55. Which of the following techniques adopted by the central banks around the world have helped them to achieve
credibility?
a.
Maintaining a low rate of inflation through tight monetary policies
b.
Publicly announcing a target rate of inflation
c.
Refusing to bail out the commercial banks at times of failure
d.
Supporting all government budget deficits through deficit financing
e.
Reducing unemployment amidst high inflation
MACR.BOYE.16.75 – ch. 14, 5
Credibility and Time Inconsistency
56. The business cycle that results from the election campaign of incumbent politicians is called a:
a.
monetary business cycle.
b.
time consistent business cycle.
c.
political business cycle.
d.
real business cycle.
e.
historical business cycle.
MACR.BOYE.16.76 – ch. 14, 6
Sources of Business Cycles
57. If the public expects the incumbent administration to stimulate the economy shortly before an election:
a.
the unemployment rate will fall at the cost of higher inflation.
b.
the economy will move up the short-run Phillips curve.
c.
lower inflation will prevail, and the rate of unemployment will remain unchanged.
d.
the economy will immediately move up the long-run Phillips curve.
e.
neither inflation nor the unemployment rate will change.
MACR.BOYE.16.75 – ch. 14, 5
Credibility and Time Inconsistency
58. Which of the following will be a short run impact of a pre-election expansionary fiscal policy, public expectations
remaining constant?
a.
An increase in unemployment
b.
A decline in real GDP
c.
An increase in real GDP
d.
A fall in the rate of inflation
e.
An economic recession
59. During the 1970s, real shocks to the U.S. economy caused:
a.
an increase in both aggregate demand and aggregate supply.
b.
an increase in both the price level and the unemployment rate.
c.
a leftward shift of the Phillips curve.
d.
a decline in inflation but higher unemployment.
e.
a decline in both the price level and the unemployment rate.
MACR.BOYE.16.77 – ch. 14, 7
Sources of Business Cycles
60. Which of the following would not be considered a real variable in determining a real business cycle?
a.
A change in technology
b.
A labor strike
c.
An increase in the money supply
d.
A change in tastes
e.
A substantial weather event
61. A recessionary real shock will:
a.
shift the aggregate demand curve to the left and reduce real GDP.
b.
shift the aggregate demand curve to the right and increase real GDP.
c.
shift the aggregate supply curve to the left and increase real GDP.
d.
shift the aggregate supply curve to the left and reduce real GDP.
e.
shift the aggregate supply curve to the right and increase real GDP.
62. Consider an economy in equilibrium, and assume no change in aggregate demand. An earthquake that destroys many
factories across the country would result in a(n):
a.
increase in the average price level and a decrease in real GDP.
b.
increase in the average price level and no change in real GDP.
c.
increase in the average price level and an increase in real GDP.
d.
decrease in the average price level and an increase in real GDP.
e.
decrease in the average price level and a decrease in real GDP.
63. Which of the following shifts the aggregate supply curve to the left?
a.
An improvement in computer technology
b.
A war that forces people to ration their food and their use of energy
c.
An increase in real wage rates
d.
Discovery of a new oil field
e.
Lower oil prices in the world market
United States – Unemployment
Sources of Business Cycles
64. A sudden technological breakthrough in an economy would:
a.
have no impact on real GDP.
b.
cause aggregate demand to fall.
c.
lower the natural rate of unemployment.
d.
increase the price level.
e.
cause aggregate supply to rise.
MACR.BOYE.16.77 – ch. 14, 7
United States – Unemployment
Sources of Business Cycles
65. To some economists, the “Great moderation” means:
a.
a small change in real wages.
b.
a low inflation rate.
c.
a low unemployment rate.
d.
low output growth variability.
e.
low money supply growth.
MACR.BOYE.16.77 – ch. 14, 7
Sources of Business Cycles
66. Which of the following factors have not contributed to the “Great Moderation” of real GDP in the U.S. over the past
20 years?
a.
Better inventory management
b.
Better macroeconomic policy
c.
Greater availability of financial products for lending and borrowing
d.
Imposition of a ceiling on interest rates
e.
Smaller real shocks
MACR.BOYE.16.77 – ch. 14, 7
United States – Unemployment
Sources of Business Cycles
67. Which of the following is most likely to have contributed to better inventory management?
a.
Stability in the market demand
b.
Stability in the average price level
c.
Perfect forecasting by the firms
d.
Reduced variability in the input costs
e.
Improvements in information technology and communication
MACR.BOYE.16.77 – ch. 14, 7
United States – Inflation
United States – Unemployment
Sources of Business Cycles
68. In the presence of Regulation Q, when interest rates would rise, _____.
a.
the transaction demand for money in the economy would increase
b.
people would invest in the bond markets
c.
the economy would grow faster
d.
people would withdraw money from banks seeking higher interest rates elsewhere
e.
the U.S. dollar would depreciate
MACR.BOYE.16.77 – ch. 14, 7
United States – Inflation
Sources of Business Cycles
69. Identify the correct statement.
a.
The removal of financial market regulations has lowered the probability of a financial crisis to zero.
b.
Investment in residential housing in the U.S. was less volatile during the era prior to the removal of Regulation
Q.
c.
Investment in residential housing in the U.S. was more volatile after the removal of Regulation Q.
d.
The removal of financial market regulations lowered output volatility.
e.
The removal of financial market regulations increased variability in consumer spending.
United States – Analytic – BB-Legal
Sources of Business Cycles
70. In the 1980s, U.S. economists acknowledged that it was not possible to exploit the trade-off suggested by the Philips
curve of the 1960s. This realization led to more stable macroeconomic policy, which in turn contributed to:
a.
more volatility in real output.
b.
less volatility in real output.
c.
complete removal of unemployment.
d.
more volatility in the price level.
e.
short business cycles.
MACR.BOYE.16.77 – ch. 14, 7
Sources of Business Cycles
71. Government spending can be financed by all of the following, except:
a.
personal income taxes.
b.
investment spending.
c.
government borrowing.
d.
money creation.
e.
excise taxes.
MACR.BOYE.16.77 – ch. 14, 7
United States – Monetary and Fiscal Policy
The Link between Monetary and Fiscal Policies
72. The change in the money supply in an economy is measured as:
a.
the difference between the government deficit and government borrowing.
b.
the sum of a change in high-powered money and the change in tax revenues.
c.
the difference between government borrowing and government spending.
d.
the ratio of the change in excess reserves to the deposit expansion multiplier.
e.
the change in the government budget deficit.
MACR.BOYE.16.78 – ch. 14, 8
73. If the government fiscal deficit equals $240 million and government borrowing equals $120 million, what is the
change in the money supply in the economy?
a.
$120 million
b.
$240 million
c.
$360 million
d.
$480 million
e.
$600 million
MACR.BOYE.16.78 – ch. 14, 8
United States – Reflective Thinking
The Link between Monetary and Fiscal Policies
74. If the government fiscal deficit equals $78 billion, government borrowing equals $38 million, and tax revenue equals
$92 billion, what is the value of the change in the money supply?
a.
$40 billion
b.
$132 billion
c.
$18 billion
d.
$208 billion
e.
$78 billion
MACR.BOYE.16.78 – ch. 14, 8
United States – Reflective Thinking
The Link between Monetary and Fiscal Policies
75. Assume that taxes are constant. If the government borrows $17 billion in new funds and has a budget deficit of $35
billion, then the central bank has to:
a.
reduce the money supply by $52 billion.
b.
reduce the money supply by $35 billion.
c.
increase the money supply by $17 billion.
d.
increase the money supply by $35 billion.
e.
increase the money supply by $18 billion.
MACR.BOYE.16.78 – ch. 14, 8
The Link between Monetary and Fiscal Policies
76. When the money supply increases by $5 billion, tax revenues are $10 billion, and government borrowing is $30
billion, government spending must equal:
a.
$10 billion.
b.
$15 billion.
c.
$20 billion.
d.
$35 billion.
e.
$45 billion.
MACR.BOYE.16.78 – ch. 14, 8
The Link between Monetary and Fiscal Policies
77. The money supply in an economy increases when, other things equal, _____.
a.
the government surplus rises
b.
the amount of government borrowing rises
c.
tax revenues increase
d.
government spending increases
e.
the government deficit falls
MACR.BOYE.16.78 – ch. 14, 8
United States – Reflective Thinking
The Link between Monetary and Fiscal Policies
78. The money supply in an economy declines when, other things equal, _____.
a.
government spending exceeds borrowing
b.
government borrowing exceeds tax revenues and there is a deficit
c.
government borrowing exceeds the government deficit
d.
government spending exceeds tax revenues
e.
government spending exceeds borrowing and there is a surplus
MACR.BOYE.16.78 – ch. 14, 8
The Link between Monetary and Fiscal Policies
79. Monetary reform is a new monetary policy that includes:
a.
the introduction of a new unit of currency.
b.
a reduction in borrowing.
c.
an increase in government spending.
d.
the issuing of more currency.
e.
an increase in taxes.
80. Hyperinflation in developing countries is typically the result of:
a.
low interest rates.
b.
an economic recession.
c.
high income tax rates.
d.
large government fiscal deficits.
e.
large trade deficits.
Easy
MACR.BOYE.16.78 – ch. 14, 8
United States – Monetary and Fiscal Policy
The Link between Monetary and Fiscal Policies
Knowledge
81. Which of the following was sanctioned by the Zimbabwe government in January 2009 as a substitute currency?
a.
Japanese yen
b.
Chinese yuan
c.
Mexican peso
d.
U.S. dollars
e.
Argentine peso
d
MACR.BOYE.16.78 – ch. 14, 8
The Link between Monetary and Fiscal Policies
82. The Phillips curve describes a negative relationship between unemployment and inflation.
a.
True
b.
False
MACR.BOYE.16.78 – ch. 14, 8
The Link between Monetary and Fiscal Policies
83. U.S. economic data from 1955 to 2000 show that both unemployment and inflation rates increased during that period.
a.
True
b.
False
True
Easy
The Phillips Curve
Knowledge
84. A decline in aggregate demand is analogous to an upward movement along the short-run Phillips curve.
a.
True
b.
False
85. The long-run Phillips curve is a horizontal line at the natural rate of unemployment.
a.
True
b.
False
False
Easy
MACR.BOYE.16.72 – ch. 14, 2
The Phillips Curve
Knowledge
86. The shape of the long-run Phillips curve suggests that over a long time horizon there is a magnified trade-off between
the unemployment rate and inflation.
a.
True
b.
False
Easy
MACR.BOYE.16.71 – ch. 14, 1
The Phillips Curve
Knowledge
87. The long-run Phillips curve corresponds to the vertical region of the long-run aggregate supply curve.
a.
True
b.
False
True
MACR.BOYE.16.72 – ch. 14, 2
The Phillips Curve
Knowledge
Revised
88. One of the most important factors in determining the natural rate of unemployment is demographic change, such as a
change in the age of the labor force.
a.
True
b.
False
True
Easy
MACR.BOYE.16.72 – ch. 14, 2
Economic Insight – The Natural Rate of Unemployment
Knowledge
89. The long-run Phillips curve assumes that every unemployed worker who is looking for a job has a constant reservation
wage.
a.
True
b.
False
False
Easy
MACR.BOYE.16.73 – ch. 14, 3
Knowledge
False
Challenging
MACR.BOYE.16.72 – ch. 14, 2
The Phillips Curve
Comprehension
90. The reservation wage is the minimum wage rate that an unemployed worker must receive before employment is
accepted.
a.
True
b.
False
91. If the actual unemployment rate is below the natural rate of unemployment, then the actual inflation rate must exceed
the expected inflation rate, and the economy will be operating along the short-run Phillips curve.
a.
True
b.
False
92. Business inventories tend to fall after an unexpected increase in aggregate demand.
a.
True
b.
False
True
Easy
MACR.BOYE.16.73 – ch. 14, 3
Knowledge
93. Suppose workers expect the inflation rate to be 3.6 percent and they receive a nominal wage increase of 7.5 percent. If
the actual inflation rate turns out to be 2.8 percent, workers will receive a lower real wage than expected.
a.
True
b.
False
True
Easy
MACR.BOYE.16.73 – ch. 14, 3
The Role of Expectations
Knowledge
94. One factor that explains the short-run trade-off between inflation and unemployment is labor contracts that fix wages
for an extended period of time.
a.
True
b.
False
True
Easy
MACR.BOYE.16.73 – ch. 14, 3
The Role of Expectations
Knowledge
95. When aggregate demand is lower than expected, inventories decline and the rate of unemployment falls.
a.
True
b.
False
False
Easy
MACR.BOYE.16.73 – ch. 14, 3
Knowledge
96. If nominal wages are contractually fixed and cannot change in the short run, then an unexpected decline in the
inflation rate will reduce business revenues and lower the unemployment rate.
a.
True
b.
False
97. Wage contracts force businesses to adjust wages rather than employment in response to an unexpected change in
aggregate demand.
a.
True
b.
False
Moderate
MACR.BOYE.16.73 – ch. 14, 3
The Role of Expectations
Application
98. Wages are said to be “sticky downwards” because this promotes good work effort and ensures that workers and firms
share the same goals of efficient production and profit maximization.
a.
True
b.
False
True
Easy
Economic Insight – Why Wages Don’t Fall During Recessions
Knowledge
99. Worldwide statistics prove that, when economies experience recessions, unemployment rates rise and wages fall.
a.
True
b.
False
False
Easy
MACR.BOYE.16.73 – ch. 14, 3
Economic Insight – Why Wages Don’t Fall During Recessions
Knowledge
100. Suppose the inflation rate has been 6 percent over the past four years. If the Federal Reserve announces an increase
in the growth of the money supply, adaptive expectations would predict an inflation rate of 6 percent.
a.
True
b.
False
101. According to the theory of rational expectations, the economy always remains at the natural rate of unemployment,
irrespective of policy changes.
a.
True
b.
False
The Role of Expectations
Knowledge
102. The only difference between adaptive and rational expectations is that the theory of adaptive expectations assumes
economic agents to be irrational.
a.
True
b.
False
False
Easy
MACR.BOYE.16.74 – ch. 14, 4
Knowledge
Revised
103. A fiscal policy that changes over time as economic conditions change is considered to be time inconsistent.
a.
True
b.
False
True
Easy
Credibility and Time Inconsistency
Knowledge
104. If the Fed follows a high-growth monetary policy, but workers believe that the policy is time inconsistent, then low–
wage contracts will be in force and unemployment will decline.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.74 – ch. 14, 4
Knowledge
105. The pursuit of low unemployment rates must necessarily result in time-inconsistent government policies.
a.
True
b.
False
106. Irrespective of whether the inflation rate is high or low, if the inflation rate is above the expected level, the
unemployment rate in the economy will remain stable.
a.
True
b.
False
False
Easy
Credibility and Time Inconsistency
Knowledge
107. If the Fed aims to achieve a level of unemployment below its natural rate, it must follow time-inconsistent policies.
a.
True
b.
False
True
Easy
MACR.BOYE.16.75 – ch. 14, 5
Knowledge
108. In order to achieve an unemployment rate below the natural rate of unemployment, the Fed must pursue a policy of
low monetary growth during a time when the public expects high inflation.
a.
True
b.
False
False
Moderate
True
Challenging
Credibility and Time Inconsistency
Analysis
109. If credible low-money-growth policies were continually pursued by the Fed, nominal wages and prices would
eventually fall as the economic agents would expect lower inflation rates over time.
a.
True
b.
False
110. In the long run, the economy is better off if policymakers exploit the short-run trad-eoff between inflation and the
unemployment rate.
a.
True
b.
False
False
Easy
MACR.BOYE.16.75 – ch. 14, 5
Credibility and Time Inconsistency
Knowledge
111. The hypothesis of political business cycles is based on the assumption that a vertical Phillips curve always holds.
a.
True
b.
False
False
Easy
MACR.BOYE.16.76 – ch. 14, 6
United States – Unemployment
Sources of Business Cycles
Knowledge
112. A recessionary real shock is associated with an outward shift of the short-run Phillips curve and with a leftward shift
of the short-run aggregate supply curve.
a.
True
b.
False
Knowledge
113. According to Regulation Q, the maximum interest rate that the U.S. banks could pay on deposits was limited by the
Federal Reserve. This reduced volatility in the financial markets and largely benefited the U.S. banks.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.77 – ch. 14, 7
United States – Unemployment
Sources of Business Cycles
Knowledge
Revised
114. More stable macroeconomic policy does not contribute to less variability in real output.
a.
True
b.
False
False
Easy
MACR.BOYE.16.77 – ch. 14, 7
Sources of Business Cycles
Knowledge
115. Other things equal, the higher the fiscal deficit, the higher the required increase in base money.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.78 – ch. 14, 8
United States – Monetary and Fiscal Policy
The Link between Monetary and Fiscal Policies
Knowledge
116. Since the growth in the money supply is unrelated to government spending, fiscal policy and monetary policy can be
conducted independently.
a.
True
b.
False
False
Comprehension
117. The introduction of a new currency is generally sufficient to achieve a permanent reduction in the inflation rate.
a.
True
b.
False
Easy
United States – Monetary and Fiscal Policy
Knowledge
Moderate
MACR.BOYE.16.78 – ch. 14, 8
Knowledge