an increase in the price of raw materials will the price level and Real GDP.

Correct AnswerverifiedShow Answer

In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. The money wage rate will

Correct AnswerverifiedShow Answer

Which of the following could lead to demand- pull inflation?

Correct AnswerverifiedShow Answer

A key element of the new classical model of the business cycle is

Correct AnswerverifiedShow Answer

According to the real business cycle theory, technological change

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If people correctly anticipate an increase in aggregate demand, a result is

Correct AnswerverifiedShow Answer

In the above figure, suppose the economy is at point A initially. For real GDP to increase to and Consistently remain above $12 trillion, I. the price level must increase to above 90. II. there must be continued increases in the quantity of money.

Correct AnswerverifiedShow Answer

The monetarist theory of the business cycle views fluctuations in the growth rate of the quantity of money as the main source of economic fluctuations.

Correct AnswerverifiedShow Answer

Today, the real wage rate is $10 an hour and the real interest rate is 5 percent a year. People expect the real wage rate to be $10.05 an hour in one year. The $10 an hour earned now will be worth A year from now. The intertemporal substitution effect tells us that people will want to work .

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Which of the following is NOT one of the criticisms of real business cycle theory?

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Suppose the expected inflation rate is 12 percent and the unemployment rate is 5 percent. If the expected inflation rate increases to 13 percent,

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By itself, an increase in the price of oil shifts the

Correct AnswerverifiedShow Answer

In a demand- pull inflation, the AD curve shifts and the SAS curve shifts .

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The short- run Phillips curve intersects the long- run Phillips curve at the actual inflation rate.

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Increases in government expenditure can create cost- push inflation.

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The expected inflation rate affects the ...
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In general, a Phillips curve shows a rel...
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