Question 1

Which of the following policy obstacles could occur because it is difficult to know how market participants will respond to specific prices?

Accepted Answer

A)  Implementation problems.
B)  Design problems.
C)  Velocity problems.
D)  Goal conflicts.E) B) and D)
F) A) and B)

Question 2

The idea that no one knows for certain the shape of the aggregate supply curve contributes to

Accepted Answer

A)  Design problems.
B)  Goal conflicts.
C)  Inventory problems.
D)  Measurement problems.E) C) and D)
F) None of the above

Question 3

Since the Second World War,the severity of the business cycle has moderated.
The ups and downs of the economy have been less pronounced since World War II.

Accepted Answer

A) True 
 B)False

Question 4

Fine-tuning involves the adoption of fixed policy rules regardless of the economic situation.
Fine-tuning involves the use of policy in response to changes in the economy to maintain full employment.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is the appropriate order of policy responses?

Accepted Answer

A)  Response design,recognition,impact,and implementation.
B)  Recognition,response design,implementation,and impact.
C)  Response design,implementation,recognition,and impact.
D)  Recognition,response design,impact,and implementation.E) B) and D)
F) A) and C) B

Question 6

An inflationary GDP gap is equal to the

Accepted Answer

A)  Recessionary GDP gap.
B)  Difference between equilibrium GDP and full-employment GDP.
C)  Difference between potential GDP and full-employment GDP.
D)  Increase in the price level caused by the inflation.E) A) and C)
F) All of the above

Question 7

Which of the following policy options would tend to offset each other?

Accepted Answer

A)  A decrease in the discount rate and a decrease in the reserve requirement.
B)  An increase in the discount rate and a decrease in the tax rate.
C)  An increase in the reserve requirement and an open market sale by the Fed.
D)  An increase in the tax rate and a decrease in government spending.E) B) and D)
F) All of the above

Question 8

The case for a "hands off" economic policy is based on the widely held belief that

Accepted Answer

A)  Fiscal policy works but monetary policy does not.
B)  Monetary policy works but fiscal policy does not.
C)  Discretionary policy can improve the economy but is often impractical.
D)  Economic theory is inadequate to formulate effective discretionary policy.E) All of the above
F) None of the above

Question 9

2 to AS1 may result from A) A decrease in the money supply. B) An increase in the minimum wage. C) An increase in the reserve requirement. D) A decrease in government spending." class="answers-bank-image d-inline" rel="preload" > Refer to Figure 18.2.A shift from AS2 to AS1 may result from

Accepted Answer

A)  A decrease in the money supply.
B)  An increase in the minimum wage.
C)  An increase in the reserve requirement.
D)  A decrease in government spending.E) None of the above
F) B) and D)

Question 10

A tax cut can best be characterized as

Accepted Answer

A)  Both fiscal and supply-side policy.
B)  Both monetary and supply-side policy.
C)  Fiscal policy only.
D)  Monetary policy only.E) A) and D)
F) A) and B)

Question 11

Which of the following is true about the U.S.economy?

Accepted Answer

A)  It has been able to do away with the business cycle.
B)  It still experiences periods of inflation and unemployment.
C)  It had greater economic problems than other Western countries in the 1990s.
D)  It has experienced 30 years of outright recession in the last 50 years.E) A) and B)
F) None of the above

Question 12

The structural deficit is

Accepted Answer

A)  The deficit that would exist if the economy were at full employment.
B)  Computed on the basis of the current value of automatic stabilizers.
C)  Determined by the president of the United States.
D)  Equivalent to the GDP gap.E) A) and B)
F) All of the above

Question 13

Which of the following is a responsibility of Congress?

Accepted Answer

A)  Monetary policy.
B)  Fiscal policy and supply-side policy.
C)  Monetary and fiscal policy.
D)  Monetary,fiscal,and supply-side policy.E) B) and C)
F) A) and C)

Question 14

Politicians might hesitate to increase income and in-kind transfers to the poor because this could cause

Accepted Answer

A)  A decrease in the budget deficit.
B)  Private sector spending to overpower public sector spending.
C)  Excessive demand for goods and services.
D)  An increase in unemployment.E) B) and C)
F) All of the above

Question 15

New classical economists differ from traditional classical economists because new classical economists

Accepted Answer

A)  Focus on budget restraint and the use of monetary policy when the economy overheats.
B)  Believe people's rational expectations will lead them to offset government policy.
C)  Believe that economic failures are inherent in a capitalist economy.
D)  Believe tax cuts and government spending should be used to increase demand and output.E) None of the above
F) All of the above

Question 16

Which of the following articles in the text best represents a measurement problem?

Accepted Answer

A)  "It's official: the Great Recession ended last summer"
B)  "No Recession,Bernanke Says."
C)  "Comparative Macro Performance."
D)  "Deficit-Cutting Wilts in Heat from Voters."E) B) and D)
F) B) and C)

Question 17

Which of the following believes that the money supply should be expanded at a steady,predictable rate to ensure a natural rate of unemployment?

Accepted Answer

A)  New classical economists.
B)  Keynesians.
C)  Supply-siders.
D)  Monetarists.E) B) and D)
F) C) and D)

Question 18

The hypothesis that people's spending decisions are based on all available information,including the anticipated effects of government intervention,is known as

Accepted Answer

A)  The velocity of money.
B)  Rational expectations.
C)  Fiscal expectations.
D)  Rational responses.E) A) and B)
F) B) and C) B

Question 19

The In the News article titled "It's official: the Great Recession ended last summer" states that the recession that started in December 2007 lasted until June 2009.The National Bureau of Economic Research took over a year to announce that the recession had ended.This suggests that

Accepted Answer

A)  There are significant lags in response to policy.
B)  The political business cycle is to blame for the economic situation.
C)  Measurement difficulties prevent policy makers from identifying what is happening in the economy.
D)  Economists could not agree on policy priorities.E) All of the above
F) B) and C)

Question 20

A supply-side policy to cure inflation would include

Accepted Answer

A)  A minimum wage increase.
B)  Tax increases.
C)  Deregulation.
D)  A reserve requirement decrease.E) All of the above
F) B) and D) C

Exam 18: Theory Versus Reality

Which of the following policy obstacles could occur because it is difficult to know how market participants will respond to specific prices?

Correct AnswerverifiedShow Answer

The idea that no one knows for certain the shape of the aggregate supply curve contributes to

Correct AnswerverifiedShow Answer

Since the Second World War,the severity of the business cycle has moderated. The ups and downs of the economy have been less pronounced since World War II.

Correct AnswerverifiedShow Answer

Fine-tuning involves the adoption of fixed policy rules regardless of the economic situation. Fine-tuning involves the use of policy in response to changes in the economy to maintain full employment.

Correct AnswerverifiedShow Answer

Which of the following is the appropriate order of policy responses?

Correct AnswerverifiedB

An inflationary GDP gap is equal to the

Correct AnswerverifiedShow Answer

Which of the following policy options would tend to offset each other?

Correct AnswerverifiedShow Answer

The case for a "hands off" economic policy is based on the widely held belief that

Correct AnswerverifiedShow Answer

Refer to Figure 18.2.A shift from AS2 to AS1 may result from

Correct AnswerverifiedShow Answer

A tax cut can best be characterized as

Correct AnswerverifiedShow Answer

Which of the following is true about the U.S.economy?

Correct AnswerverifiedShow Answer

The structural deficit is

Correct AnswerverifiedShow Answer

Which of the following is a responsibility of Congress?

Correct AnswerverifiedShow Answer

Politicians might hesitate to increase income and in-kind transfers to the poor because this could cause

Correct AnswerverifiedShow Answer

New classical economists differ from traditional classical economists because new classical economists

Correct AnswerverifiedShow Answer

Which of the following articles in the text best represents a measurement problem?

Correct AnswerverifiedShow Answer

Which of the following believes that the money supply should be expanded at a steady,predictable rate to ensure a natural rate of unemployment?

Correct AnswerverifiedShow Answer

The hypothesis that people's spending decisions are based on all available information,including the anticipated effects of government intervention,is known as

Correct AnswerverifiedB

The In the News article titled "It's official: the Great Recession ended last summer" states that the recession that started in December 2007 lasted until June 2009.The National Bureau of Economic Research took over a year to announce that the recession had ended.This suggests that

Correct AnswerverifiedShow Answer

A supply-side policy to cure inflation would include

Correct AnswerverifiedC

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Refer to Figure 18.2.A shift from AS₂ to AS₁ may result from

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified
C