Question 1

If there is a stable downward-sloping Phillips curve,it follows that an economy can choose the combination of

Accepted Answer

A)  high unemployment and low inflation.
B)  low unemployment and high inflation.
C)  moderate unemployment and moderate inflation.
D)  low inflation and low unemployment.
E)  a,b,and cF) A) and B)
G) C) and E)

Question 2

The Friedman natural rate theory states that

Accepted Answer

A)  in both the short run and the long run the economy stays at its natural rate of unemployment.
B)  the economy will not return to its natural rate of unemployment in either the short run or the long run.
C)  the economy stays at its natural rate of unemployment in the short run,but not in the long run.
D)  in the long run the economy returns to its natural rate of unemployment.E) C) and D)
F) B) and D)

Question 3

The Friedman natural rate theory holds that there is an inverse relationship between inflation and unemployment in the long run,but not in the short run.

Accepted Answer

A) True 
 B)False

Question 4

If stagflation is present the short-run Phillips curve is vertical.

Accepted Answer

A) True 
 B)False

Question 5

The difference between new classical theory and new Keynesian theory is that

Accepted Answer

A)  in new classical theory wages are assumed to be flexible,and in new Keynesian theory wages are assumed to be somewhat inflexible.
B)  in new classical theory wages are assumed to be somewhat inflexible,and in new Keynesian theory wages are assumed to be flexible.
C)  adaptive expectations is the dominant expectations theory in new classical theory,and rational expectations is the dominant expectations theory in new Keynesian theory.
D)  in new Keynesian theory the short-run aggregate supply curve is vertical,and in new classical theory the short-run aggregate supply curve is upward sloping.E) A) and B)
F) B) and D)

Question 6

The simultaneous occurrence of high inflation and high unemployment is called

Accepted Answer

A)  reverberation.
B)  disinflation.
C)  stagflation.
D)  "fooling."E) None of the above
F) All of the above

Question 7

Explain the difference between how adaptive expectations are formed and how rational expectations are formed.How does this difference affect the speed at which economic variables are expected to change?

Accepted Answer

Adaptive expectations are based on obser...

Question 8

According to Milton Friedman,the reason there are two Phillips curves is because

Accepted Answer

A)  the expected inflation rate is always higher than the actual inflation rate.
B)  wages are inflexible.
C)  prices are inflexible.
D)  the expected inflation rate does not instantaneously adjust to changes in the actual inflation rate.
E)  the expected inflation rate is equal to 1 minus the actual inflation rate.F) A) and D)
G) A) and C)

Question 9

According to the real business cycle theory,business cycle contractions are generally caused by

Accepted Answer

A)  the self-interest of politicians.
B)  decreases in business investment.
C)  decreases in the growth rate of the money supply.
D)  decreases in the economy's capacity to produce.
E)  all of the aboveF) B) and E)
G) A) and D)

Question 10

Which of the following changes would not be considered a likely source of changes in Real GDP according to real business cycle theory?

Accepted Answer

A)  a natural disaster
B)  a technological change
C)  a change in the price of an important input
D)  a change in the money supply
E)  none of the aboveF) B) and D)
G) All of the above

Question 11

The Friedman natural rate theory implies that 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) A) and B)
F) A) and C)

Question 12

The original Phillips curve depicted the relationship between

Accepted Answer

A)  price inflation and unemployment.
B)  price inflation and employment.
C)  wage inflation and unemployment.
D)  wage inflation and employment.E) B) and C)
F) All of the above

Question 13

Milton Friedman argued that there is a

Accepted Answer

A)  permanent downward-sloping Phillips curve.
B)  temporary downward-sloping Phillips curve.
C)  temporary upward-sloping Phillips curve.
D)  permanent upward-sloping Phillips curve.E) A) and B)
F) A) and C)

Question 14

New Keynesian theory differs from new classical theory in that New Keynesian theory assumes that wages and prices are not completely flexible in the short-run,while fully flexible wages and prices are an assumption of new classical theory.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 16-2 1 to AD2.If wages are temporarily fixed,SRAS1 will __________ and the economy will end up at point __________. A) shift;D B) shift;B C) not shift;D D) not shift;E" class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 16-2.Suppose the economy starts out at point A and the public correctly anticipates that the AD curve will shift from AD1 to AD2.If wages are temporarily fixed,SRAS1 will __________ and the economy will end up at point __________.

Accepted Answer

A)  shift;D
B)  shift;B
C)  not shift;D
D)  not shift;EE) A) and D)
F) A) and C)

Question 16

The real business cycle theory focuses on the impact that changes in long-run aggregate supply will have on the business cycle.

Accepted Answer

A) True 
 B)False

Question 17

If the public has rational expectations,

Accepted Answer

A)  the only effective policy would be one that is implemented by surprise.
B)  if the public incorrectly anticipates a given policy,there could be adverse results.
C)  if policymakers do not do what they say they are going to do,then there could be adverse results.
D)  a,b,and c
E)  none of the aboveF) A) and D)
G) A) and E)

Question 18

Exhibit 16-1 1.What could get the economy to move to point C on SRPC2? A) The realization on the part of workers that their currently held expected inflation rate is too high;they revise it upward,thus shifting the short-run aggregate supply curve rightward. B) The realization on the part of workers that their currently held expected inflation rate is too high;they revise it downward,thus shifting the short-run aggregate supply curve rightward. C) The realization on the part of workers that their currently held expected inflation rate is too low;they revise it upward,thus shifting the short-run aggregate supply curve leftward. D) The realization on the part of workers that their currently held expected inflation rate is too low;they revise it downward,thus shifting the short-run aggregate supply curve rightward." class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 16-1.Suppose the economy is currently at point B on the short-run Phillips curve,SRPC1.What could get the economy to move to point C on SRPC2?

Accepted Answer

A)  The realization on the part of workers that their currently held expected inflation rate is too high;they revise it upward,thus shifting the short-run aggregate supply curve rightward.
B)  The realization on the part of workers that their currently held expected inflation rate is too high;they revise it downward,thus shifting the short-run aggregate supply curve rightward.
C)  The realization on the part of workers that their currently held expected inflation rate is too low;they revise it upward,thus shifting the short-run aggregate supply curve leftward.
D)  The realization on the part of workers that their currently held expected inflation rate is too low;they revise it downward,thus shifting the short-run aggregate supply curve rightward.E) A) and B)
F) A) and C)

Question 19

According to Milton Friedman,there are two Phillips curves,a short-run one and a long-run one.

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 B)
F) A) and C)

Exam 16: Expectations Theory and the Economy

If there is a stable downward-sloping Phillips curve,it follows that an economy can choose the combination of

Correct AnswerverifiedShow Answer

In their 1960 article,Paul Samuelson and Robert Solow found

Correct AnswerverifiedShow Answer

If stagflation is present the short-run Phillips curve is vertical.

Correct AnswerverifiedShow Answer

Exhibit 16-1 -Refer to Exhibit 16-1.Suppose the economy is currently at point B on the short-run Phillips curve,SRPC1.What could get the economy to move to point C on SRPC2?

Correct AnswerverifiedShow Answer

The Friedman natural rate theory holds that there is an inverse relationship between inflation and unemployment in the long run,but not in the short run.

Correct AnswerverifiedShow Answer

The difference between new classical theory and new Keynesian theory is that

Correct AnswerverifiedShow Answer

According to Milton Friedman,there are two Phillips curves,a short-run one and a long-run one.

Correct AnswerverifiedShow Answer

If the public has rational expectations,

Correct AnswerverifiedShow Answer

The real business cycle theory focuses on the impact that changes in long-run aggregate supply will have on the business cycle.

Correct AnswerverifiedShow Answer

The simultaneous occurrence of high inflation and high unemployment is called

Correct AnswerverifiedShow Answer

New Keynesian theory differs from new classical theory in that New Keynesian theory assumes that wages and prices are not completely flexible in the short-run,while fully flexible wages and prices are an assumption of new classical theory.

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The original Phillips curve depicted the relationship between

Correct AnswerverifiedShow Answer

According to Milton Friedman,the reason there are two Phillips curves is because

Correct AnswerverifiedShow Answer

Milton Friedman argued that there is a

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The Friedman natural rate theory states that

Correct AnswerverifiedShow Answer

The Friedman natural rate theory implies that there is a tradeoff between inflation and unemployment in

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Exhibit 16-2 -Refer to Exhibit 16-2.Suppose the economy starts out at point A and the public correctly anticipates that the AD curve will shift from AD1 to AD2.If wages are temporarily fixed,SRAS1 will __________ and the economy will end up at point __________.

Correct AnswerverifiedShow Answer

According to the real business cycle theory,business cycle contractions are generally caused by

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Explain the difference between how adaptive expectations are formed and how rational expectations are formed.How does this difference affect the speed at which economic variables are expected to change?

Correct AnswerverifiedAdaptive expectations are based on obser...View AnswerShow Answer

Which of the following changes would not be considered a likely source of changes in Real GDP according to real business cycle theory?

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Exhibit 16-1 -Refer to Exhibit 16-1.Suppose the economy is currently at point B on the short-run Phillips curve,SRPC₁.What could get the economy to move to point C on SRPC₂?

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Exhibit 16-2 -Refer to Exhibit 16-2.Suppose the economy starts out at point A and the public correctly anticipates that the AD curve will shift from AD₁ to AD₂.If wages are temporarily fixed,SRAS₁ will and the economy will end up at point .

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Adaptive expectations are based on obser...
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