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Multiple Choice



1

Focusing on the last fifty years in U.S. history, one would say that:
A)Recessions have disappeared.
B)The number of recessions has increased but their duration has decreased.
C)The number of recessions has increased and their duration has increased.
D)The number of recessions has decreased.
2

Which of the following statements is incorrect:
A)The shorter the period of time being considered the flatter is
B)The longer the time period being considered, the more vertical is
C)The aggregate supply curve is always vertical.
D)If some prices adjust faster than others, the short run aggregate supply curve could slope upward.
3

Inflation persistence implies most people expect the rate of inflation next year will be:
A)Less than it is for the current year.
B)More than it is more the current year.
C)The average of the past three years.
D)The same as the current year.
4

If wages increase less rapidly than expected inflation:
A)The real wage decreases.
B)The real wage increases.
C)The real wage does not depend on inflation.
D)The real purchasing power of wages increases.
5

If a store sets their prices once a year based on the current rate of inflation:
A)Their real prices are guaranteed to decrease.
B)Their real prices will increase if this year's inflation is less than last year's.
C)Their real prices will increase.
D)Their real prices will increase if this year's inflation equal last year's.
6

If the short-run aggregate supply curve is flat, the economy's actual level of output will be determined by:
A)The level of aggregate demand.
B)The price level.
C)The expected rate of inflation.
D)The long-run aggregate supply curve.
7

Which of the following would not be classified as an inflation shock:
A)An increase in the legal minimum wage.
B)A decrease in the price of oil.
C)An increase in expected inflation.
D)An increase in demand for imports.
8

Businesses successfully lobby Congress into passing legislation that raises the minimum wage law. The impact of this change would:
A)Shift the short run aggregate supply curve upward.
B)Make the long run aggregate supply curve less vertical.
C)Shift the short run aggregate supply curve downward.
D)a and b
9

An output gap occurs when:
A)Aggregate demand does not equal short run aggregate supply.
B)Aggregate demand equals short run aggregate supply but not long run aggregate supply.
C)Aggregate demand equals long run aggregate supply.
D)Short run aggregate supply equals long run aggregate supply.
10

The self-correcting mechanism to return the economy to full potential from output gaps is:
A)Fiscal policy.
B)The change in aggregate demand
C)The change in the money growth rate by the central bank.
D)The change in the short run aggregate supply.
11

The long run effect(s) from an increase in aggregate demand will include:
A)An expansionary gap.
B)A lower level of potential output.
C)A higher rate of inflation.
D)A recessionary gap.
E)b and c
12

Real Business Cycle Theory seeks to explain business cycle fluctuations by focusing on:
A)Real aggregate demand.
B)The inflexibility of prices and wages.
C)Shifts in potential output
D)Changes in monetary policy.
13

If a recession were the result of monetary policy, we should observe:
A)Inflation increasing as out put decreases.
B)Potential output decreasing.
C)A very high rate of money growth.
D)Inflation decreasing as output decreases
14

Which of the following statements is incorrect:
A)Policymakers cannot eliminate the effects of an inflation shock.
B)Policymakers can shift the short-run aggregate supply curve.
C)Policymakers cannot neutralize movements in aggregate demand.
D)Shifts in the monetary policy reaction function used to stabilize the economy do not shift the short-run aggregate supply curve.
15

Monetary policymakers can minimize the impact that positive inflation shocks have on output by:
A)Making the slope of the monetary policy reaction curve flat.
B)Shifting the monetary policy reaction curve left.
C)Raising the potential level of output.
D)Making the slope of the monetary policy reaction curve steep.





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