ECON: Exam 3, Assignment 11 – Flashcards
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1) A rational expectation is A) the forecast that automatically carries over from past forecasts. B) a forecast devoid of all emotions. C) a forecast which perfectly foretells the future. D) the best possible forecast based upon all relevant information.
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D
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2) The forces that generate economic growth are those that shift the A) long-run aggregate supply curve rightward. B) long-run aggregate supply curve leftward. C) aggregate demand curve leftward. D) None of the above answers are correct.
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A
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3) Suppose the growth rate of the quantity of money increased from 5 percent per year to 8 percent per year. According to the ________, this event would trigger a business cycle expansion. A) monetarist cycle model B) aggregate supply cycle model C) Keynesian cycle model D) real business cycle model
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A
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4) The Phillips curve shows the relationship between the A) nominal interest rate and the real interest rate. B) real interest rate and the unemployment rate. C) expected rate of inflation and the nominal interest rate. D) unemployment rate and the inflation rate.
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D
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5) Demand-pull inflation persists in the long-run because of A) continuing increases in aggregate supply. B) continuing increases in the quantity of money by the central bank (FED). C) continuing increases in government expenditures. D) continuing increases in real wage rates.
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B
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6) In the above figure, suppose that the economy currently is at point A. If the government engages in 6) expansionary monetary and fiscal policy and this is NOT anticipated by the public, the economy moves to a point such as point A) C. B) B. C) D. D) E.
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B
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7) The long-run Phillips curve A) is horizontal. B) is vertical. C) slopes downward. D) slopes upward.
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B
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8) Moving leftward along the short-run Phillips curve indicates A) that higher unemployment leads to a higher inflation rate. B) a natural rate of unemployment that does not vary with inflation. C) a tradeoff between inflation and unemployment so that higher inflation is related to lower unemployment. D) that higher inflation leads to a higher unemployment rate.
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C
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9) A key element of the new classical model of the business cycle is A) rational expectations. B) random fluctuations in technology. C) sticky prices. D) a horizontal SRAS curve.
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A
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10) New Keynesian economists believe that ________ is influenced by ________. A) todayʹs economic variables; yesterdayʹs rational expectations of the price level B) yesterdayʹs rational expectations of the price level; todayʹs economic variables; C) yesterdayʹs economic variables; todayʹs rational expectations of the money wage D) todayʹs economic variables; todayʹs rational expectations of the price level
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A
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11) The ________ cycle theory states that only unanticipated or unexpected policy actions or economic events are the main source of business cycles. A) monetarist B) Keynesian C) new Keynesian D) new classical
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D
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12) Which theory emphasizes frequent changes in investment because of ʺanimal spiritsʺ as the main source of economic fluctuations? A) Keynesian cycle theory B) new classical cycle theory C) monetarist cycle theory D) real business cycle theory
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A
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13) In monetarist business cycle theory, the factor leading to a business cycle is changes in A) the growth rate of the quantity of money. B) net exports. C) investment spending. D) consumer spending.
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A
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14) In the real business cycle model, the quantity of money A) can decrease the effect from technology shocks. B) has no effect on real GDP. C) can change the real wage rate. D) can increase the real interest rate.
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B
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15) Whenever the federal government spends more than it receives in tax revenue, then by definition it A) operates a balanced budget. B) runs a budget deficit. C) runs a budget surplus. D) increases economic growth.
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B
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16) The idea that a government budget deficit decreases private investment sending through higher interest rates is called A) the capital investment effect. B) the crowding-out effect. C) government dissaving. D) the Ricardo-Barro effect.
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B
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17) Comparing the fiscal imbalance for the current generation versus future generations, it is the case that A) future generations pay a larger share of the fiscal imbalance. B) the current generation pays a larger share of the fiscal imbalance. C) each generation pays all of its fiscal imbalance. D) each generation pays half of the fiscal imbalance.
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A
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18) In order for the United States to repay its international debt, the United States would need to A) have a surplus of imports over exports. B) cut taxes. C) have a current account deficit. D) have a surplus of exports over imports.
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D
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19) Automatic stabilizers A) require an act of Congress. B) are caused by a change in government expenditures. C) are triggered by the business cycle. D) are caused by changes in personal tax rates.
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C
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20) The structural deficit is the deficit A) that would occur at full employment. B) during a recession. C) during an expansion. D) caused by the business cycle.
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A
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21) The cyclical deficit is the deficit A) during a recession. B) that would occur at full employment. C) caused by policy makers. D) during an expansion.
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A
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22) The difference between automatic stabilizers (automatic fiscal policy) and discretionary fiscal policy is that A) Congress initiates automatic fiscal policy. B) the President initiates discretionary fiscal policy. C) the President has nothing to do with discretionary fiscal policy. D) Congress must pass laws implementing discretionary fiscal policy.
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D
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23) Real business cycle theory says that the factor leading to the business cycle is changes in A) productivity. B) only aggregate demand. C) animal spirits. D) the growth rate of the quantity of money.
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A
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24) An increase in the natural unemployment rate shifts A) both the short-run and the long-run Phillips curves rightward. B) the short-run but not the long-run Phillips curve rightward. C) neither the short-run nor the long-run Phillips curve. D) the long-run but not the short-run Phillips curve rightward.
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A
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25) If the governmentʹs budget is in surplus even when the economy is at full employment, the surplus is said to be A) cyclical. B) discretionary. C) persisting. D) structural.
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D
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26) If policy is anticipated or expected, the economy moves from ____________ in both the demand-pull inflation model and the recession model. A) A to C B) A to B and B to C C) A to B and B to Z D) A to Z
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A
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27) Supply side economics focuses on; A) cutting the high marginal tax rates. B) cutting government regulation. C) cutting the size of government. D) all of the answers in this question.
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D
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28) In the equation of exchange, V represents: A) velocity or the turnover of the existing money stock. B) velocity which measures how fast the Fed is increasing the money supply. C) victory of the FED over the other players in the economic system. D) Voldemort and other types of evil.
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A
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29) The monetarist school of thought: A) believes that velocity is predictable making monetary policy effective. B) believes that velocity is predictable making monetary policy ineffective. C) believes that velocity is unpredictable making monetary policy effective. D) believes that velocity is unpredictable making monetary policy effective.
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A
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30) Keynesians believe that velocity is: A) unstable. B) stable. C) constant and never changes. D) can be established by government action.
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A
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31) Ceteris paribus, if velocity is decreasing, money demand is: A) increasing. B) decreasing. C) staying the same. D) decreasing rapidly.
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A
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32) The monetary rule states that money supply growth should be set equal to the: A) long run growth of real GDP. B) long run growth of employment. C) long run growth of velocity. D) short-run growth of real GDP.
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A
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33) P*Q in the equation of exchange equals: A) nominal GDP. B) real GDP. C) money stock. D) velocity.
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A
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34) The real business cycle theory proposes that:: A) aggregate demand shocks do not effect the business cycle. B) aggregate demand shocks do effect the business cycle. C) aggregate demand shocks are the only factors affecting the business cycle. D) government activism in the macro economy is essential.
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A
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35) Taken to its logical conclusion, the real business cycle theory proposes that: A) actual GDP always equals potential GDP, making all unemployment involuntary. B) actual GDP never equals potential GDP, making all unemployment involuntary. C) actual GDP always equals potential GDP, making all unemployment voluntary. D) actual GDP is always greater than potential GDP.
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C
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36) Sticky prices and wages are a property of the__________ school of thought. A) Keynesian B) classical C) rational expectations/new classical D) monetarist E) real business cycle
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A
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37) Adaptive expectations are a property of the__________ school of thought. A) real business cycle B) Keynesian C) monetarist D) classical E) rational expectations/new classical
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C
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38) Rational expectations are a property of the__________ school of thought. A) Keynesian B) rational expectations/new classical C) monetarist D) classical E) real business cycle
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B
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39) The business cycle is caused by supply side shocks only primarily a productivity slowdown is a property of the__________ school of thought. A) Keynesian B) real business cycle C) monetarist D) classical E) rational expectations/new classical
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B
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40) ʺIf policy is anticipated, there is no short-runʺ is a property of the__________ school of thought. A) Keynesian B) rational expectations/new classical C) real business cycle D) monetarist E) classical
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B
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41) ʺCurrent economic parameters are determined by past rational expectationsʺ is a property of the__________ school of thought. A) classical B) rational expectations/new classical C) New Keynesian D) real business cycle E) monetarist
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C
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42) If decision makers become so pessimistic that all new money injected into the economy by the FED becomes hoarded and not loaned out or spent, we are in a: A) velocity trap. B) new classical trap. C) liquidity trap. D) 1970ʹs.
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C
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43) As real GDP increases and the economy improves (ceteris paribus) government outlays and expenditures tend to: A) decline. B) increase. C) stay the same. D) drop to zero.
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A
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44) As real GDP increases and the economy improves (ceteris paribus) government tax revenues tend to: A) increase. B) drop to zero. C) stay the same. D) decline.
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A
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45) The budget deficit A) is the total outstanding borrowing by the government. B) decreased during the Obama Administration. C) reached its peak in the year 2000. D) is the difference between government outlays and tax revenues.
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D
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46) If the federal governmentʹs tax revenues are greater than its outlays, then the federal budget has a A) transfer payment. B) deficit. C) balanced budget. D) surplus.
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D
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47) If the tax rate rises with income, the tax system is: A) regressive. B) proportional. C) progressive. D) none of the above.
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C
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48) Sales taxes are generally: A) progressive. B) regressive. C) proportional. D) none of the above.
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B
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49) The U.S. income tax is: A) progressive. B) proportional. C) regressive. D) none of the above.
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A
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50) Suppose you make $20,000 per year and Joe makes $100,000 per year, if you both pay $1,000 tax 50) the system is: A) proportional B) progressive C) regressive D) none of the above.
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C
