Question 1

The Samuelson and Solow Phillips curve suggested a(n)  __________ relationship between the rate of change in __________ and the unemployment rate.

Accepted Answer

A)  direct; real wage rates
B)  inverse; money wage rates
C)  inverse; prices
D)  direct; prices
E)  none of the aboveF) A) and B)
G) None of the above

Question 2

Suppose that the government implements expansionary fiscal policy that raises aggregate demand, but the policy is unanticipated. 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; riseE) B) and C)
F) A) and B)

Question 3

When everyone correctly anticipates that the Fed will buy government securities, then they know that prices will increase. Which of the following adjustments is not likely to occur?

Accepted Answer

A)  Workers will negotiate higher wages.
B)  Suppliers of resources will demand higher prices for their resources.
C)  Producers will prevent the price level from increasing and hurting their sales.
D)  Producers will raise prices.E) A) and D)
F) A) and C)

Question 4

The original (1958)  Phillips curve stated that

Accepted Answer

A)  unemployment and money wage rates move in the same direction.
B)  unemployment and money wage rates move in opposite directions.
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 cF) A) and E)
G) A) and B)

Question 5

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; higherE) B) and C)
F) All of the above

Question 6

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand. In new Keynesian theory, the price level will rise __________ in the short run than it is predicted to rise in new classical theory.

Accepted Answer

A)  by more
B)  by less
C)  by the same amount
D)  faster
E)  slowerF) A) and C)
G) A) and D)

Question 7

One of the ideas that found a permanent place in macroeconomics after Milton Friedman's presidential address to the American Economic Association in 1967 was that

Accepted Answer

A)  there is not only a temporary tradeoff between inflation and unemployment, but a permanent tradeoff as well.
B)  the tradeoff between unemployment and inflation exists only in the long run, but not in the short run.
C)  people's expectations about economic events affect economic outcomes.
D)  a and bE) A) and D)
F) A) and C)

Question 8

Exhibit 16-2
 1. A recession is likely if the economy operates under __________ assumptions, which include wage and price __________. A) new classical; flexibility B) new classical; inflexibilities C) new Keynesian; flexibility D) new Keynesian; inflexibilities" class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 16-2. Suppose the economy starts at point B. Fed monetary policy shifts the AD curve to AD1. A recession is likely if the economy operates under __________ assumptions, which include wage and price __________.

Accepted Answer

A)  new classical; flexibility
B)  new classical; inflexibilities
C)  new Keynesian; flexibility
D)  new Keynesian; inflexibilitiesE) B) and C)
F) A) and B)

Question 9

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand. According to new classical theory, the price level will __________ and Real GDP will __________.

Accepted Answer

A)  fall; rise
B)  rise; fall
C)  fall; remain unchanged
D)  rise; remain unchanged
E)  remain unchanged; remain unchangedF) A) and C)
G) B) and E)

Question 10

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) A) and E)
G) A) and D)

Question 11

Suppose that the government implements expansionary fiscal policy that raises aggregate demand, but individuals incorrectly anticipate the policy measure (bias upward) . 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)  fall; rise; rise; remain unchanged
C)  rise; decline; remain unchanged; rise
D)  fall; rise; remain unchanged; riseE) None of the above
F) All of the above

Question 12

The difference between the new classical theory and the new Keynesian theory is the assumption of

Accepted Answer

A)  rational expectations.
B)  adaptive expectations.
C)  complete flexibility of wages and prices in the short run.
D)  a and c
E)  b and cF) C) and D)
G) A) and B)

Question 13

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) F) A) and E)
G) C) and E)

Question 14

According to a new Keynesian theorist, a correctly anticipated increase in aggregate demand will

Accepted Answer

A)  cause the price level to increase by a greater amount in the short run than what a new classical rational expectations theorist would predict.
B)  cause the price level to increase by a smaller amount in the short run than what a new classical rational expectations theorist would predict.
C)  cause the price level to increase by the same amount in the short run that a new classical rational expectations theorist would predict.
D)  leave the price level unchanged in the short run, but Real GDP will increase more than what a new classical theorist would predict.
E)  leave the price level unchanged in the short run, but Real GDP will increase less than what a new classical theorist would predict.F) A) and B)
G) C) and D)

Question 15

Implied in new Keynesian theory is that when policy is correctly anticipated, there is a tradeoff between inflation and unemployment in

Accepted Answer

A)  neither the short run nor the long run.
B)  both the short run and the long run.
C)  the short run, but not in the long run.
D)  the long run, but not in the short run.E) B) and D)
F) None of the above

Question 16

Exhibit 16-6
 
-Refer to Exhibit 16-6. The economy is initially in long-run equilibrium at point A. There is a correctly anticipated increase in aggregate demand, prices and wages are flexible, the economy is self-regulating, and people hold rational expectations. The economy will move to point

Accepted Answer

A)  F.
B)  C.
C)  B.
D)  B or C.
E)  This exhibit does not show the point the economy would move to.F) A) and E)
G) All of the above

Question 17

Stagflation

Accepted Answer

A)  is highly unlikely if the Phillips curve is downward sloping.
B)  implies that a tradeoff between inflation and unemployment may not always exist.
C)  is the simultaneous occurrence of high rates of inflation and unemployment.
D)  b and c
E)  a, b, and cF) A) and E)
G) A) and C)

Question 18

Milton Friedman argued that as long as

Accepted Answer

A)  the unemployment rate is higher than the inflation rate, the economy is not in long-run equilibrium.
B)  Real GDP grows, the inflation rate will fall.
C)  the expected inflation rate is not equal to the actual inflation rate, the economy is not in long-run equilibrium.
D)  nominal wages rise, so do real wages.
E)  none of the aboveF) A) and B)
G) A) and C)

Question 19

Implicit in the new Keynesian theory is that individuals form their expectations adaptively.

Accepted Answer

A) True 
 B)False

Question 20

In their 1960 article, Paul Samuelson and Robert Solow found

Accepted Answer

A)  a direct relationship between inflation and investment expenditures.
B)  an inverse relationship between inflation and investment expenditures.
C)  a direct relationship between inflation and unemployment.
D)  an inverse relationship between inflation and unemployment.E) A) and C)
F) A) and B)

Exam 16: Expectations Theory and the Economy

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

Correct Answer
verified

Correct Answer
verified

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand. In new Keynesian theory, the price level will rise __________ in the short run than it is predicted to rise in new classical theory.

Correct Answer
verified

Correct Answer
verified

One of the ideas that found a permanent place in macroeconomics after Milton Friedman's presidential address to the American Economic Association in 1967 was that

Correct Answer
verified

The difference between the new classical theory and the new Keynesian theory is the assumption of

Correct Answer
verified

Exhibit 16-2 -Refer to Exhibit 16-2. Suppose the economy starts at point B. Fed monetary policy shifts the AD curve to AD₁. A recession is likely if the economy operates under assumptions, which include wage and price .

Correct Answer
verified

Implied in new Keynesian theory is that when policy is correctly anticipated, there is a tradeoff between inflation and unemployment in

Correct Answer
verified

Stagflation

Correct Answer
verified

Implicit in the new Keynesian theory is that individuals form their expectations adaptively.

Correct Answer
verified

In their 1960 article, Paul Samuelson and Robert Solow found

Correct Answer
verified

The Samuelson and Solow Phillips curve suggested a(n) relationship between the rate of change in and the unemployment rate.

Correct Answer
verified

Exhibit 16-6 -Refer to Exhibit 16-6. The economy is initially in long-run equilibrium at point A. There is a correctly anticipated increase in aggregate demand, prices and wages are flexible, the economy is self-regulating, and people hold rational expectations. The economy will move to point

Correct Answer
verified

Milton Friedman argued that as long as

Correct Answer
verified

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand. According to new classical theory, the price level will and Real GDP will .

Correct Answer
verified

The original (1958) Phillips curve stated that

Correct Answer
verified

When everyone correctly anticipates that the Fed will buy government securities, then they know that prices will increase. Which of the following adjustments is not likely to occur?

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

According to a new Keynesian theorist, a correctly anticipated increase in aggregate demand will

Correct Answer
verified

Exam 16: Expectations Theory and the Economy

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand. In new Keynesian theory, the price level will rise __________ in the short run than it is predicted to rise in new classical theory.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

One of the ideas that found a permanent place in macroeconomics after Milton Friedman's presidential address to the American Economic Association in 1967 was that

Correct AnswerverifiedShow Answer

The difference between the new classical theory and the new Keynesian theory is the assumption of

Correct AnswerverifiedShow Answer

Exhibit 16-2 -Refer to Exhibit 16-2. Suppose the economy starts at point B. Fed monetary policy shifts the AD curve to AD1. A recession is likely if the economy operates under __________ assumptions, which include wage and price __________.

Correct AnswerverifiedShow Answer

Implied in new Keynesian theory is that when policy is correctly anticipated, there is a tradeoff between inflation and unemployment in

Correct AnswerverifiedShow Answer

Stagflation

Correct AnswerverifiedShow Answer

Implicit in the new Keynesian theory is that individuals form their expectations adaptively.

Correct AnswerverifiedShow Answer

In their 1960 article, Paul Samuelson and Robert Solow found

Correct AnswerverifiedShow Answer

The Samuelson and Solow Phillips curve suggested a(n) __________ relationship between the rate of change in __________ and the unemployment rate.

Correct AnswerverifiedShow Answer

Exhibit 16-6 -Refer to Exhibit 16-6. The economy is initially in long-run equilibrium at point A. There is a correctly anticipated increase in aggregate demand, prices and wages are flexible, the economy is self-regulating, and people hold rational expectations. The economy will move to point

Correct AnswerverifiedShow Answer

Milton Friedman argued that as long as

Correct AnswerverifiedShow Answer

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand. According to new classical theory, the price level will __________ and Real GDP will __________.

Correct AnswerverifiedShow Answer

The original (1958) Phillips curve stated that

Correct AnswerverifiedShow Answer

When everyone correctly anticipates that the Fed will buy government securities, then they know that prices will increase. Which of the following adjustments is not likely to occur?

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

According to a new Keynesian theorist, a correctly anticipated increase in aggregate demand will

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 Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Exhibit 16-2 -Refer to Exhibit 16-2. Suppose the economy starts at point B. Fed monetary policy shifts the AD curve to AD₁. A recession is likely if the economy operates under assumptions, which include wage and price .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The Samuelson and Solow Phillips curve suggested a(n) relationship between the rate of change in and the unemployment rate.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand. According to new classical theory, the price level will and Real GDP will .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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