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Quiz 2
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1
Suppose that at the current level of output there are resources that are not being use. In the long run we would expect:
A)output to increase.
B)output to decrease.
C)output not to change.
D)output to be affected by the rate of money growth.
2
If P represents the price level, M represents money and YP equals potential output, then in the long run:
A)%ΔP = %ΔM - %Δ YP.
B)%ΔP = %ΔM + %Δ YP.
C)%ΔP = %ΔM/%Δ YP.
D)None of the above is correct.
3
Each of the following components of aggregate expenditure is sensitive to changes in the real interest rate except:
A)consumption.
B)investment.
C)net exports.
D)government purchases.
E)None of the above; they are all sensitive to changes in the real interest rate.
4
In the short run, when monetary policymakers increase the nominal interest rate they:
A)also increase the real interest rate.
B)decrease the real interest rate.
C)change the level of potential output.
D)cause changes in government purchases.
5
Which is the most important of the components of aggregate expenditure that are sensitive to changes in the real interest rate?
A)consumption
B)investment
C)net exports
D)government purchases
E)None of the above; they are all equally important.
6
The monetary policy reaction curve:
A)has an upward slope.
B)has a downward slope.
C)is vertical.
D)is horizontal.
7
The less aggressive policymakers are in keeping current inflation near target, the _____ the slope of the monetary policy reaction curve.
A)steeper
B)flatter
C)more negative
D)less the impact on
8
When policymakers adjust the real interest rate:
A)they are moving along a fixed monetary policy reaction curve.
B)they are shifting the monetary policy reaction curve.
C)Either a or b is possible.
D)None of the above is correct.
9
Which of the following is not an explanation of why the dynamic aggregate demand curve slopes down?
A)Inflation induces policymakers to raise the real interest rate, depressing various components of aggregate expenditure.
B)The higher the rate of inflation for a given rate of money growth, the lower the level of real balances in the economy, and therefore there are fewer purchases.
C)Higher inflation increases wealth, which raises consumption.
D)Inflation causes a redistribution of wealth from the poor to the wealthy.
10
In the short run:
A)higher inflation elicits more aggregate output supplied by firms.
B)higher inflation elicits less aggregate output supplied by firms.
C)lower inflation elicits more aggregate output supplied by firms.
D)higher inflation does not affect the aggregate output supplied by firms.
11
Which of the following would cause the short-run aggregate supply curve to shift to the left?
A)either an expansionary gap or a rise in expected future inflation
B)either a recessionary gap or a rise in expected future inflation
C)either an expansionary gap or a decrease in expected future inflation
D)either a recessionary gap or a decrease in expected future inflation
12
Suppose there is an expansionary gap. The self-correcting mechanism to return the economy to full potential would be:
A)a rightward shift in the short-run aggregate supply curve.
B)a leftward shift in the short-run aggregate supply curve
C)flattening of the short-run aggregate supply curve.
D)the short-run aggregate supply curve getting steeper.
13
Which of the following would be true only if the economy were in long-run equilibrium?
A)Current output would equal potential output.
B)Current inflation would be steady and equal to target inflation.
C)Current inflation would equal expected inflation.
D)The short-run aggregate supply curve and the dynamic aggregate demand curve would intersect.
14
Suppose that you observe a fluctuation in the economy that resulted in output and inflation both decreasing. This was likely the result of:
A)a rightward shift in the dynamic aggregate demand curve.
B)a leftward shift in the dynamic aggregate demand curve.
C)a rightward shift in the short-run aggregate supply curve.
D)a leftward shift in the short-run aggregate supply curve.
15
In examining the recessions over the past half century, one can conclude that:
A)the Federal Reserve was at least partly to blame for business cycle downturns.
B)the Federal Reserve is completely to blame for business cycle downturns.
C)the Federal Reserve has been responsible for all the business cycle upturns.
D)None of the above is correct.





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