Question 1

An increase in the price of a resource such as oil
I.shifts the aggregate demand curve leftward.
II.shifts the long-run aggregate supply curve rightward.
III.shifts the short-run aggregate supply curve leftward.
IV.increases the price level and decreases real GDP in the short run.

Accepted Answer

A)   Only I is correct.
B)   Both I and II are correct.
C)   Only III is correct.
D)   Both III and IV are correct.E) A) and D)
F) All of the above

Question 2

For a persistent demand-pull inflation to occur, government expenditure must persistently increase.

Accepted Answer

A) True 
 B)False

Question 3

During a deflation, the price level is

Accepted Answer

A)   negative.
B)   positive and rising.
C)   positive and falling.
D)   positive and not changing.E) A) and C)
F) A) and B)

Question 4

According to the new classical theory, ________ policy changes have NO effect on real GDP and according to the new Keynesian theory, ________ policy changes have an effect on real GDP.

Accepted Answer

A)   only expected; expected and unexpected
B)   only unexpected; expected and unexpected
C)   only expected; only unexpected
D)   only unexpected; only expectedE) B) and C)
F) B) and D)

Question 5

The short-run Phillips curve intersects the long-run Phillips curve at the

Accepted Answer

A)   natural interest rate.
B)   nominal interest rate.
C)   natural inflation rate.
D)   expected inflation rate.E) A) and C)
F) None of the above

Question 6

Real business cycle (RBC) theory predicts that the main source of economic fluctuations is represented by

Accepted Answer

A)   sticky money wage rates.
B)   rational expectations based on complete information.
C)   changes in the growth rate of productivity.
D)   None of the above answers is correct.E) B) and D)
F) A) and B)

Question 7

A Phillips curve measures the relationship between

Accepted Answer

A)   the unemployment rate and inflation.
B)   the level of money wage rates and GDP.
C)   unemployment and GDP.
D)   inflation and GDP.E) None of the above
F) B) and D)

Question 8

When Japan experienced deflation in the 1990s, Japan's real GDP

Accepted Answer

A)   grew more rapidly than during any decade since the 1960s.
B)   grew more slowly than in decades during which Japan experienced inflation.
C)   did not grow at all.
D)   Both answers B and C are correct.E) None of the above
F) C) and D)

Question 9

The Cleveland Federal Reserve Bank estimates the expected inflation rate is 1.5 percent in 2013. This estimate means that

Accepted Answer

A)   the long-run and short-run Phillips curve cross at an inflation rate of 1.5 percent.
B)   the long-run Phillips curve is vertical at 1.5 percent.
C)   the short-run Phillips curve is vertical at 1.5 percent.
D)   the short-run Phillips curve shifts upward by 1.5 percentage points per year.E) A) and C)
F) All of the above

Question 10

Which of the following leads to a downward shift in the short-run Phillips curve?

Accepted Answer

A)   People expected inflation to be 5 percent last year and now expect inflation to be 3 percent this year.
B)   People expect the unemployment rate to increase.
C)   The long-run Phillips curve shifts rightward.
D)   Unexpected inflation increases.E) All of the above
F) A) and D)

Question 11

-In the above figure, suppose that the economy has moved from point D to point B. According to the monetarist theory of the business cycle, what could have caused this movement?

Accepted Answer

A)   a decrease in the money wage rate
B)   an increase in uncertainty about future sales and profits
C)   an increase in the growth rate of the quantity of money
D)   an increase in the money wage rateE) C) and D)
F) All of the above

Question 12

Stagflation is characterized by

Accepted Answer

A)   an increase in both output and the price level.
B)   a decrease in output and the price level.
C)   an increase in the unemployment rate and an increase in the price level.
D)   an economy which is growing at a rate equal to its historical average growth rate.E) A) and D)
F) C) and D)

Question 13

"The short-run Phillips curve shows the relationship between real GDP and inflation." Is the previous statement correct or incorrect? Briefly explain you answer.

Accepted Answer

The statement is incorrect. Th...

Question 14

Real business cycle theory says that the factor leading to the business cycle is represented by changes in

Accepted Answer

A)   animal spirits.
B)   the growth rate of the quantity of money.
C)   only aggregate demand.
D)   productivity.E) A) and B)
F) A) and C)

Question 15

-In the above figure, the economy is initially at point A. If workers and firms correctly anticipate the increase in aggregate demand and the resulting inflation rate, the economy will move to point

Accepted Answer

A)   A, that is, the price level and level of real GDP will not change.
B)   B.
C)   C.
D)   D.E) A) and D)
F) A) and B)

Question 16

The long-run Phillips curve is vertical at the natural unemployment rate.

Accepted Answer

A) True 
 B)False

Question 17

The ________ cycle theory states that only unexpected fluctuations in aggregate demand are the main source of business cycles.

Accepted Answer

A)   new Keynesian
B)   new classical
C)   Keynesian
D)   monetaristE) B) and D)
F) A) and D)

Question 18

In the real business cycle framework, a technology shock that increases investment demand and the demand for loanable funds leads to a ________ quantity of saving and a ________ real interest rate.

Accepted Answer

A)   higher; higher
B)   higher; lower
C)   lower; higher
D)   lower; lowerE) B) and C)
F) A) and D)

Question 19

The real business cycle theory views fluctuations in the quantity of money as the main source of business cycles.

Accepted Answer

A) True 
 B)False

Question 20

If the unemployment rate initially equals its natural rate, then if the inflation rate rises above its expected rate, the unemployment rate ________.

Accepted Answer

A)   equals the natural rate
B)   remains constant
C)   falls below its natural rate
D)   rises above its natural rateE) All of the above
F) A) and B)

Exam 12: The Business Cycle, Inflation, and Deflation

Which of the following leads to a downward shift in the short-run Phillips curve?

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The long-run Phillips curve is vertical at the natural unemployment rate.

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Real business cycle theory says that the factor leading to the business cycle is represented by changes in

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During a deflation, the price level is

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According to the new classical theory, ________ policy changes have NO effect on real GDP and according to the new Keynesian theory, ________ policy changes have an effect on real GDP.

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The short-run Phillips curve intersects the long-run Phillips curve at the

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For a persistent demand-pull inflation to occur, government expenditure must persistently increase.

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Real business cycle (RBC) theory predicts that the main source of economic fluctuations is represented by

Correct AnswerverifiedShow Answer

The real business cycle theory views fluctuations in the quantity of money as the main source of business cycles.

Correct AnswerverifiedShow Answer

In the real business cycle framework, a technology shock that increases investment demand and the demand for loanable funds leads to a ________ quantity of saving and a ________ real interest rate.

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-In the above figure, suppose that the economy has moved from point D to point B. According to the monetarist theory of the business cycle, what could have caused this movement?

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"The short-run Phillips curve shows the relationship between real GDP and inflation." Is the previous statement correct or incorrect? Briefly explain you answer.

Correct AnswerverifiedThe statement is incorrect. Th...View AnswerShow Answer

A Phillips curve measures the relationship between

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The ________ cycle theory states that only unexpected fluctuations in aggregate demand are the main source of business cycles.

Correct AnswerverifiedShow Answer

When Japan experienced deflation in the 1990s, Japan's real GDP

Correct AnswerverifiedShow Answer

The Cleveland Federal Reserve Bank estimates the expected inflation rate is 1.5 percent in 2013. This estimate means that

Correct AnswerverifiedShow Answer

An increase in the price of a resource such as oil I.shifts the aggregate demand curve leftward. II.shifts the long-run aggregate supply curve rightward. III.shifts the short-run aggregate supply curve leftward. IV.increases the price level and decreases real GDP in the short run.

Correct AnswerverifiedShow Answer

If the unemployment rate initially equals its natural rate, then if the inflation rate rises above its expected rate, the unemployment rate ________.

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Stagflation is characterized by

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-In the above figure, the economy is initially at point A. If workers and firms correctly anticipate the increase in aggregate demand and the resulting inflation rate, the economy will move to point

Correct AnswerverifiedShow Answer

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According to the new classical theory, policy changes have NO effect on real GDP and according to the new Keynesian theory, policy changes have an effect on real GDP.

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In the real business cycle framework, a technology shock that increases investment demand and the demand for loanable funds leads to a quantity of saving and a real interest rate.

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The statement is incorrect. Th...
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