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| 1 | |
Considering business cycles over the last fifty years in U.S. history, one would say that: |
| | A) | the lower the growth, the more likely inflation is to fall. |
| | B) | the lower the growth, the less likely inflation is to fall. |
| | C) | the higher the growth, the more likely inflation is to fall. |
| | D) | inflation does not change as much with growth as it used to. |
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| 2 | |
Which of the following is correct? |
| | A) | A decrease in the price of oil would be a supply shock. |
| | B) | A decrease in consumer confidence would be a demand shock. |
| | C) | Shocks can cause shifts in either the demand or supply curve. |
| | D) | All of the above are correct. |
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| 3 | |
If the central bank increases its inflation target: |
| | A) | the monetary policy reaction curve will shift to the right. |
| | B) | the monetary policy reaction curve will shift to the left. |
| | C) | there will be a movement up along the monetary policy reaction curve. |
| | D) | there will be a movement down along the monetary policy reaction curve. |
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| 4 | |
If government purchases decrease and as a result push current output above potential output, monetary policymakers are likely to: |
| | A) | raise the real interest rate. |
| | B) | lower the real interest rate. |
| | C) | keep the real interest rate constant and focus on only changing the nominal interest rate. |
| | D) | purchase Treasury securities. |
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| 5 | |
Suppose that an increase in consumer confidence shifts the dynamic aggregate demand curve to the right. Which of the following is correct? |
| | A) | In the absence of a monetary policy response, the short-run aggregate supply curve will shift to the right. |
| | B) | In the absence of a monetary policy response, the short-run aggregate supply curve will shift to the left. |
| | C) | If monetary policymakers react, the dynamic aggregate demand curve will shift farther to the right. |
| | D) | Even without a monetary policy response, the dynamic aggregate demand curve will shift back to the left. |
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| 6 | |
Stagflation is associated with: |
| | A) | higher inflation and lower growth. |
| | B) | higher inflation and higher growth. |
| | C) | lower inflation and lower growth. |
| | D) | lower inflation and lower growth. |
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| 7 | |
Which of the following statements is incorrect? |
| | A) | Monetary policymakers find it more difficult to deal with the effects of a supply shock. |
| | B) | Monetary policymakers can shift the long-run aggregate supply curve. |
| | C) | Monetary policymakers can neutralize movements in aggregate demand. |
| | D) | Shifts in the monetary policy reaction function shift the dynamic aggregate demand curve. |
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| 8 | |
A decrease in consumer confidence would like result in fiscal policymakers: |
| | A) | cutting taxes or increasing spending. |
| | B) | shifting the monetary policy reaction curve left. |
| | C) | shifting the monetary policy reaction curve right. |
| | D) | raising taxes or decreasing spending. |
| | E) | Both a and c are correct. |
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| 9 | |
A decrease in taxes would likely occur in response to some shock that: |
| | A) | caused the dynamic aggregate demand curve to shift to the left. |
| | B) | caused a movement down and along the existing dynamic aggregate demand curve. |
| | C) | caused a movement up and along the existing dynamic aggregate demand curve. |
| | D) | caused the dynamic aggregate demand curve to shift to the right. |
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| 10 | |
To take advantage of the opportunity provided by positive supply shocks, monetary policymakers should act to: |
| | A) | flatten the slope of the monetary policy reaction curve. |
| | B) | shift the monetary policy reaction curve left. |
| | C) | raise the potential level of output. |
| | D) | make the slope of the monetary policy reaction curve steeper. |
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| 11 | |
The "great moderation" of the 1990s has been attributed to: |
| | A) | luck. |
| | B) | the increased ability of economies to absorb external economic disturbances. |
| | C) | more effective monetary policy. |
| | D) | All of the above. |
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| 12 | |
In the long run an increase in potential output will mean that: |
| | A) | in the long run inflation must fall. |
| | B) | in the long run inflation must rise. |
| | C) | in the long run inflation will not change from its previous level. |
| | D) | None of the above; what happens to inflation in the long run depends on the actions of monetary policymakers. |
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| 13 | |
For "opportunistic disinflation" to occur: |
| | A) | potential output must increase and monetary policy makers must respond by shifting the monetary policy reaction curve to the left. |
| | B) | potential output must increase and monetary policy makers must respond by shifting the monetary policy reaction curve to the right. |
| | C) | potential output must increase and monetary policy makers must respond by shifting the dynamic aggregate demand curve to the right. |
| | D) | None of the above is correct. |
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| 14 | |
Which of the following is true about real-business-cycle theory? |
| | A) | According to the theory, the short-run aggregate supply curve shifts slowly in response to deviations of current output from potential output. |
| | B) | It assumes the inflexibility of prices and wages. |
| | C) | According to the theory, any shift in the dynamic aggregate demand curve results in fluctuations in potential output with no effect on inflation. |
| | D) | None of the above is correct. |
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| 15 | |
Which of the following represents a correct action by monetary policy makers? |
| | A) | A drop in potential output occurs, and monetary policymakers shift the monetary policy reaction curve to the left. |
| | B) | A drop in potential output occurs, and monetary policymakers shift the monetary policy reaction curve to the right. |
| | C) | A recessionary gap occurs and monetary policymakers shift the monetary policy reaction curve to the right. |
| | D) | A recessionary gap occurs and monetary policymakers shift the monetary policy reaction curve to the left. |
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