Question 1

The potential conflict of economic policy with political objectives can be used to explain

Accepted Answer

A)  The ups and downs in overall business activity.
B)  The election of the Federal Reserve's Board of Governors.
C)  Why politicians stimulate the economy before an election and restrict it afterward.
D)  Illegal behavior on the part of politicians and economists.E) A) and B)
F) A) and C)

Question 2

Many economic policies fail for all of the following reasons except

Accepted Answer

A)  It is difficult to accurately measure economic performance.
B)  Economic forecasts may be inaccurate.
C)  There are significant lags in response to policy implementation.
D)  Politicians and economists work together in formulating policies.E) None of the above
F) B) and C)

Question 3

The number of times per year,on average,that a dollar is used to purchase final goods and services is the

Accepted Answer

A)  Business cycle.
B)  Multiplier.
C)  Velocity of money.
D)  Money magnifier.E) B) and C)
F) B) and D)

Question 4

Which of the following supports the argument for hands-on policy?

Accepted Answer

A)  Greater stability of the economy in the last 40 years.
B)  The existence of the four obstacles to policy success.
C)  The failure of discretionary policy.
D)  The theory of rational expectations.E) B) and D)
F) A) and C)

Question 5

Who believes the government should react to inflation by tightening the money supply?

Accepted Answer

A)  Modern Keynesians and supply-siders.
B)  Monetarists and modern Keynesians.
C)  New classical economists and monetarists.
D)  Supply-siders and monetarists.E) B) and D)
F) All of the above

Question 6

3 to AD2? A) An increase in transfer payments because of a recession. B) An increase in the reserve ratio. C) A decrease in the discount rate. D) An increase in taxes." class="answers-bank-image d-inline" rel="preload" > Refer to Figure 18.1.Which of the following would most likely cause a shift from AD3 to AD2?

Accepted Answer

A)  An increase in transfer payments because of a recession.
B)  An increase in the reserve ratio.
C)  A decrease in the discount rate.
D)  An increase in taxes.E) A) and D)
F) A) and B)

Question 7

Assume the economy is in a recession and has a budget deficit.Ceteris paribus,if the economy starts expanding,automatic stabilizers will cause

Accepted Answer

A)  A decrease in tax revenues.
B)  An increase in government spending.
C)  A decrease in the budget deficit.
D)  A decrease in inflation.E) B) and C)
F) B) and D)

Question 8

Which of the following is a monetary policy action to eliminate a recession?

Accepted Answer

A)  Increased investment in job training programs.
B)  The sale of securities in the open market by the Fed.
C)  A decrease in the marginal tax rate.
D)  A decrease in the discount rate.E) A) and D)
F) A) and C)

Question 9

Many economists argue that government price indexes overstate inflation by 1 to 2 percent.From the point of view of those designing economic policy,this is an example of

Accepted Answer

A)  A measurement problem.
B)  A goal conflict.
C)  A design problem.
D)  An implementation problem.E) B) and C)
F) A) and D)

Question 10

2 to AS1? A) Stagflation. B) A major natural disaster such as an earthquake. C) An inward shift of the production possibilities curve. D) A decrease in business taxes." class="answers-bank-image d-inline" rel="preload" > Refer to Figure 18.2.Which of the following is not consistent with a shift from AS2 to AS1?

Accepted Answer

A)  Stagflation.
B)  A major natural disaster such as an earthquake.
C)  An inward shift of the production possibilities curve.
D)  A decrease in business taxes.E) All of the above
F) A) and B)

Question 11

The time it takes for Congress to deliberate over a specific fiscal policy action is an example of

Accepted Answer

A)  A multiplier conflict.
B)  A measurement problem.
C)  A design problem.
D)  An implementation problem.E) B) and D)
F) A) and C)

Question 12

External shocks can cause economic forecasts to become invalid.
An external shock will not be built into a forecast because such events are rarely anticipated.

Accepted Answer

A) True 
 B)False

Question 13

According to new classical economists,policies should be introduced suddenly to surprise the economy in order to

Accepted Answer

A)  Prevent political lobbying that results in goal conflicts.
B)  Minimize design problems that impede the implementation of policy.
C)  Prevent anticipatory behavior that defeats the purpose of the policy.
D)  Avoid the lags associated with policy announcements.E) All of the above
F) B) and D)

Question 14

Which of the following is not a policy to reduce stagflation?

Accepted Answer

A)  Restricting immigration.
B)  Developing infrastructure.
C)  Investing in human capital.
D)  Deregulation.E) A) and C)
F) B) and C)

Question 15

Economic forecasts

Accepted Answer

A)  Drive economic policy for both the Fed and Congress.
B)  Drive economic policy for the Fed but not for Congress.
C)  Drive economic policy for Congress but not for the Fed.
D)  Are basically inaccurate,so the Fed and Congress pay little attention to them.E) A) and B)
F) A) and C)

Question 16

Stagflation is the simultaneous occurrence of substantial unemployment and inflation.
In the 1970s the U.S.economy experienced stagflation,in which the price level increased while the economy entered recession.

Accepted Answer

A) True 
 B)False

Question 17

Compare the Keynesian and monetarist views about how monetary tools should be used.

Accepted Answer

Keynesians believe that interest rates a...

Question 18

One World View article is titled "Comparative Macro Performance." According to the text,__________ experienced the fastest growth in real GDP.

Accepted Answer

A)  The United States
B)  Japan
C)  Germany
D)  The United KingdomE) B) and C)
F) A) and C)

Question 19

A growth recession is characterized by

Accepted Answer

A)  An increasing unemployment rate with moderate inflation.
B)  An increasing unemployment rate with substantial inflation.
C)  A positive growth rate below 3 percent annually.
D)  A negative growth rate with a low inflation rate.E) A) and D)
F) All of the above

Question 20

The simultaneous occurrence of high inflation and high unemployment is called

Accepted Answer

A)  Reflation.
B)  Stagflation.
C)  Deflation.
D)  Depression.E) None of the above
F) C) and D)

Exam 18: Theory Versus Reality

Assume the economy is in a recession and has a budget deficit.Ceteris paribus,if the economy starts expanding,automatic stabilizers will cause

Correct AnswerverifiedShow Answer

Who believes the government should react to inflation by tightening the money supply?

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Which of the following is not a policy to reduce stagflation?

Correct AnswerverifiedShow Answer

Compare the Keynesian and monetarist views about how monetary tools should be used.

Correct AnswerverifiedKeynesians believe that interest rates a...View AnswerShow Answer

One World View article is titled "Comparative Macro Performance." According to the text,__________ experienced the fastest growth in real GDP.

Correct AnswerverifiedShow Answer

According to new classical economists,policies should be introduced suddenly to surprise the economy in order to

Correct AnswerverifiedShow Answer

Many economists argue that government price indexes overstate inflation by 1 to 2 percent.From the point of view of those designing economic policy,this is an example of

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External shocks can cause economic forecasts to become invalid. An external shock will not be built into a forecast because such events are rarely anticipated.

Correct AnswerverifiedShow Answer

The simultaneous occurrence of high inflation and high unemployment is called

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Which of the following is a monetary policy action to eliminate a recession?

Correct AnswerverifiedShow Answer

Many economic policies fail for all of the following reasons except

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Which of the following supports the argument for hands-on policy?

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Stagflation is the simultaneous occurrence of substantial unemployment and inflation. In the 1970s the U.S.economy experienced stagflation,in which the price level increased while the economy entered recession.

Correct AnswerverifiedShow Answer

The time it takes for Congress to deliberate over a specific fiscal policy action is an example of

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A growth recession is characterized by

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Refer to Figure 18.1.Which of the following would most likely cause a shift from AD3 to AD2?

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The number of times per year,on average,that a dollar is used to purchase final goods and services is the

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Economic forecasts

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The potential conflict of economic policy with political objectives can be used to explain

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Refer to Figure 18.2.Which of the following is not consistent with a shift from AS2 to AS1?

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Keynesians believe that interest rates a...
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Refer to Figure 18.1.Which of the following would most likely cause a shift from AD₃ to AD₂?

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Refer to Figure 18.2.Which of the following is not consistent with a shift from AS₂ to AS₁?

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