Question 1

Exhibit 16-4
 1 to SRAS2, then LRAS1 to LRAS2. B) AD1 to AD2, then LRAS1 to LRAS2. C) LRAS1 to LRAS2, then AD1 to AD2. D) LRAS1 to LRAS2, then SRAS1 to SRAS2. E) none of the above" class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 16-4. The economy is initially at point A, in long run equilibrium. A real business cycle would be represented by the following sequence of curve shifts:

Accepted Answer

A)  SRAS1 to SRAS2, then LRAS1 to LRAS2.
B)  AD1 to AD2, then LRAS1 to LRAS2.
C)  LRAS1 to LRAS2, then AD1 to AD2.
D)  LRAS1 to LRAS2, then SRAS1 to SRAS2.
E)  none of the aboveF) A) and B)
G) A) and C)

Question 2

The Phillips curve that Samuelson and Solow fitted to their data was

Accepted Answer

A)  upward sloping.
B)  downward sloping.
C)  vertical.
D)  horizontal.E) C) and D)
F) A) and D)

Question 3

Rational expectations theory is also known as the Friedman fooling theory.

Accepted Answer

A) True 
 B)False

Question 4

The economy is in long-run equilibrium when government unexpectedly increases aggregate demand. The expected inflation rate is slow to adjust to the higher (actual)  inflation rate. If follows that in the short run, according to the Friedman natural rate theory, __________ rises and the __________ falls.

Accepted Answer

A)  the unemployment rate; price level
B)  Real GDP rises; unemployment rate
C)  nominal interest rate; real interest rate
D)  the unemployment rate; Real GDP level
E)  none of the aboveF) C) and E)
G) A) and C)

Question 5

Stagflation is the simultaneous occurrence of

Accepted Answer

A)  low inflation and high unemployment.
B)  high inflation and low unemployment.
C)  low inflation and low unemployment.
D)  high inflation and high unemployment.E) B) and C)
F) A) and D)

Question 6

One implication of the policy ineffectiveness proposition (PIP)  is that expansionary __________ policy is not effective at raising __________.

Accepted Answer

A)  monetary; Real GDP
B)  monetary; the price level
C)  fiscal; the price level
D)  a and b
E)  a and cF) A) and B)
G) A) and C)

Question 7

Exhibit 16-6
 
-Refer to Exhibit 16-6. The economy is initially at point B. There is an unanticipated increase in aggregate demand, prices and wages are flexible, the economy is self-regulating, and people hold adaptive expectations. In the short run the economy will move to point __________ and in the long run the economy will be at point __________.

Accepted Answer

A)  F; C
B)  F; D
C)  E; B
D)  E; C
E)  E; AF) C) and D)
G) B) and E)

Question 8

Exhibit 16-5
 
-Refer to Exhibit 16-5. If the economy is at point 6, and the natural unemployment rate exists at points 1, 4, and 5, it follows that

Accepted Answer

A)  Real GDP is greater than Natural Real GDP.
B)  Real GDP is less than Natural Real GDP.
C)  Real GDP is the same as Natural Real GDP.
D)  the economy is in a recessionary gap.
E)  b and dF) D) and E)
G) A) and E)

Question 9

Exhibit 16-3
 
-Refer to Exhibit 16-3. The economy is at point C. If a decrease in aggregate demand is correctly anticipated in the short run, new classical theory would predict

Accepted Answer

A)  no movement from point C.
B)  immediate movement to point C'.
C)  immediate movement to point B.
D)  immediate movement to point A.E) None of the above
F) A) and D)

Question 10

New classical economists believe that if policy is correctly anticipated and if rational expectations hold, when the Fed increases the money supply the result will be a(n)  ______________ in the price level and ____________________________.

Accepted Answer

A)  decrease; no change in Real GDP
B)  decrease; decrease in Real GDP
C)  increase; no change in Real GDP
D)  increase; increase in Real GDPE) B) and C)
F) A) and D)

Question 11

New classical economists build their theories upon

Accepted Answer

A)  adaptive expectations.
B)  inflexible wages and prices.
C)  rational expectations.
D)  the assumption that it takes a long time for markets to achieve equilibrium values.E) A) and C)
F) B) and C)

Question 12

Which of the following assumptions is held by both the classical view and the new classical view?

Accepted Answer

A)  rational expectations
B)  flexible wages and prices
C)  flexible wages and sticky prices
D)  adaptive expectations
E)  a and bF) C) and D)
G) B) and D)

Question 13

Exhibit 16-1
 
-Refer to Exhibit 16-1. Milton Friedman would most likely have called the vertical line on which points A and C are located the

Accepted Answer

A)  long-run aggregate supply curve.
B)  Friedman curve.
C)  long-run Phillips curve.
D)  short-run aggregate supply curve.
E)  short-run Phillips curve.F) A) and C)
G) C) and E)

Question 14

As long as some people anticipate policy, the economic consequences may be the same as if all persons do so.

Accepted Answer

A) True 
 B)False

Question 15

Rational expectations are based on the past alone, while adaptive expectations are based on the past, the present, and the future.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following changes would not be considered a likely source of changes in Real GDP according to real business cycle theory?

Accepted Answer

A)  a natural disaster
B)  a technological change
C)  a change in the price of an important input
D)  a change in the money supply
E)  none of the aboveF) None of the above
G) D) and E)

Question 17

According to Milton Friedman, the reason there are two Phillips curves is because

Accepted Answer

A)  the expected inflation rate is always higher than the actual inflation rate.
B)  wages are inflexible.
C)  prices are inflexible.
D)  the expected inflation rate does not instantaneously adjust to changes in the actual inflation rate.
E)  the expected inflation rate is equal to 1 minus the actual inflation rate.F) A) and E)
G) B) and D)

Question 18

Explain the difference between how adaptive expectations are formed and how rational expectations are formed. How does this difference affect the speed at which economic variables are expected to change?

Accepted Answer

Adaptive expectations are based on obser...

Question 19

Milton Friedman argued that there is a

Accepted Answer

A)  permanent downward-sloping Phillips curve.
B)  temporary downward-sloping Phillips curve.
C)  temporary upward-sloping Phillips curve.
D)  permanent upward-sloping Phillips curve.E) None of the above
F) A) and D)

Question 20

The economist who won the Nobel Prize in Economics in 1995, and whose name is closely connected with rational expectations theory, is

Accepted Answer

A)  Robert Solow.
B)  Paul Samuelson.
C)  Milton Friedman.
D)  Robert Lucas.
E)  John Maynard Keynes.F) A) and B)
G) C) and D)

Exam 16: Expectations Theory and the Economy

Exhibit 16-3 -Refer to Exhibit 16-3. The economy is at point C. If a decrease in aggregate demand is correctly anticipated in the short run, new classical theory would predict

Correct Answer
verified

Rational expectations theory is also known as the Friedman fooling theory.

Correct Answer
verified

As long as some people anticipate policy, the economic consequences may be the same as if all persons do so.

Correct Answer
verified

The Phillips curve that Samuelson and Solow fitted to their data was

Correct Answer
verified

Stagflation is the simultaneous occurrence of

Correct Answer
verified

Milton Friedman argued that there is a

Correct Answer
verified

Rational expectations are based on the past alone, while adaptive expectations are based on the past, the present, and the future.

Correct Answer
verified

New classical economists build their theories upon

Correct Answer
verified

The economist who won the Nobel Prize in Economics in 1995, and whose name is closely connected with rational expectations theory, is

Correct Answer
verified

Explain the difference between how adaptive expectations are formed and how rational expectations are formed. How does this difference affect the speed at which economic variables are expected to change?

Correct Answer
verified
Adaptive expectations are based on obser...
View Answer

Exhibit 16-4 -Refer to Exhibit 16-4. The economy is initially at point A, in long run equilibrium. A real business cycle would be represented by the following sequence of curve shifts:

Correct Answer
verified

Exhibit 16-5 -Refer to Exhibit 16-5. If the economy is at point 6, and the natural unemployment rate exists at points 1, 4, and 5, it follows that

Correct Answer
verified

Exhibit 16-1 -Refer to Exhibit 16-1. Milton Friedman would most likely have called the vertical line on which points A and C are located the

Correct Answer
verified

The economy is in long-run equilibrium when government unexpectedly increases aggregate demand. The expected inflation rate is slow to adjust to the higher (actual) inflation rate. If follows that in the short run, according to the Friedman natural rate theory, rises and the falls.

Correct Answer
verified

One implication of the policy ineffectiveness proposition (PIP) is that expansionary policy is not effective at raising .

Correct Answer
verified

According to Milton Friedman, the reason there are two Phillips curves is because

Correct Answer
verified

New classical economists believe that if policy is correctly anticipated and if rational expectations hold, when the Fed increases the money supply the result will be a(n) in the price level and ______________.

Correct Answer
verified

Which of the following changes would not be considered a likely source of changes in Real GDP according to real business cycle theory?

Correct Answer
verified

Correct Answer
verified

Which of the following assumptions is held by both the classical view and the new classical view?

Correct Answer
verified

Exam 16: Expectations Theory and the Economy

Exhibit 16-3 -Refer to Exhibit 16-3. The economy is at point C. If a decrease in aggregate demand is correctly anticipated in the short run, new classical theory would predict

Correct AnswerverifiedShow Answer

Rational expectations theory is also known as the Friedman fooling theory.

Correct AnswerverifiedShow Answer

As long as some people anticipate policy, the economic consequences may be the same as if all persons do so.

Correct AnswerverifiedShow Answer

The Phillips curve that Samuelson and Solow fitted to their data was

Correct AnswerverifiedShow Answer

Stagflation is the simultaneous occurrence of

Correct AnswerverifiedShow Answer

Milton Friedman argued that there is a

Correct AnswerverifiedShow Answer

Rational expectations are based on the past alone, while adaptive expectations are based on the past, the present, and the future.

Correct AnswerverifiedShow Answer

New classical economists build their theories upon

Correct AnswerverifiedShow Answer

The economist who won the Nobel Prize in Economics in 1995, and whose name is closely connected with rational expectations theory, is

Correct AnswerverifiedShow Answer

Explain the difference between how adaptive expectations are formed and how rational expectations are formed. How does this difference affect the speed at which economic variables are expected to change?

Correct AnswerverifiedAdaptive expectations are based on obser...View AnswerShow Answer

Exhibit 16-4 -Refer to Exhibit 16-4. The economy is initially at point A, in long run equilibrium. A real business cycle would be represented by the following sequence of curve shifts:

Correct AnswerverifiedShow Answer

Exhibit 16-5 -Refer to Exhibit 16-5. If the economy is at point 6, and the natural unemployment rate exists at points 1, 4, and 5, it follows that

Correct AnswerverifiedShow Answer

Exhibit 16-1 -Refer to Exhibit 16-1. Milton Friedman would most likely have called the vertical line on which points A and C are located the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

One implication of the policy ineffectiveness proposition (PIP) is that expansionary __________ policy is not effective at raising __________.

Correct AnswerverifiedShow Answer

According to Milton Friedman, the reason there are two Phillips curves is because

Correct AnswerverifiedShow Answer

New classical economists believe that if policy is correctly anticipated and if rational expectations hold, when the Fed increases the money supply the result will be a(n) ______________ in the price level and ____________________________.

Correct AnswerverifiedShow Answer

Which of the following changes would not be considered a likely source of changes in Real GDP according to real business cycle theory?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following assumptions is held by both the classical view and the new classical view?

Correct AnswerverifiedShow Answer

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Adaptive expectations are based on obser...
View Answer

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Correct Answer
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One implication of the policy ineffectiveness proposition (PIP) is that expansionary policy is not effective at raising .

Correct Answer
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Correct Answer
verified

New classical economists believe that if policy is correctly anticipated and if rational expectations hold, when the Fed increases the money supply the result will be a(n) in the price level and ______________.

Correct Answer
verified

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