Question 1

Exhibit 16-1
 
-Refer to Exhibit 16-1.Milton Friedman would most likely have called the vertical line on which points A and C are located the

Accepted Answer

A)   long-run aggregate supply curve.
B)   Friedman curve.
C)   long-run Phillips curve.
D)   short-run aggregate supply curve.
E)   short-run Phillips curve.

Question 2

A fall in the expected price level leads to an expectation that real wages will ____________,which will cause people to work __________,shifting the SRAS curve _______________.

Accepted Answer

A)   rise; more; rightward
B)   rise; less; leftward
C)   fall; more; rightward
D)   fall; less; leftward

Question 3

Samuelson and Solow,in their 1960 study of the Phillips curve as it applies to the U.S.experience,argued that there was a tradeoff between inflation and unemployment.Later experience showed their analysis to be

Accepted Answer

A)   entirely correct in every situation.
B)   generally correct, but it could not explain stagflation.
C)   wholly wrong in every situation.
D)   in general agreement with rational expectations theory.
E)   capable of explaining stagflation, but not other economic scenarios.

Question 4

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 unchanged

Question 5

Exhibit 16-3
 
-Refer to Exhibit 16-3.The economy is at point A.As the result of an unexpected increase in aggregate demand,in the short run,the Friedman natural rate theory would predict

Accepted Answer

A)   movement to point B.
B)   movement to point C.
C)   movement to point C'.
D)   no movement from point A.

Question 6

According to new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

Accepted Answer

A)   the short run or the long run.
B)   neither the short run nor the long run.
C)   the short run, but not in the long run.
D)   the long run, but not in the short run.

Question 7

Exhibit 16-3
 
-Refer to Exhibit 16-3.The economy is at point C.If a decrease in aggregate demand is correctly anticipated in the short run,new classical theory would predict

Accepted Answer

A)   no movement from point C.
B)   immediate movement to point C'.
C)   immediate movement to point B.
D)   immediate movement to point A.

Question 8

A person's real wage will fall if the

Accepted Answer

A)   nominal wage falls.
B)   price level rises.
C)   nominal wage rises.
D)   price level falls.
E)   a and b

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 above

Question 10

In the 1970s and early 1980s,the U.S.economy experienced

Accepted Answer

A)   stagflation.
B)   low inflation and low unemployment.
C)   high inflation and low unemployment.
D)   high inflation and high unemployment.
E)   a and d

Question 11

The economy is in long-run equilibrium when there is an incorrectly anticipated increase in aggregate demand brought about by expansionary monetary policy.Specifically,aggregate demand increases by more than people anticipate (bias downward) .According to new classical theory,the price level will __________ and Real GDP will __________ in the short run.In the long run,the price level will be __________ than it was before aggregate demand increased.

Accepted Answer

A)   rise; fall; higher
B)   rise; rise; higher
C)   fall; rise; lower
D)   fall; rise; higher
E)   rise; rise; lower

Question 12

In the real business cycle theory,business cycle contractions begin as a result of changes in

Accepted Answer

A)   aggregate GDP.
B)   aggregate spending.
C)   aggregate demand.
D)   aggregate consumption.
E)   long-run aggregate supply.

Question 13

In what ways does the original Phillips curve differ from the Phillips curve created by economists Samuelson and Solow? What conclusions did economists draw based on the findings of Phillips,Samuelson and Solow?

Accepted Answer

The original Phillips curve showed the i...

Question 14

According to the new classical theory,if the public correctly anticipates a government policy to increase aggregate demand,then

Accepted Answer

A)   there will be a short-run tradeoff between inflation and unemployment, but there will not be a long-run tradeoff.
B)   there will be a long-run tradeoff between inflation and unemployment, but there will not be a short-run tradeoff.
C)   there will be both a long-run and a short-run tradeoff between inflation and unemployment.
D)   there will be neither a long-run nor a short-run tradeoff between inflation and unemployment.
E)   there may be a short-run tradeoff between inflation and unemployment, but one cannot say for certain whether there will be a long-run tradeoff.

Question 15

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)

Question 16

Exhibit 16-2
 
-Refer to Exhibit 16-2.The Policy Ineffectiveness Proposition could be illustrated by a movement between points A and

Accepted Answer

A)   D.
B)   B.
C)   C.
D)   F.

Question 17

The original Phillips curve suggests a(n) __________ relationship between the rate of change in __________ and the __________.

Accepted Answer

A)   direct; prices; unemployment rate
B)   inverse; money wage rates; unemployment rate
C)   inverse; prices; unemployment
D)   direct; money wage rates; money supply
E)   inverse; money wage rates; money supply

Question 18

Exhibit 16-5
 
-Refer to Exhibit 16-5.If the economy continually moves between points 1,2,and 3,it follows that

Accepted Answer

A)   this economy has not experienced stagflation.
B)   a tradeoff exists between inflation and unemployment.
C)   when inflation is higher, unemployment is lower.
D)   a and b
E)   a, b, and c

Question 19

The economy is in long-run equilibrium when there is an incorrectly anticipated increase in aggregate demand brought about by expansionary monetary policy.Specifically,aggregate demand increases by less than people anticipate (bias upward) .According to new classical theory,the price level will __________ and Real GDP will __________ in the short run.In the long run,the price level will be __________ than it was before aggregate demand increased.

Accepted Answer

A)   rise; rise; lower
B)   rise; fall; higher
C)   rise; fall; higher.
D)   fall; rise; lower.
E)   rise; rise; higher..

Question 20

The economy was in long-run equilibrium when aggregate demand increased.At this point in time,the expected inflation has started to adjust to the new higher actual inflation rate.According to the (Friedman) natural rate theory,this means the unemployment rate in the economy must currently be

Accepted Answer

A)   decreasing.
B)   increasing.
C)   higher than it was in long-run equilibrium.
D)   equal to what it was in long-run equilibrium.
E)   There is not enough information to answer the question.

Exam 16: Expectations Theory and the Economy

Samuelson and Solow,in their 1960 study of the Phillips curve as it applies to the U.S.experience,argued that there was a tradeoff between inflation and unemployment.Later experience showed their analysis to be

Correct Answer
verified

In the real business cycle theory,business cycle contractions begin as a result of changes in

Correct Answer
verified

In what ways does the original Phillips curve differ from the Phillips curve created by economists Samuelson and Solow? What conclusions did economists draw based on the findings of Phillips,Samuelson and Solow?

Correct Answer
verified
The original Phillips curve showed the i...
View Answer

Exhibit 16-2 -Refer to Exhibit 16-2.The Policy Ineffectiveness Proposition could be illustrated by a movement between points A and

Correct Answer
verified

Correct Answer
verified

The economy was in long-run equilibrium when aggregate demand increased.At this point in time,the expected inflation has started to adjust to the new higher actual inflation rate.According to the (Friedman) natural rate theory,this means the unemployment rate in the economy must currently be

Correct Answer
verified

In the 1970s and early 1980s,the U.S.economy experienced

Correct Answer
verified

Correct Answer
verified

Exhibit 16-3 -Refer to Exhibit 16-3.The economy is at point A.As the result of an unexpected increase in aggregate demand,in the short run,the Friedman natural rate theory would predict

Correct Answer
verified

A fall in the expected price level leads to an expectation that real wages will ,which will cause people to work ,shifting the SRAS curve _____.

Correct Answer
verified

According to the new classical theory,if the public correctly anticipates a government policy to increase aggregate demand,then

Correct Answer
verified

A person's real wage will fall if the

Correct Answer
verified

Exhibit 16-5 -Refer to Exhibit 16-5.If the economy continually moves between points 1,2,and 3,it follows that

Correct Answer
verified

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

Correct Answer
verified

The original Phillips curve suggests a(n) relationship between the rate of change in and the __.

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 new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

Correct Answer
verified

Exhibit 16-1 -Refer to Exhibit 16-1.Milton Friedman would most likely have called the vertical line on which points A and C are located the

Correct Answer
verified

Exhibit 16-3 -Refer to Exhibit 16-3.The economy is at point C.If a decrease in aggregate demand is correctly anticipated in the short run,new classical theory would predict

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

Exam 16: Expectations Theory and the Economy

Samuelson and Solow,in their 1960 study of the Phillips curve as it applies to the U.S.experience,argued that there was a tradeoff between inflation and unemployment.Later experience showed their analysis to be

Correct AnswerverifiedShow Answer

In the real business cycle theory,business cycle contractions begin as a result of changes in

Correct AnswerverifiedShow Answer

In what ways does the original Phillips curve differ from the Phillips curve created by economists Samuelson and Solow? What conclusions did economists draw based on the findings of Phillips,Samuelson and Solow?

Correct AnswerverifiedThe original Phillips curve showed the i...View AnswerShow Answer

Exhibit 16-2 -Refer to Exhibit 16-2.The Policy Ineffectiveness Proposition could be illustrated by a movement between points A and

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The economy was in long-run equilibrium when aggregate demand increased.At this point in time,the expected inflation has started to adjust to the new higher actual inflation rate.According to the (Friedman) natural rate theory,this means the unemployment rate in the economy must currently be

Correct AnswerverifiedShow Answer

In the 1970s and early 1980s,the U.S.economy experienced

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Exhibit 16-3 -Refer to Exhibit 16-3.The economy is at point A.As the result of an unexpected increase in aggregate demand,in the short run,the Friedman natural rate theory would predict

Correct AnswerverifiedShow Answer

A fall in the expected price level leads to an expectation that real wages will ____________,which will cause people to work __________,shifting the SRAS curve _______________.

Correct AnswerverifiedShow Answer

According to the new classical theory,if the public correctly anticipates a government policy to increase aggregate demand,then

Correct AnswerverifiedShow Answer

A person's real wage will fall if the

Correct AnswerverifiedShow Answer

Exhibit 16-5 -Refer to Exhibit 16-5.If the economy continually moves between points 1,2,and 3,it follows that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The original Phillips curve suggests a(n) __________ relationship between the rate of change in __________ and the __________.

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 new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

Correct AnswerverifiedShow Answer

Exhibit 16-1 -Refer to Exhibit 16-1.Milton Friedman would most likely have called the vertical line on which points A and C are located the

Correct AnswerverifiedShow Answer

Exhibit 16-3 -Refer to Exhibit 16-3.The economy is at point C.If a decrease in aggregate demand is correctly anticipated in the short run,new classical theory would predict

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

Correct Answer
verified

Correct Answer
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Correct Answer
verified
The original Phillips curve showed the i...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified

A fall in the expected price level leads to an expectation that real wages will ,which will cause people to work ,shifting the SRAS curve _____.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The original Phillips curve suggests a(n) relationship between the rate of change in and the __.

Correct Answer
verified

Correct Answer
verified

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