Question 1

The factor leading to business cycles in the Keynesian model is__________ .

Accepted Answer

A)   a speed up in money growth
B)   changes in business confidence
C)   unanticipated changes in aggregate supply
D)   unanticipated changes in aggregate demandE) B) and D)
F) A) and C)

Question 2

Initially, demand-pull inflation will

Accepted Answer

A)   increase both the price level and increase real GDP.
B)   increase the price level and decrease real GDP.
C)   increase the price level and not change real GDP.
D)   shift the aggregate supply curve rightward.E) None of the above
F) All of the above

Question 3

Cost-push inflation can start with

Accepted Answer

A)   higher money wage rates.
B)   an increase in government expenditure.
C)   an increase in transfer payments.
D)   lower taxes.E) A) and B)
F) C) and D)

Question 4

Cost-push inflation starts with

Accepted Answer

A)   an increase in aggregate demand.
B)   a decrease in short-run aggregate supply.
C)   a decrease in aggregate demand.
D)   an increase in short-run aggregate supply.E) A) and D)
F) None of the above

Question 5

-The figure above shows the initial aggregate demand curve, AD0, the initial short-run aggregate supply curve, SAS0, and the long-run aggregate supply curve, LAS. The points in the figure show possible combinations of real GDP and the price level at which the economy of Atlantia is in macroeconomic equilibrium. The economy is initially at point A. Then, the government increases its expenditure on goods and services. Draw the new aggregate demand and short-run aggregate supply curves in the figure to show the effects of this event on Atlantiaʹs real GDP and price level.
a) What happens to Atlantiaʹs potential GDP?
b) In the short run, what happens to aggregate supply and aggregate demand?
c) What are the new short-run equilibrium real GDP and price level?
d) In the long run, what happens to the short-run aggregate supply and aggregate demand?
e) What are the new long-run equilibrium real GDP and price level?

Accepted Answer

a) Atlantiaʹs potential GDP is not affected. Potential GDP depends on the economyʹs factors of production and available technology, not on aggregate spending. b) See the figure above. The increase in government expenditure increases aggregate demand. The aggregate demand curve shifts from AD₀to AD₁. Because there is no change in potential GDP and no change in the money wage rate, short run aggregate supply is not affected. The short-run aggregate supply curve remains at SAS₀. c) In the short run the economy is at point B, where real GDP is $400 million and the price level is 105. d) Because at point B real GDP is above potential GDP, unemployment is less than the natural rate so the tight conditions in the labor market means that the money wage rate begins to rise. As it does, short -run aggregate supply decreases. The short-run aggregate supply curve shifts from SAS₀to SAS₁. Because nothing further affects aggregate demand, the aggregate demand curve remains at AD₁. e) In the long run the economy is at point D, where real GDP is $300 million and the price level is 115.

Question 6

What, according to the monetarist theory of the business cycle, leads to changes in real GDP?

Accepted Answer

A)   an unanticipated change in aggregate demand
B)   a change in the growth rate of the quantity of money
C)   a change in the growth rate in tax revenue
D)   a change in profit expectationsE) None of the above
F) B) and D)

Question 7

Both the new classical and new Keynesian business cycle theories agree that

Accepted Answer

A)   the money wage rate is influenced by rational expectations of the price level.
B)   expected changes in aggregate demand lead to the business cycle.
C)   unexpected changes in aggregate demand cannot result in a business cycle.
D)   the long-term nature of wage contracts allow expected changes in the price level to cause business cycles.E) None of the above
F) B) and D)

Question 8

-The figure above shows the initial aggregate demand curve, AD0, the initial short-run aggregate supply curve, SAS0, and the long-run aggregate supply curve, LAS. The points in the figure show possible combinations of real GDP and the price level at which the economy of Atlantia is in macroeconomic equilibrium. The economy is initially at point A. Atlantiaʹs Central Bank then increases the quantity of money year after year. Draw the necessary curves in the figure to show the effects of this on Atlantiaʹs real GDP and price level.
a) What happens to Atlantiaʹs potential GDP?
b) In the short run, what happens to aggregate supply and aggregate demand?
c) What are the new short-run equilibrium real GDP and price level?
d) In the long run, what happens to aggregate supply and aggregate demand?
e) In the long run, what process is unfolding?

Accepted Answer

a) Atlantiaʹs potential GDP is not affec...

Question 9

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

Accepted Answer

A)   nominal interest rate.
B)   natural inflation rate.
C)   natural interest rate.
D)   expected inflation rate.E) A) and C)
F) A) and B)

Question 10

-In the above figure, suppose the economy starts at point A. The short-run response to an increase in the growth rate of the quantity of money in monetarist business cycle theory moves the economy to point

Accepted Answer

A)   B.
B)   D.
C)   C.
D)   E.E) A) and B)
F) B) and C)

Question 11

For monetarists the main cause of economic fluctuations is changes in

Accepted Answer

A)   investment.
B)   consumption expenditure.
C)   the levels of household debt.
D)   the growth rate of the quantity of money.E) C) and D)
F) B) and C)

Question 12

What is the factor that leads to business cycles in the new Keynesian cycle theory?

Accepted Answer

The major factor in the new Ke...

Question 13

Both new Keynesian and new classical cycle theories claim that __________.

Accepted Answer

A)   expected changes in the quantity of money can trigger a business cycle
B)   unexpected changes in aggregate demand trigger a business cycle
C)   shifts in the SAS curve are the main impulse for a business cycle
D)   animal spirits can trigger a business cycleE) B) and C)
F) A) and D)

Question 14

A rational expectation is

Accepted Answer

A)   the forecast that automatically carries over from past forecasts.
B)   the best possible forecast based upon all relevant information.
C)   a forecast devoid of all emotions.
D)   a forecast which perfectly foretells the future.E) A) and D)
F) C) and D)

Question 15

The intertemporal substitution effect is the factor that creates business cycles in the Keynesian theory of the business cycle.

Accepted Answer

A) True 
 B)False  False

Question 16

The position of the long-run Phillips curve is determined by

Accepted Answer

A)   the inflation rate.
B)   the natural unemployment rate.
C)   the quantity of money.
D)   the expected inflation rate.E) B) and C)
F) A) and C) B

Question 17

As far as cost-push inflation goes, the United States

Accepted Answer

A)   experienced this type of inflation in the 1970s.
B)   has never experienced this type of inflation.
C)   experienced this type of inflation during the 1990s.
D)   has experienced only this type of inflation.E) B) and D)
F) A) and D)

Question 18

1 to SRPC2 while leaving the long-run Phillips curve unchanged at LRPC? A)  The expected inflation rate increased. B)  The expected inflation rate decreased. C)  The natural unemployment rate increased. D)  The natural unemployment rate decreased." class="answers-bank-image d-inline" rel="preload" >
-In the above figure, what might have shifted the short-run Phillips curve from SRPC1 to SRPC2 while leaving the long-run Phillips curve unchanged at LRPC?

Accepted Answer

A)   The expected inflation rate increased.
B)   The expected inflation rate decreased.
C)   The natural unemployment rate increased.
D)   The natural unemployment rate decreased.E) B) and C)
F) A) and D)

Question 19

According to real business cycle theory, a fall in the real interest rate current labor supply and_________ current employment.

Accepted Answer

A)   decreases; increases
B)   decreases; decreases
C)   increases; increases
D)   increases; decreasesE) A) and B)
F) C) and D)

Question 20

Suppose that a severe shock that decreases the demand for loanable funds hits the United States. Which of the following can we expect to occur according to the real business cycle model?

Accepted Answer

A)   The real wage rate will fall.
B)   The real interest rate will fall.
C)   People will work fewer hours.
D)   All of the above are true.E) B) and C)
F) None of the above

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

The factor leading to business cycles in the Keynesian model is__________ .

Correct Answer
verified

Initially, demand-pull inflation will

Correct Answer
verified

Cost-push inflation can start with

Correct Answer
verified

Cost-push inflation starts with

Correct Answer
verified

What, according to the monetarist theory of the business cycle, leads to changes in real GDP?

Correct Answer
verified

Both the new classical and new Keynesian business cycle theories agree that

Correct Answer
verified

Correct Answer
verified
a) Atlantiaʹs potential GDP is not affec...
View Answer

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

Correct Answer
verified

-In the above figure, suppose the economy starts at point A. The short-run response to an increase in the growth rate of the quantity of money in monetarist business cycle theory moves the economy to point

Correct Answer
verified

For monetarists the main cause of economic fluctuations is changes in

Correct Answer
verified

What is the factor that leads to business cycles in the new Keynesian cycle theory?

Correct Answer
verified
The major factor in the new Ke...
View Answer

Both new Keynesian and new classical cycle theories claim that __________.

Correct Answer
verified

A rational expectation is

Correct Answer
verified

The intertemporal substitution effect is the factor that creates business cycles in the Keynesian theory of the business cycle.

Correct Answer
verified
False

The position of the long-run Phillips curve is determined by

Correct Answer
verified
B

As far as cost-push inflation goes, the United States

Correct Answer
verified

-In the above figure, what might have shifted the short-run Phillips curve from SRPC₁to SRPC₂ while leaving the long-run Phillips curve unchanged at LRPC?

Correct Answer
verified

According to real business cycle theory, a fall in the real interest rate current labor supply and_________ current employment.

Correct Answer
verified

Suppose that a severe shock that decreases the demand for loanable funds hits the United States. Which of the following can we expect to occur according to the real business cycle model?

Correct Answer
verified

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

The factor leading to business cycles in the Keynesian model is__________ .

Correct AnswerverifiedShow Answer

Initially, demand-pull inflation will

Correct AnswerverifiedShow Answer

Cost-push inflation can start with

Correct AnswerverifiedShow Answer

Cost-push inflation starts with

Correct AnswerverifiedShow Answer

What, according to the monetarist theory of the business cycle, leads to changes in real GDP?

Correct AnswerverifiedShow Answer

Both the new classical and new Keynesian business cycle theories agree that

Correct AnswerverifiedShow Answer

Correct Answerverifieda) Atlantiaʹs potential GDP is not affec...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

-In the above figure, suppose the economy starts at point A. The short-run response to an increase in the growth rate of the quantity of money in monetarist business cycle theory moves the economy to point

Correct AnswerverifiedShow Answer

For monetarists the main cause of economic fluctuations is changes in

Correct AnswerverifiedShow Answer

What is the factor that leads to business cycles in the new Keynesian cycle theory?

Correct AnswerverifiedThe major factor in the new Ke...View AnswerShow Answer

Both new Keynesian and new classical cycle theories claim that __________.

Correct AnswerverifiedShow Answer

A rational expectation is

Correct AnswerverifiedShow Answer

The intertemporal substitution effect is the factor that creates business cycles in the Keynesian theory of the business cycle.

Correct AnswerverifiedFalse

The position of the long-run Phillips curve is determined by

Correct AnswerverifiedB

As far as cost-push inflation goes, the United States

Correct AnswerverifiedShow Answer

-In the above figure, what might have shifted the short-run Phillips curve from SRPC1 to SRPC2 while leaving the long-run Phillips curve unchanged at LRPC?

Correct AnswerverifiedShow Answer

According to real business cycle theory, a fall in the real interest rate current labor supply and_________ current employment.

Correct AnswerverifiedShow Answer

Suppose that a severe shock that decreases the demand for loanable funds hits the United States. Which of the following can we expect to occur according to the real business cycle model?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a) Atlantiaʹs potential GDP is not affec...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The major factor in the new Ke...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
False

Correct Answer
verified
B

Correct Answer
verified

-In the above figure, what might have shifted the short-run Phillips curve from SRPC₁to SRPC₂ while leaving the long-run Phillips curve unchanged at LRPC?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified