Quiz 12: The Business Cycle, Inflation, and Deflation

Business cycle events that arise solely from aggregate demand shifts are emphasized by the A) Keynesian and real business cycle theories. B) monetarist and real business cycle theories. C) Keynesian and monetarist cycle theories. D) none of the major theories.

Which of the following are business cycle theories that regard fluctuations in aggregate demand as the factor that is creating business cycles? I) Keynesian cycle theory II) real business cycle theory III) monetarist cycle theory A) I only B) I and II C) I and III D) I, II and III

Which of the following is NOT an aggregate demand, mainstream theory of the business cycle? A) Keynesian cycle theory B) monetarist cycle theory C) new Keynesian cycle theory D) real business cycle theory

In 2008, when a recession started, the growth of government expenditures on goods and services doubled compared to its growth in 2007. According to the aggregate demand theories of the business cycle A) government expenditure was at least a partial cause of the recession. B) government expenditure was not a cause of the recession. C) government expenditure was definitely the cause of the recession. D) None of the above answers are correct because aggregate demand theories of the business cycle focus only on investment and consumption expenditure.

In the Keynesian business cycle theory, business cycles begin with changes in A) inflation expectations. B) consumer sentiment. C) business confidence. D) the public's expectations about Fed policies.

The ________ states that the main source of economic fluctuations is volatile business confidence. A) real business cycle theory B) new classical cycle theory C) Keynesian cycle theory D) monetarist cycle theory

Fluctuations in business confidence is the factor leading to business cycles in the A) Keynesian cycle theory. B) new Keynesian cycle theory. C) new classical cycle theory. D) monetarist cycle theory.

The factor leading to business cycles in the Keynesian model is A) changes in business confidence. B) a speed up in money growth. C) unanticipated changes in aggregate demand. D) unanticipated changes in aggregate supply.

The Keynesian explanation of the business cycle is based on A) the inability of government policy-makers to predict the future course of the economy. B) shifts in monetary policy undertaken by the Federal Reserve. C) fluctuations in business confidence. D) unstable inflationary expectations.

The factor that leads to business cycles within the Keynesian cycle theory is A) the growth rate of labor productivity. B) the growth rate of the quantity of money. C) adverse shocks to international trade. D) fluctuations in business confidence.

Keynes used the term "animal spirits" to represent A) changes in people's consumption expenditures. B) the ease of forecasting. C) fluctuations in business confidence. D) investment based on hard facts about the future.

Which theory emphasizes frequent changes in investment because of "animal spirits" as the main source of economic fluctuations? A) real business cycle theory B) new classical cycle theory C) Keynesian cycle theory D) monetarist cycle theory

One model of the business cycle claims that volatile business confidence is the primary factor in starting a business cycle. This model is the A) real business cycle model. B) Keynesian cycle theory. C) aggregate supply model. D) new classical theory.

Which theory assumes that business cycles occur because of changes in business confidence? A) monetarist cycle theory B) real business cycle theory C) new classical cycle theory D) Keynesian cycle theory

Which of the following describes the Keynesian approach to the business cycle? I) Unanticipated shocks to aggregate supply drive expansions and recessions. II) The Keynesian theory is a real business cycle model of the economy. III) A decrease in business confidence can trigger a recession. A) I only B) III only C) I and II D) II and III

Suppose that managers forecasted a large decline in expected sales and profits and so their confidence plummets. According to the ________, this forecast might start a business cycle. A) Keynesian cycle theory B) circular flow theory C) monetarist cycle theory D) new classical cycle theory

Keynesians believe that A) money wage rate adjustments will quickly eliminate unemployment. B) aggregate demand changes tend to induce aggregate supply changes, offsetting any effect from changes in government expenditures. C) the economy will normally operate at full employment. D) a change in business confidence can affect the amount of investment in the economy.

The Keynesian explanation of the business cycle rests on several concepts, including A) rigid money wage rates. B) unstable monetary policy by the Fed. C) shocks to the rate of technological change. D) the desire of politicians to be re-elected.

Based on the Keynesian theory of the business cycle, if the economy is at its full-employment equilibrium and aggregate demand increases then A) the price level and real GDP both increase. B) the price level rises but real GDP remains unchanged. C) the price level and real GDP both decrease. D) real GDP decreases and the price level remains unchanged.

For monetarists, the main cause of economic fluctuations is represented by changes in A) investment. B) consumption expenditure. C) the growth rate of the quantity of money. D) the levels of household debt.

The monetarist theory of the business cycle regards ________ as the factor that leads to business cycles. A) unexpected increases in aggregate demand B) changes in the growth rate of the quantity of money C) volatility in the interest rate D) volatility in the demand for money

What, according to the monetarist theory of the business cycle, leads to changes in real GDP? A) a change in profit expectations B) a change in the growth rate in tax revenue C) a change in the growth rate of the quantity of money D) an unanticipated change in aggregate demand

In the monetarist business cycle theory, the factor leading to a business cycle is changes in A) consumer spending. B) investment spending. C) the growth rate of the quantity of money. D) net exports.

In the monetarist business cycle theory, decreasing the growth rate of the quantity of money ________ and increasing the growth rate of the quantity of money ________. A) increases real GDP; decreases the inflation rate B) decreases real GDP; decreases the inflation rate C) causes the economy to enter a recession; causes the economy to enter an expansion D) causes the economy to enter an expansion; causes the economy to enter a recession

In the monetarist business cycle theory, increases in money growth temporarily ________ real GDP and ________ the price level. A) increase; rise B) increase; lower C) decrease; rise D) decrease; lower

Using the monetarist model, place the following events in the order in which they occur in a business cycle. I) Money wages fall and the SAS curve shifts rightward. II) The Federal Reserve decreases the growth rate of the quantity of money. III) The AD curve shifts leftward. A) II, III, I B) III, II, I C) I, III, II D) The events are not part of a monetarist model of the business cycle.

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) Keynesian cycle model B) real business cycle model C) aggregate supply cycle model D) monetarist cycle model

Which of the following is TRUE regarding the monetarist theory of the business cycle? I) Monetarists assume that the quantity of money increases at a constant rate. II) Fluctuations in interest rates cause business cycles. III) Changes in the growth rate of the quantity of money affect aggregate demand. A) I only B) III only C) I and II D) II and III

Which of the following pieces of evidence is most consistent with the monetarist theory? A) Labor supply decisions do not seem to depend on real interest rates. B) Changes in real GDP and the quantity of money move closely together. C) Money wage rates take some time to adjust to price changes. D) Productivity and GDP move closely together.

-In the above figure, suppose that the economy has moved from point A to point C. According to the monetarist theory of the business cycle, what could have caused this movement? A) an increase in the money wage rate B) an increase in the growth rate of the quantity of money C) a decrease in the growth rate of the quantity of money D) an increase in uncertainty

-In the above figure, suppose that the economy has moved from point D to point B. According to the monetarist theory of the business cycle, what could have caused this movement? A) a decrease in the money wage rate B) an increase in uncertainty about future sales and profits C) an increase in the growth rate of the quantity of money D) an increase in the money wage rate

-Using the above figure as a starting point, a recession in the monetarist model would begin with a A) rightward shift in the AD curve. B) leftward shift in the AD curve. C) leftward shift in the SAS curve. D) leftward shift in the LAS curve.

-In the above figure, the economy is initially at point A. According to the monetarists, which point best represents the consequence of a short-run response to a decrease in the growth rate of the quantity of money? A) A, that is, there is no change. B) B C) C D) D

-In the above figure, suppose the economy starts at point A. The short-run response to a decrease in the growth rate of the quantity of money in the monetarist business cycle theory moves the economy to point A) B. B) C. C) D. D) E.

-In the above figure, suppose the economy starts at point A. The short-run response to an increase in the growth rate of the quantity of money in the monetarist business cycle theory moves the economy to point A) B. B) C. C) D. D) E.

-In the above figure, suppose the economy starts at point A. The short-run response to an increase in the growth rate of the quantity of money in the monetarist business cycle theory is for the price level to ________ and real GDP to ________. A) fall to 90; remain at $18 trillion B) rise to 120; increase to $19 trillion C) rise to 130; remain at $18 trillion D) remain at 110; remain at $18 trillion

The new classical cycle theory predicts that an unexpected increase in aggregate demand ________ create a business cycle and an expected increase in aggregate demand ________ create a business cycle. A) will; will B) will; will not C) will not; will D) will not; will not

The ________ cycle theory states that only unexpected fluctuations in aggregate demand are the main source of business cycles. A) new Keynesian B) new classical C) Keynesian D) monetarist

The business cycle impulse in the new classical theory of the business cycle is A) unexpected changes in aggregate demand. B) expected changes in aggregate demand. C) fluctuations in money growth with rigid wages. D) fluctuations in investment coupled with rigid wages.

The new classical theory argues that the primary factor leading to business cycles are A) expected changes in aggregate demand. B) expected changes in aggregate supply. C) unexpected changes in aggregate demand. D) unexpected changes in aggregate supply.

Which theory distinguishes between expected and unexpected fluctuations in aggregate demand and argues that only unexpected changes can affect real GDP? A) new classical cycle theory B) Keynesian cycle theory C) monetarist cycle theory D) real business cycle theory

According to the new classical model, changes in aggregate demand change real GDP A) all of the time. B) only when the short-run aggregate supply curve is vertical. C) only when the changes in aggregate demand are expected. D) only when the changes in aggregate demand are unexpected.

Suppose that forecasters have incorrectly estimated aggregate demand. According to the ________, this mistake could trigger a business cycle. A) Keynesian cycle model B) monetarist cycle model C) new classical cycle model D) real business cycle model

A larger than expected increase in aggregate demand will lead to ________ in the ________ of the business cycle. A) a recession; new Keynesian cycle theory B) a recession; new classical cycle theory C) an expansion; new classical cycle theory D) an expansion; real business cycle theory

Which of the following CORRECTLY describes the new classical cycle theory of the business cycle? A) An unexpected change in the quantity of money can trigger a business cycle. B) An expected tax rate change can trigger a business cycle. C) An unexpected change in the price of oil can trigger a business cycle. D) Rational expectations keep the money wage from changing quickly.

One assumption of the new classical model is that A) money wage rates are rigid. B) prices are "sticky" upward. C) people have rational expectations about aggregate demand. D) markets are not purely competitive.

Both new Keynesian and new classical cycle theories claim that A) animal spirits can trigger a business cycle. B) shifts in the SAS curve are the main impulse for a business cycle. C) unexpected changes in aggregate demand trigger a business cycle. D) expected changes in the quantity of money can trigger a business cycle.

Both the new classical and new Keynesian business cycle theories agree that A) expected changes in aggregate demand lead to the business cycle. B) unexpected changes in aggregate demand cannot result in a business cycle. C) the money wage rate is influenced by rational expectations of the price level. D) the long-term nature of wage contracts allow expected changes in the price level to cause business cycles.

A key difference between the new classical and the new Keynesian views of the business cycle is the role played by A) unexpected changes in aggregate demand. B) government expenditure on goods and services. C) expected changes in aggregate demand. D) the growth rate of the quantity of money.

The key difference between the new classical theory of the business cycle and the new Keynesian theory of the business cycle is that the new classical theory believes that ________ while the new Keynesian theory believes that ________. A) expected changes in aggregate demand will change real GDP; expected changes in aggregate demand will not change real GDP B) only unexpected changes in aggregate demand will change real GDP; only expected changes in aggregate demand will change real GDP C) only unexpected changes in aggregate demand will change real GDP; both expected and unexpected changes in aggregate demand will change real GDP D) the short-run aggregate supply curve is horizontal; the short-run aggregate supply curve is vertical

The factor leading to business cycles in the ________ cycle theory is unexpected fluctuations in aggregate demand while in the ________ cycle theory both unexpected and expected fluctuations in aggregate demand are factors that lead to business cycles. A) new classical; monetarist B) new classical; new Keynesian C) new Keynesian; Keynesian D) monetarist; new Keynesian

According to the new classical theory, ________ policy changes have no effect on real GDP and according to the new Keynesian theory, ________ policy changes have an effect on real GDP. A) expected; expected B) unexpected; expected C) fiscal; monetary D) fiscal; fiscal

According to the new classical theory, ________ policy changes have NO effect on real GDP and according to the new Keynesian theory, ________ policy changes have an effect on real GDP. A) only expected; expected and unexpected B) only unexpected; expected and unexpected C) only expected; only unexpected D) only unexpected; only expected

An unexpected decrease in aggregate demand will trigger a recession in the ________ theory of the business cycle. A) new Keynesian cycle B) new classical cycle C) real business cycle D) Both answers A and B are correct.

The new Keynesian cycle theory of the business cycle regards ________ as the main source of economic fluctuations. A) only unexpected fluctuations in aggregate demand B) expected and unexpected fluctuations in aggregate demand C) only expected fluctuations in aggregate demand D) changes in business confidence

New Keynesian economists believe that ________ is influenced by ________. A) yesterday's money wage rate; today's rational expectations of the money wage B) today's money wage rate; yesterday's rational expectations of the price level C) yesterday's rational expectations of the price level; today's money wage rate D) today's money wage rate; today's rational expectations of the price level

Which business cycle theory emphasizes that, because of long-term wage agreements, both expected and unexpected fluctuations in aggregate demand can change real GDP? A) the new classical cycle theory B) the new Keynesian cycle theory C) monetarist cycle theory D) Keynesian cycle theory

The ________ theory of the business cycle asserts that expected and unexpected changes in aggregate demand lead to fluctuations in real GDP. A) real business cycle B) new classical cycle C) new Keynesian cycle D) None of the above answers are correct.

According to the new Keynesian cycle theory of the business cycle, which of the following can trigger a business cycle expansion? I) an unexpected increase in the quantity of money II) an expected increase in the quantity of money III) an expected increase in government expenditure A) I only B) II and III C) I, II and III D) None of the three will trigger an expansion.

In the new Keynesian business cycle theory, ________ can effect real GDP. A) only expected changes in aggregate demand B) expected and unexpected changes in aggregate demand C) only unexpected changes in aggregate demand D) only unexpected changes in the money wage rate

Suppose that the Federal Reserve is expected to expand the quantity of money by 5 percent but ends up expanding it by only 2 percent. If the new Keynesian theory is CORRECT, which of the following describes the effect on the economy? A) The economy experience a boom because the quantity of money is still growing. B) Inflation will be higher than expected. C) Workers' decisions about when to work will be affected. D) A recession will ensue.

Suppose the data show that an unexpected change in tax rates caused a recent recession. These data support which model of the business cycle? A) new classical cycle theory B) new Keynesian cycle theory C) real business cycle theory D) Both answers A and B are correct.

Which of the following are TRUE? I) New Keynesian economists believe that money wage rates are influenced by rational expectations of The price level. II) New classical economists believe that money wage rates are influenced by rational expectations of the price level. III) New classical economists believe expected changes in aggregate demand trigger business cycles. A) I and II B) I and III C) II and III D) I, II and III

Real business cycle theory says that the factor leading to the business cycle is represented by changes in A) animal spirits. B) the growth rate of the quantity of money. C) only aggregate demand. D) productivity.

The real business cycle theory asserts that changes in ________ lead to changes in ________. A) the quantity of money; real GDP B) technology; productivity C) animal spirits; real GDP D) consumption expenditure; real GDP

The factor leading to business cycles according to the real business cycle theory is changes in A) the growth rate of the quantity of money. B) technological change caused by changes in productivity. C) productivity caused by changes in technology. D) investment caused by changes in business confidence.

Real business cycle (RBC) theory predicts that the main source of economic fluctuations is represented by A) sticky money wage rates. B) rational expectations based on complete information. C) changes in the growth rate of productivity. D) None of the above answers is correct.

Real business cycle theory explains the business cycle as the result of A) excess growth of the quantity of money. B) unstable investment demand. C) shocks to consumer spending habits. D) fluctuations in productivity.

The factor that leads to business cycle events within real business cycle theory is represented by A) changes in the growth rate in productivity. B) changes in the growth rate in the quantity of money. C) adverse shocks to international trade. D) changes in expected future sales and profits of firms.

In real business cycle theory, the factor leading to a business cycle is represented by A) changes in investment. B) changes in the quantity of money. C) unexpected changes in aggregate demand. D) fluctuations in the pace of technological change.

The factor leading to business cycles in the real business cycle theory is represented by changes in the growth rate of A) the quantity of money. B) productivity. C) labor supply. D) the money wage rate.

According to the real business cycle (RBC) theory, recessions are the result of A) a fall in the growth rate of productivity. B) an increase in the growth rate of the quantity of money. C) an increase in investment. D) a decrease in the growth rate of the quantity of money.

The theory that regards random fluctuations in productivity as the main source of economic fluctuations is the ________ of the business cycle. A) real business cycle theory B) productivity theory C) dynamic general equilibrium theory D) Keynesian cycle theory

Which theory views fluctuations in productivity as the main source of business cycle fluctuations? A) real business cycle theory B) Keynesian cycle theory C) monetarist cycle theory D) new classical cycle theory

When the recession started in 2008, the government estimated that labor productivity for the year was -2.8 percent. This result is most in line with which theory of business cycle fluctuations? A) real business cycle theory B) Keynesian cycle theory C) monetarist cycle theory D) new classical cycle theory

According to the real business cycle theory, technological change A) occurs at a constant rate. B) happens only occasionally. C) happens at an uneven pace. D) has been rising in recent years at an increasing rate.

According to the real business cycle theory, technological change A) always increases productivity. B) never increases productivity. C) can initially decrease productivity. D) is caused by changes in productivity.

The real business cycle (RBC) theory argues that the impact of technological change on real GDP is A) always positive. B) usually positive but occasionally negative. C) always negative. D) nonexistent.

According to the ________ theory, technological change can be so rapid that some existing capital becomes obsolete and ________. A) real business cycle; aggregate demand increases B) new classical; productivity falls C) new classical; aggregate demand increases D) real business cycle; productivity falls

Evidence indicates that a recession occurs at about the same time as a decrease in investment. According to the real business cycle theory, the decrease in investment is attributable to A) a fall in animal spirits. B) a decrease in productivity. C) a decrease in the growth rate of the quantity of money. D) intertemporal substitution in working decisions.

Which of the following pieces of evidence is most consistent with the real business cycle theory? A) Labor supply decisions do not seem to depend on real interest rates. B) Real GDP and the quantity of money move closely together. C) Money wage rates take some time to adjust to price changes. D) Productivity and GDP move closely together.

Looking at U.S. economic history between 1964 and 2009, we see that growth in real GDP A) was not correlated with fluctuations in productivity growth. B) falls following an increase in productivity growth. C) rises following an increase in productivity growth. D) rises following a decrease in productivity growth.

The key ripple effect in real business cycle theory is the ________ decision and it depends on the ________. A) when-to-invest; real interest rate B) when-to-work; real interest rate C) what-to-save; nominal interest rate D) where-to-work; real wage rate

According to the real business cycle theory, the immediate effects from a change in productivity include which of the following? I) Investment demand changes. II) Demand for labor changes. III) Government expenditures change. A) I B) I and II C) I and III D) II and III

"Intertemporal substitution" in labor supply describes changes in labor supply in response to changes in A) personal tax rates. B) investment spending. C) the real interest rate. D) consumer demand for goods.

Which theory maintains that the money wage rate always adjusts freely? A) Keynesian cycle theory B) monetarist cycle theory C) both the new classical cycle theory and the new Keynesian cycle theory D) real business cycle theory

In real business cycle theory, a decrease in productivity leads to all of the following events EXCEPT A) a decrease in the demand for labor. B) a decrease in investment demand. C) a rise in the real wage rate. D) a fall in the real interest rate.

In a real business cycle model, labor supply A) increases if the nominal interest rate rises. B) is independent of the real interest rate. C) decreases if the real interest rate rises. D) decreases if the real interest rate falls.

In the real business cycle framework, a technology shock that increases investment demand and the demand for loanable funds leads to a ________ quantity of saving and a ________ real interest rate. A) higher; higher B) higher; lower C) lower; higher D) lower; lower

Suppose that a severe shock that decreases the demand for loanable funds hits the United States. Which of the following can we expect to occur according to the real business cycle model? A) The real interest rate will fall. B) People will work fewer hours. C) The real wage rate will fall. D) All of the above are true.

According to the real business cycle theory, a technology shock that decreases the demand for loanable funds will ________ employment and will ________ real GDP. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

According to real business cycle theory proponents, an increase in productivity ________ the demand for loanable funds, ________ the demand for labor, and ________ the supply of labor. The real interest rate will ________. A) increases; increases; there is no change in; fall B) increases; increases; there is no change in; rise C) decreases; decreases; decreases; fall D) increases; increases; increases; rise

According to the real business cycle (RBC) theory, during a recession the demand for labor ________ and the supply of labor ________. A) increases; decreases B) decreases; does not change C) does not change; decreases D) decreases; decreases

According to the real business cycle theory, a fall in the real interest rate ________ current labor supply and ________ current employment. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

Real business cycle economists claim that the intertemporal substitution effect A) plays a small role in the labor market. B) depends on the real interest rate. C) plays a large role in the economy only during expansions. D) has unpredictable effects on the economy.

According to the real business cycle theory, workers' decisions to work now versus later depend on A) the real wage rate today but not the real wage rate in the future. B) the money wage rate. C) the real interest rate. D) labor productivity.

Suppose that in response to a decrease in real interest rates, a person decides to reduce his labor supply today and increase it in the future. This behavior is most consistent with the A) new classical theory of the business cycle. B) Keynesian theory of the business cycle. C) new Keynesian theory of the business cycle. D) real business cycle theory.

If the real interest rate is 4 percent and workers expect real wages to be 2 percent higher next year, according to the real business cycle theory, workers will work A) more this year and less next year. B) less this year and less next year. C) more this year and more next year. D) less this year and more next year.

If the real interest rate is 2 percent and workers expect real wages to be 4 percent higher next year, according to the real business cycle theory, workers will work A) more this year and less next year. B) less this year and less next year. C) more this year and more next year. D) less this year and more next year.

In the real business cycle model, the quantity of money A) can change the real wage rate. B) can increase the real interest rate. C) has no effect on real GDP. D) can decrease the effect from technology shocks.

According to real business cycle (RBC) theory, a change in the quantity of money leads to A) a change in the price level and in real GDP. B) a change in the price level but no change in real GDP. C) a change in investment and real GDP. D) a change in the real wage rate and the money wage rate.

According to which theory of the business cycle do changes in the quantity of money never play a role in helping to explain fluctuations in real variables? A) Keynesian B) monetarist C) new Keynesian D) real business cycle

In real business cycle models, in order to increase real GDP after a negative technology shock, the government can I) increase the quantity of money. II) decrease the quantity of money. A) only I B) only II C) both I and II D) neither I nor II

Critics of the real business cycle model argue that A) investment spending is strongly related to the real interest rate. B) labor supply is only weakly related to the real interest rate. C) investment spending is only weakly related to the real interest rate. D) labor supply is very strongly related to the real interest rate.

Which of the following is NOT one of the criticisms of real business cycle theory? A) The money wage rate is sticky in the short run. B) Inter-temporal substitution is too weak. C) Productivity fluctuations are the result of the business cycle, not the cause of business cycles. D) The theory is built on weak microeconomic foundations.

Critics of the real business cycle theory claim that A) both real and nominal variables change during the business cycle. B) the intertemporal substitution effect is too weak to account for changes in labor supply. C) changes in technology cannot cause economic growth. D) Both answers B and C are correct.

Suppose an economist finds that real interest rates are extremely high in most recession, which are the times when employment is low. This finding would pose the biggest problem for the A) new classical theory of the business cycle. B) real business cycle theory. C) new Keynesian theory of the business cycle. D) Keynesian theory of the business cycle.

A criticism of the real business cycle (RBC) theory is that A) the money wage rate is flexible. B) potential GDP does not vary with changes in the quantity of money. C) productivity fluctuations might be caused by the business cycle. D) All of the above answers are correct.

Which of the following is a criticism of the real business cycle theory? A) Real business cycle theory fails to explain the phenomenon of economic growth. B) Real business cycle theory assumes that money wage rates are sticky. C) Real business cycle theory believes that productivity changes are caused by technology changes when in fact they are caused by changes in aggregate demand. D) None of the above are criticisms of real business cycle theory.

Which of the following theories is criticized for assuming the money wage rate is not sticky? A) monetarist cycle theory B) real business cycle theory C) Keynesian cycle theory D) new Keynesian cycle theory

Which of the following is the factor that creates business cycles in the real business cycle theory? A) an unexpected change in aggregate demand B) a change by the Fed in the growth rate of the quantity of money C) a change in expectations about future sales and profits D) a change in the growth rate of productivity

By itself, an increase in aggregate demand increases GDP by the least amount in the A) Keynesian theory. B) monetarist theory. C) new Keynesian theory. D) real business cycle theory.

Which of the following is the factor that leads to business cycles in the Keynesian business cycle theory? A) an unexpected change in aggregate demand B) a change by the Fed in the growth rate of the quantity of money C) a change in business confidence D) a change in the growth rate of productivity

Which of the following is the factor that leads to business cycles in the monetarist business cycle theory? A) an unexpected change in aggregate demand B) a change by the Fed in the growth rate of the quantity of money C) a change in business confidence D) a change in the growth rate of productivity

Which of the following is the factor that leads to business cycles in the new classical business cycle theory? A) an unexpected change in aggregate demand B) a change by the Fed in the growth rate of the quantity of money C) a change in business confidence D) a change in the growth rate of productivity

Which of the following can start an inflation? A) an increase in aggregate demand B) an increase in aggregate supply C) a decrease in aggregate supply D) Both answers A and C are correct.

Inflation can be started by A) a decrease in aggregate supply or a decrease in aggregate demand. B) a decrease in aggregate supply or an increase in aggregate demand. C) an increase in aggregate supply or an increase in aggregate demand. D) an increase in aggregate supply or a decrease in aggregate demand.

Demand-pull inflation starts with A) an increase in aggregate demand. B) a decrease in aggregate demand. C) an increase in short-run aggregate supply. D) a decrease in short-run aggregate supply.

Demand-pull inflation is an inflation that results from an initial A) increase in aggregate demand. B) decrease in aggregate demand. C) increase in wage rates. D) increase in natural resource prices.

Demand-pull inflation starts with a shift of the A) SAS curve rightward. B) AD curve rightward. C) SAS curve leftward. D) AD curve leftward.

Demand-pull inflation starts as the A) LAS curve shifts leftward. B) LAS curve shifts rightward. C) AD curve shifts rightward. D) AD curve shifts leftward.

-Which of the above figures best shows the start of a demand-pull inflation? A) Figure A B) Figure B C) Figure C D) Figure D

-Which of the above figures best shows the start of a demand-pull inflation? A) Figure A B) Figure B C) Figure C D) Figure D

-Which of the above figures show how inflation can start in an economy? A) Figure A and Figure C B) Figure A and Figure D C) Figure B and Figure C D) Figure B and Figure D

Demand-pull inflation can start when A) the money wage rate rises but the price level does not change. B) the money wage rate rises faster than the price level. C) the short-run aggregate supply curve shifts rightward. D) the aggregate demand curve shifts rightward.

Demand pull inflation can be started by A) a decrease in the quantity of money. B) an increase in government expenditure. C) a decrease in net exports. D) an increase in the price of oil

Which of the following factors could start a demand-pull inflation? A) an increase in tax rates B) a decrease in government expenditure C) a decrease in wage rates D) an increase in exports

Which of the following could lead to demand-pull inflation? A) an increase in the money wage rate B) an increase in the quantity of money C) a decrease in exports D) an increase in oil prices

Which of the following could start a demand-pull inflation? A) an increase in government expenditure B) an increase in imports C) a decrease in the quantity of money D) an increase in the money prices of raw materials

Increases in the quantity of money can start a ________ inflation and an increase in government expenditure can start a ________ inflation. A) demand-pull; demand-pull B) demand-pull; cost-push C) cost-push; cost-push D) cost-push; demand-pull

Which of the following can start a demand-pull inflation? A) an improvement in technology B) a decrease in productivity C) an increase in imports D) None of the above can start a demand-pull inflation.

Demand-pull inflation could start with A) an increase in government expenditure followed by an increase in the money wage rate. B) an increase in the quantity of money followed by a decrease in the money wage rate. C) a rise in prices of raw materials followed by an increase in the quantity of money. D) a decrease in exports followed by a decrease in the quantity of money.

Which of the following is NOT a potential start of a demand-pull inflation? A) an increase in the money wage rate B) an increase in the quantity of money C) an increase in government expenditure D) an increase in exports

Which of the following is NOT a potential start of a demand-pull inflation? A) an increase in the quantity of money B) an increase in government expenditure C) an increase in taxes D) an increase in exports

Which of the following is a change that would NOT start a demand-pull inflation? A) an increase in exports B) an increase in labor productivity C) an increase in government expenditure on goods and services D) an increase in the quantity of money

Which of the following could NOT start a demand-pull inflation? A) increases in government expenditure B) increases in net exports C) increases in oil prices D) increases in the quantity of money

Initially, demand-pull inflation will A) increase the price level and not change real GDP. B) increase the price level and increase real GDP. C) increase the price level and decrease real GDP. D) shift the aggregate supply curve rightward.

If demand pull inflation occurs when the economy is already at potential GDP, then following the initial increase in aggregate demand, the A) SAS curve shifts rightward. B) LAS curve shifts rightward. C) SAS curve shifts leftward. D) LAS curve shifts leftward.

A demand-pull inflation is initially characterized by A) increasing real output and a labor shortage. B) increasing real output and a labor surplus. C) decreasing real output and a labor shortage. D) decreasing real output and a labor surplus.

If an economy at potential GDP experiences a demand shock that shifts the aggregate demand curve rightward, there will be A) an eventual leftward shift in the short-run aggregate supply curve. B) unemployment below the natural rate. C) upward pressure on money wage rates. D) All of the above answers are correct.

-In the above figure, suppose that the economy is at point A when the quantity of money increases. In the short run, the economy will move to point A) A, that is, the price level and level of real GDP will not change. B) B. C) C. D) D.

-In the above figure, suppose that the economy is at point A when foreign countries begin an expansion and buy more U.S.-made goods. In the short run, this change creates a movement to point ________ and afterwards an eventual increase in ________. A) B; money wage rates B) D; the natural unemployment rate C) B; the natural unemployment rate D) D; money wage rates

An initial increase in aggregate demand that is NOT followed by an increase in the quantity of money results in a long-run equilibrium with A) a higher price level but the same real GDP. B) a higher price level and a higher level of real GDP. C) the same price level and a lower level of real GDP. D) None of the above answers are correct.

Suppose that a shock causes the aggregate demand curve to shift rightward. If the Fed does nothing A) the economy will experience a temporary reduction in employment but will eventually return to full employment. B) output initially will exceed potential GDP, but the economy will return to potential GDP with a higher price level. C) the short-run aggregate supply curve will not shift leftward and there will be continued inflation. D) eventually the short-run aggregate supply curve will shift leftward and there will be continued inflation.

For an economy at full employment, an increase in the quantity of money will lead to which of the following sequences of shifts in aggregate demand and supply curves? A) decreased aggregate demand, increased short-run aggregate supply, constant long-run aggregate supply B) decreased aggregate demand, decreased short-run aggregate supply, decreased long-run aggregate supply C) increased aggregate demand, increased short-run aggregate supply, increased long-run aggregate supply D) increased aggregate demand, decreased short-run aggregate supply, constant long-run aggregate supply

A one-time rise in the price level can turn into a demand-pull inflation when A) the money wage rate continues to increase. B) the quantity of money persistently decreases. C) taxes consistently increase. D) the quantity of money persistently increases.

A demand-pull inflation process consists of ________ shifts in the AD curve and ________ shifts in the SAS curve. A) rightward; rightward B) rightward; leftward C) leftward; rightward D) leftward; leftward

In a persisting demand-pull inflation A) short-run aggregate supply decreases and aggregate demand increases. B) aggregate demand and short-run aggregate supply both decrease. C) aggregate demand increases and long-run aggregate supply decreases. D) None of the above answers are correct.

Demand-pull inflation results from continually increasing the quantity of money, which leads to a continually A) decreasing long-run aggregate supply. B) increasing aggregate supply. C) decreasing aggregate demand. D) increasing aggregate demand.

Demand-pull inflation persists because of A) continuing increases in government expenditures. B) continuing increases in the quantity of money. C) continuing increases in real wage rates. D) continuing increases in aggregate supply.

A demand-pull inflation requires persistent increases in A) tax rates. B) real wages. C) the quantity of money. D) government expenditures.

If the Fed responds to an initial increase in aggregate demand by increasing the quantity of money A) there will be no inflationary gap. B) real GDP will begin to decrease more rapidly than if the quantity of money had remained constant. C) money wages will fall to reduce unemployment. D) there is the risk of continued inflation.

In a demand-pull inflation brought about by increases in the quantity of money, real GDP might increase temporarily because A) tax rates decline. B) real wages fall. C) money wages fall. D) real wages rise.

If the Fed responds to an increase in aggregate demand by increasing the quantity of money A) nothing happens because aggregate demand had already increased. B) output will begin to decrease more rapidly than in the case in which only the first increase in aggregate demand happened. C) money wage rates will fall to reduce unemployment. D) there will be continued inflation.

If the economy is at potential GDP and the Fed increases the quantity of money, then A) potential GDP rises. B) real GDP rises temporarily above potential GDP. C) real GDP rises permanently above potential GDP. D) potential GDP and real GDP both decrease.

During a demand-pull inflation, if the Fed tries to maintain a level of real GDP above potential GDP A) there will be a one-time shift in the AD and the SAS curves. B) the AD curve will shift rightward continuously and SAS curves will shift leftward continuously. C) the AD curve will shift rightward continuously and the SAS curve will not shift. D) the SAS curve will shift leftward continuously and the AD curve will not shift.

In a demand-pull inflation, money wage rates rise because A) a decrease in aggregate demand creates a labor shortage. B) an increase in aggregate demand creates a labor surplus. C) an increase in aggregate demand creates a labor shortage. D) a decrease in aggregate demand creates a labor surplus.

As the money wage rate rises A) the long-run aggregate supply curve shifts rightward. B) the short-run aggregate supply curve shifts rightward. C) both the long-run aggregate supply curve and the short-run aggregate supply curve shift leftward. D) the short-run aggregate supply curve shifts leftward.

When the AD and SAS curves intersect at a level of real GDP which exceeds potential GDP and there is no government policy undertaken, which of the following will occur? A) The AD curve shifts rightward because the Fed decreases the money supply. B) The SAS curve shifts leftward because the money wage rate rises. C) The SAS curve shifts leftward because the money wage rate falls. D) The AD curve shifts leftward because the money wage rate rises.

To prevent demand-pull inflation A) firms must refuse to increase wages. B) the Fed must not let the quantity of money persistently rise. C) the natural unemployment rate must increase. D) real GDP must increase.

To stop a demand-pull inflation using monetary policy, you would recommend that the Fed A) increase the quantity of money. B) not increase the quantity of money. C) increase tax rates. D) purchase government bonds in the open market.

In a demand-pull inflation, if the Fed stops expanding the quantity of money A) a cost-push inflation spiral will occur. B) government expenditure will cause the demand-pull inflation to continue. C) a deflation will occur. D) the demand-pull inflation spiral ends.

-The figure above shows the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for the U.S. economy. The economy is currently at point A. A demand-pull rise in the price level will initially move the economy to point ________ and to point ________. A) E when aggregate demand increases; D when the wage rate rises B) B when aggregate demand decreases; C when the wage rate rises C) E when aggregate demand increases; A when the wage rate rises D) C when the wage rate rises; D when aggregate demand increases

-In the above figure, the movement from point A to B to C to D to E represents A) demand-pull inflation resulting solely from wage responses to excess labor demand. B) demand-pull inflation resulting from persistent increases in the quantity of money. C) cost-push inflation resulting solely from wage responses to excess labor demand. D) cost-push inflation resulting from persistent increases in the quantity of money.

-In the above figure, if the economy moves from point A to point E A) money wage rates have increased. B) there may have been demand-pull inflation. C) there has been economic growth. D) Both answers A and B are correct.

-In the above figure, which path represents a demand-pull inflation? A) point A to C to D to F to G B) point A to B to D to E to G C) point A to C to D to E to G D) point A to B to D to F to G

-In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. At point D, the real wage rate has A) risen by the same percentage as the price level. B) remained constant. C) risen. D) fallen.

-In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. The money wage rate will then start to A) rise because a labor shortage now exists. B) fall because a labor shortage now exists. C) rise because a labor surplus now exists. D) fall because a labor surplus now exists.

-In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. If the quantity of money remains constant, the economy will adjust with the A) short-run aggregate supply shifting leftward to SAS₁. B) short-run aggregate supply shifting leftward to SAS₂. C) aggregate demand shifting back to AD₀. D) aggregate demand shifting to AD₂.

A demand-pull inflation occurred in the United States during most of the later part of the A) 1960s. B) 2000s. C) 1980s. D) 1990s.

As far as demand-pull inflation goes, the United States A) has never experienced this type of inflation. B) experienced this type of inflation during the 1990s. C) experienced this type of inflation during the 1960s. D) experienced this type of inflation during the 1950s.

-In the above, which figure shows the start of a cost-push inflation? A) Figure A B) Figure B C) Figure C D) Figure D

The main sources of cost-push inflation are increases in A) money wage rates and the cost of raw materials. B) real wage rates and the cost of raw materials. C) money wage rates and aggregate demand. D) aggregate demand and real wage rates.

Assuming that GDP currently equals potential GDP, a cost-push inflation could result from which of the following? A) a decrease in tax rates B) an increase in the labor force C) a large crop failure that boosts the prices of raw food materials D) an increase in the nation's capital stock

Cost-push inflation can be started by A) a decrease in the money wage rate. B) an increase in the money prices of raw materials. C) an increase in the quantity of money. D) a decrease in government expenditure on goods and services.

Cost-push inflation can start with A) lower taxes. B) an increase in government expenditure. C) higher money wage rates. D) an increase in transfer payments.

Cost-push inflation can start with A) a decrease in investment. B) an increase in oil prices. C) an increase in government expenditure. D) a decrease in the quantity of money.

Cost-push inflation might initially result from A) an increase in the quantity of money. B) the use of new technology. C) an increase in government expenditure. D) an increase in the cost of resources.

In April 2008 the price of oil was approximately $130 per barrel; in April 2017, it was approximately $50 per barrel. This change in the price of oil could have started A) a cost-push inflation. B) a demand-pull inflation. C) both a cost-push and a demand-pull inflation. D) None of the above answers are correct.

Cost-push inflation is an inflation that results from an initial A) increase in money wage rates or money prices of raw materials. B) decrease in taxes. C) increase in investment. D) increase in taxes.

The initial factors that can create a cost-push inflation do NOT include A) increases in money wage rates. B) increases in the money prices of raw materials. C) increases in the quantity of money. D) None of the above answers is correct because all of the above could be the initial cause of a cost-push inflation.

At the start of a cost-push inflation A) productivity rises. B) real GDP increases faster than the quantity of money. C) the short-run aggregate supply curve shifts rightward. D) prices and unemployment are rising.

The start of a cost-push inflation results in A) falling GDP and falling unemployment rate. B) raising GDP and rising unemployment rate. C) falling GDP and rising unemployment rate. D) raising GDP and falling unemployment rate.

Cost-push inflation starts with A) an increase in aggregate demand. B) a decrease in aggregate demand. C) an increase in short-run aggregate supply. D) a decrease in short-run aggregate supply.

A leftward shift in the short run aggregate supply curve A) is the result of the Fed increasing the quantity of money. B) is the result of a rise in the price of a key resource. C) is the result of consumer expenditures exceeding available output. D) increases both the price level and real GDP.

When a cost-push inflation starts A) the price level falls and the money wages rises. B) real GDP rises faster than the quantity of money. C) the short-run aggregate supply curve shifts rightward. D) the price level rises and real GDP decreases.

At the start of a cost-push inflation A) only real GDP changes while the price level remains constant. B) the price level and real GDP both increase. C) the price level rises and real GDP decreases. D) the price level rises and real GDP does not change.

Suppose that the money prices of raw materials increase so that the short-run aggregate supply decreases. If the Federal Reserve does not respond, the higher money price of raw materials will I) repeatedly shift the aggregate demand curve rightward and raise the price level. II) shift the aggregate demand curve rightward and the aggregate supply curve leftward, raising prices. III) result initially in lower employment and a higher price level. A) I only B) both I and II C) both II and III D) III only

An increase in the money wage rate shifts the SAS curve ________ and an increase in the money prices of raw materials shifts the SAS curve ________. A) rightward; rightward B) leftward; leftward C) rightward; leftward D) leftward; rightward

A higher price for oil shifts the A) SAS curve leftward. B) LAS curve leftward. C) SAS curve rightward. D) AD curve rightward.

By itself, an increase in the price of oil shifts the A) short-run aggregate supply curve leftward and does not shift the aggregate demand curve. B) short-run aggregate supply curve rightward and does not shift the aggregate demand curve. C) aggregate demand curve leftward and does not shift the short-run aggregate supply curve. D) aggregate demand curve rightward and does not shift the short-run aggregate supply curve.

By itself, a fall in the price of oil shifts the A) short-run aggregate supply curve leftward and does not shift the aggregate demand curve. B) short-run aggregate supply curve rightward and does not shift the aggregate demand curve. C) aggregate demand curve leftward and does not shift the short-run aggregate supply curve. D) aggregate demand curve rightward and does not shift the short-run aggregate supply curve.

The SAS curve shifts leftward if A) good weather increases agricultural harvests. B) OPEC reduces world oil prices. C) tax cuts stimulate labor supply. D) the money wage rate increases.

If the prices of crucial raw materials increase A) the short-run aggregate supply curve shifts leftward. B) stagflation could occur. C) a cost-push inflation could occur depending on the behavior of the Federal Reserve. D) All of the above answers are correct.

An increase in the price of a resource such as oil I) shifts the aggregate demand curve leftward. II) shifts the long-run aggregate supply curve rightward. III) shifts the short-run aggregate supply curve leftward. IV) increases the price level and decreases real GDP in the short run. A) Only I is correct. B) Both I and II are correct. C) Only III is correct. D) Both III and IV are correct.

If oil prices increase, then in the short run, real GDP will ________ and the price level will ________. A) increase; rise B) increase; fall C) decrease; rise D) decrease; fall

In the short-run, an increase in the price of raw materials will ________ the price level and ________ real GDP. A) raise; increase B) raise; decrease C) lower; increase D) lower; decrease

In the short run, if there is an increase in the money wage rate, then A) short-run aggregate supply increases and the price level rises. B) short-run aggregate supply decreases and the price level rises. C) aggregate demand decreases and the price level falls. D) aggregate demand increases and the price level rises.

By itself, a supply shock such as an increase in the price of oil, will A) cause real GDP to permanently decrease year after year. B) not cause inflation if there is no policy response. C) be inflationary as long as there is no policy response. D) cause a wage-price spiral.

Stagflation occurs when the price level ________ and real GDP ________. A) falls; increases B) falls; decreases C) rises; decreases D) rises; increases

Stagflation is the result of A) an increase in aggregate demand. B) a decrease in short-run aggregate supply. C) a decrease in aggregate demand. D) an increase in short-run aggregate supply.

Stagflation is the combination of a ________ and ________. A) falling inflation rate; an increasing real GDP B) falling price level; an increasing real GDP C) rising price level; a decreasing real GDP D) rising inflation rate; a decreasing real GDP

Stagflation occurs when the A) price level and real GDP are increasing at the same time. B) price level and real GDP are decreasing at the same time. C) price level is increasing and real GDP is decreasing. D) price level is decreasing and real GDP is increasing.

The term "stagflation" refers to the situation when A) the aggregate supply curve shifts leftward, prices increase and real GDP decreases. B) real GDP and the price level both rise because of an increase in aggregate demand. C) prices become stagnant and do not increase or decrease. D) the short-run aggregate supply curve and the aggregate demand curve shift in opposite directions.

Stagflation is associated with A) cost-push inflation. B) demand-pull inflation. C) both cost-push inflation and demand-pull inflation. D) neither cost-push inflation nor demand-pull inflation because it is a different concept altogether.

When the price level is rising and simultaneously real GDP is decreasing A) the natural unemployment rate increases. B) stagflation occurs. C) there is an expansionary gap. D) the Fed has increased the discount rate.

Stagflation results from A) a leftward shift in the short-run aggregate supply curve. B) a rightward shift in the aggregate demand curve. C) a rightward shift in the short-run aggregate supply curve. D) an increase in government expenditures financed by an increase in the quantity of money.

Stagflation is characterized by A) an increase in both output and the price level. B) a decrease in output and the price level. C) an increase in the unemployment rate and an increase in the price level. D) an economy which is growing at a rate equal to its historical average growth rate.

A one-time increase in the price of oil followed by a one-time increase in aggregate demand produces A) continuing cost-push inflation. B) continuing demand-pull inflation. C) a one-time decrease in the price level. D) a one-time increase in the price level.

A cost-push inflation spiral results if the Fed's response to stagflation is to keep A) decreasing aggregate demand. B) decreasing aggregate supply. C) increasing aggregate demand. D) increasing aggregate supply.

During a cost-push inflation spiral, the money wage rate ________ and the quantity of money ________. A) increases; increases B) increases; does not change C) does not change; increases D) does not change; does not change

For a cost-push inflation to occur, oil price increases must be accompanied by A) decreased investment spending. B) lower personal tax rates. C) increases in the quantity of money. D) increases in government expenditures.

Oil prices increase sharply, raising the price level and decreasing real GDP. The Fed has an incentive to A) increase the quantity of money in order to reduce unemployment. B) decrease the quantity of money in order to reduce unemployment. C) increase the quantity of money in order to reduce the price level. D) increase the quantity of money in order to reduce the price level and unemployment.

Suppose oil prices rise and short-run aggregate supply decreases. If the Fed responds by increasing the quantity of money, then in the short run A) real GDP increases and the price level falls. B) real GDP increases and the price level rises even higher. C) the Fed is more concerned about fighting inflation than unemployment. D) None of the above answers is correct.

Suppose oil prices rise. The Fed can ________ the quantity of money to ________ the unemployment rate back to its natural rate. A) increase; raise B) increase; lower C) decrease; raise D) decrease; lower

One example of cost-push inflation is an increase in A) the money prices of raw materials followed by no government policy. B) the money prices of raw materials followed by increases in the quantity of money. C) the money prices of raw materials followed by decreases in the quantity of money. D) government expenditure followed by increases in the quantity of money.

In a cost-push inflation, A) increases in AD lead to increases in SAS. B) decreases in AD lead to increases in SAS. C) increases in SAS lead to decreases in AD. D) decreases in SAS lead to increases in AD.

If the Fed responds to repeated decreases in the short-run aggregate supply with repeated increases in the quantity of money, the economy will be faced with A) a one-time increase in prices. B) continuous inflation. C) alternating periods of inflation and deflation. D) steady decreases in real GDP.

When there is a cost-push inflation A) workers demand higher money wages because of higher price levels. B) the short-run aggregate supply curve shifts rightward. C) the aggregate demand curve shifts leftward because of the cost hikes. D) None of the above answers is correct.

To prevent cost-push inflation A) there must not be an excess demand for money. B) interest rates must not rise. C) there must not be an increase in government purchases. D) the Fed must not let the quantity of money rise persistently.

-In the above figure, which path represents a cost-push inflation? A) point A to C to D to F to G B) point A to B to D to E to G C) point A to C to D to E to G D) point A to B to D to F to G

-The figure above shows the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for the U.S. economy. The economy is currently at point A. A cost-push rise in the price level will initially move the economy to point ________ and to point ________. A) E when aggregate demand increases; D when the money prices of raw materials rise B) C when the money prices of raw materials rise; D when aggregate demand increases C) F when the money prices of raw materials rise; E when aggregate demand increases D) B when aggregate demand decreases; C when the money prices of raw materials rise

-In the above figure, the economy is at point A. An increase in oil prices that sets off a cost-push inflation will initially move the economy from point A to point A) A, that is, the economy does not change. B) B. C) C. D) D.

-In the above figure, the economy is at point A. An increase in money wage rates that sets off a cost-push inflation will initially move the economy from point A to point A) A, that is, the economy does not change. B) B. C) C. D) D.

-In the above figure, the economy is at point A. An increase in oil prices occurs. After the increase in oil prices, the Fed responds by increasing the quantity of money. The economy moves from point A to A) D to point C. B) B to point C. C) C to point D. D) C to point B.

During which decade did the United States suffer from the worst cost-push inflation? A) 1960s B) 1970s C) 1980s D) 1990s

As far as cost-push inflation goes, the United States A) has never experienced this type of inflation. B) has experienced only this type of inflation. C) experienced this type of inflation in the 1970s. D) experienced this type of inflation during the 1990s.

If people CORRECTLY anticipate an increase in aggregate demand, a result is A) an increase in the real value of outstanding government debt. B) workers demanding higher money wages to keep the real wage unchanged. C) a lower rate of inflation in the current time period. D) there are no predictable results associated with an anticipated increase in aggregate demand.

The anticipated inflation rate is 5 percent. In order for purchasing power to remain constant, the money wage rate must rise by A) 2 percent. B) 5 percent. C) 7 percent. D) 12 percent.

When workers and employers correctly anticipate an increase in inflation caused by an increase in aggregate demand A) there will be no unemployment. B) workers will overestimate the real wage rate. C) unemployment will be at the natural rate. D) workers will underestimate the real wage rate.

The economy is at potential GDP when people correctly anticipate an increase in government expenditure on goods and services. If the money wage rate adjusts immediately, then A) real GDP and the price level will increase in the short run, but the real wage rate will fall. B) real GDP remains at potential GDP. C) real GDP, the price level, and the real wage rate all increase in the short run. D) real GDP remains at potential GDP, there is no change in the price level, and the real wage rate rises in the short run.

If the economy is initially at potential GDP and people correctly anticipate an increase in inflation so that their money wage rate adjusts immediately, then A) only real GDP increases with no change in the price level. B) only the price level rises with no change in real GDP. C) both the price level and real GDP increase. D) neither the price level nor real GDP increase.

If people correctly expect an increase in aggregate demand, their money wage rate ________ immediately, and the SAS curve shifts ________. A) rises; rightward B) rises; leftward C) falls; rightward D) fall; leftward

Suppose aggregate demand increases by more than expected. Which of the following describes what will occur? A) Real GDP will be greater than potential GDP. B) The price level will increase. C) Unemployment will fall. D) All of the above answers are correct.

Suppose aggregate demand increases by less than expected. Which of the following describes what will occur? A) Real GDP will be less than potential GDP. B) The price level will fall. C) Real GDP will be more than potential GDP. D) Both answers A and B are correct.

-In the above figure, if people correctly anticipate the increases in aggregate demand and the resulting inflation, the path will be from A) point A to C to D to F to G. B) point A to B to D to E to G. C) point A to D to G. D) point A to B to D to F to G.

-In the above figure, the economy is initially at point A. If workers and firms correctly anticipate the increase in aggregate demand and the resulting inflation rate, the economy will move to point A) A, that is, the price level and level of real GDP will not change. B) B. C) C. D) D.

-An economy is at potential GDP and the price level is 100 in the figure above. If aggregate demand unexpectedly increases so that the aggregate demand curve shifts to AD₁, in the short run the inflation rate is A) 0 percent a year. B) 10 percent a year. C) 20 percent a year. D) More than 20 percent a year.

An economy is in long-run equilibrium and the price level is 100 in the figure above. Aggregate demand increases and the aggregate demand curve shifts to AD₁. If the increase in aggregate demand is expected, then the inflation rate is A) 0 percent a year. B) 10 percent a year. C) 20 percent a year. D) More than 20 percent a year.

Suppose that the economy is at full employment and aggregate demand increases by more than it is anticipated to increase. Other things remaining the same, A) long-run aggregate supply decreases. B) real GDP remains at potential GDP. C) real GDP increases above potential GDP. D) real GDP decreases below potential GDP.

A rational expectation is A) a forecast devoid of all emotions. B) a forecast which perfectly foretells the future. C) the best possible forecast based upon all relevant information. D) the forecast that automatically carries over from past forecasts.

A rational expectation of inflation is A) how economists make perfect forecasts of inflation. B) how unexpected inflation affects the economy. C) why unexpected inflation redistributes income. D) a forecast of inflation that uses all relevant information.

A rational expectation is A) a correct forecast but it might not be the best available forecast. B) always an incorrect forecast. C) not necessarily correct but is the best available forecast. D) necessarily correct because it is the best available forecast.

If Samantha predicts future inflation based on rational expectations, then A) her forecast of inflation will always be correct. B) she uses all relevant information to forecast inflation. C) she looks only to the past to help her predict future inflation. D) she never under estimates inflation.

The Cleveland Federal Reserve Bank's estimate of expected inflation in 2013 is 1.5 percent. In 2013, if aggregate demand grows faster than expected, the actual inflation rate will A) exceed 1.5 percent. B) equal 1.5 percent because the actual inflation rate must equal the expected inflation rate. C) be less than 1.5 percent. D) None of the above answers are correct because there is no relationship between the actual inflation rate and aggregate demand.

Which of the following would shift the aggregate demand curve leftward year after year? A) a one-time tax cut B) a one-time increase in government expenditures on goods and services C) inflation D) negative growth in the quantity of money

Which of the following results in the aggregate demand curve shifting rightward year after year? A) a one-time tax cut B) a one-time increase in government expenditures on goods and services C) inflation D) growth in the quantity of money

Demand-pull inflation occurs when A) aggregate demand increases persistently. B) aggregate supply and aggregate demand decrease persistently. C) the government increases its expenditures. D) oil prices increase substantially.

In a demand-pull inflation, the AD curve shifts ________ and the SAS curve shifts ________. A) rightward; rightward B) rightward; leftward C) leftward; rightward D) leftward; leftward

A rise in the price level because of an increase in the money wage rate A) definitely triggers a cost-push inflation. B) definitely triggers a demand-pull inflation. C) might trigger a cost-push inflation. D) might trigger a demand-pull inflation.

A rise in the price level because of an increase in the price of oil A) definitely triggers a cost-push inflation. B) definitely triggers a demand-pull inflation. C) might trigger a cost-push inflation. D) might trigger a demand-pull inflation.

Which of the following statements about a cost-push inflation is CORRECT? A) Cost-push inflation starts when an increase in aggregate demand "pushes" costs higher. B) Cost-push inflation might start with a rise in the price of raw materials, but it requires increases in the quantity of money to persist. C) To persist, cost-push inflation needs a continual series of cost hikes with no change in aggregate demand. D) The United States has never experienced a cost-push inflation.

During a deflation, the inflation rate is A) negative. B) positive and rising. C) positive and falling. D) positive and not changing.

During a deflation, the price level is A) negative. B) positive and rising. C) positive and falling. D) positive and not changing.

Deflation can start with A) an increase in aggregate demand. B) a decrease in aggregate demand. C) a decrease in aggregate supply. D) Both answers B and C are correct.

The price level falls if A) aggregate demand increases more rapidly than aggregate supply. B) aggregate demand increases more slowly than aggregate supply. C) aggregate demand increases and aggregate supply does not change. D) neither aggregate demand nor aggregate supply change.

Suppose the velocity of circulation increases by 2 percent and potential GDP grows by 2 percent. The trend inflation rate will equal zero if the quantity of money grows by A) 0 percent. B) 2 percent. C) 4 percent. D) -2 percent.

Suppose the velocity of circulation increases by 2 percent and potential GDP grows by 4 percent. The trend inflation rate will equal zero if the quantity of money grows by A) 0 percent. B) 2 percent. C) 4 percent. D) -2 percent.

Suppose the velocity of circulation increases by 4 percent and potential GDP grows by 3 percent. The trend inflation rate will equal zero if the quantity of money grows by A) 0 percent. B) 1 percent. C) 4 percent. D) 3 percent.

When Japan experienced deflation in the 1990s, Japan's real GDP A) grew more rapidly than during any decade since the 1960s. B) grew more slowly than in decades during which Japan experienced inflation. C) did not grow at all. D) Both answers B and C are correct.

When Japan experienced deflation in the 1990s and 2000s, Japan's A) capital stock grew more rapidly that during the decades that Japan experienced inflation.. B) real wage rate fell. C) investment decreased so that its capital stock grew more slowly. D) money growth rate soared.

During an unanticipated deflation, the real wage rate ________ and employment ________. A) falls; decreases B) falls; increases C) rises; decreases D) rises; increases

During a deflation, investment ________ and the rate of capital accumulation ________. A) decreases; decreases B) decreases; increases C) increases; decreases D) increases; increases

During a deflation, investment ________ and the growth rate of potential GDP ________. A) decreases; decreases B) decreases; increases C) increases; decreases D) increases; increases

During a deflation, the nominal interest rate is ________ and the velocity of circulation ________. A) low; decreases B) low; increases C) high; decreases D) high; increases

To end a deflation, the government must A) decrease government expenditures. B) increase the quantity of money. C) increase taxes. D) increase the growth rate of the money stock.

Phillips curves show the relationship between the A) nominal interest rate and the real interest rate. B) expected rate of inflation and the nominal interest rate. C) real interest rate and the unemployment rate. D) unemployment rate and the inflation rate.

Phillips curves describe the relationship between A) aggregate expenditures and aggregate demand. B) the quantity of money and interest rates. C) unemployment and inflation. D) aggregate demand and the price level.

A Phillips curve measures the relationship between A) the unemployment rate and inflation. B) the level of money wage rates and GDP. C) unemployment and GDP. D) inflation and GDP.

A Phillips curve shows the relationship between the A) price level and real GDP. B) unemployment rate and real GDP. C) inflation rate and the unemployment rate. D) inflation rate and real GDP.

For a given level of anticipated inflation and natural unemployment rate, the short-run Phillips curve shows the relationship between A) potential GDP and real GDP. B) real GDP growth and the unemployment rate. C) inflation and money growth. D) inflation and the unemployment rate.

In 2012 the Cleveland Federal Reserve estimated that the expected inflation rate was 1.5 percent, the actual inflation rate was 2.1 percent, and the unemployment rate was 8.1 percent. A point on the short-run Phillips curve is the A) difference between the actual and expected inflation rates (0.6 percent) and the unemployment rate of 8.1 percent. B) inflation rate of 2.1 percent and the expected inflation rate of 1.5 percent. C) expected inflation rate of 1.5 percent and the unemployment rate of 8.1 percent. D) inflation rate of 2.1 percent and the unemployment rate of 8.1 percent.

The short-run Phillips curve A) slopes downward. B) slopes upward. C) is horizontal. D) is vertical.

Moving along a short-run Phillips curve A) the price level is constant. B) unemployment is constant. C) the expected inflation rate is constant. D) the inflation rate is constant.

Which of the following is held constant when moving along a short-run Phillip's curve? A) the inflation rate B) the unemployment rate C) the expected inflation rate D) the growth rate of the quantity of money

The short-run Phillips curve shows the tradeoff between ________, holding the expected inflation rate and the natural unemployment rate constant. A) the price level and real GDP B) inflation and unemployment C) the price level and unemployment D) inflation and employment

The short-run Phillips curve shows a A) positive relationship between the quantity of money and interest rates. B) positive relationship between the price level and real GDP. C) negative relationship between interest rates and the price level. D) negative relationship between the unemployment rate and the inflation rate.

In the short run, an unexpected increase in the inflation rate leads to A) a higher unemployment rate. B) a decrease in aggregate demand. C) a lower unemployment rate. D) workers thinking the money wage rate has fallen.

Moving along the short-run Phillips curve indicates A) that higher inflation leads to a higher unemployment rate. B) that higher unemployment leads to a higher inflation rate. C) a tradeoff between inflation and unemployment so that higher inflation is related to lower unemployment. D) that the natural unemployment rate falls when the inflation rate rises.

Movements upward along the short-run Phillips curve result from A) expected increases in the inflation rate. B) unexpected increases in the inflation rate. C) expected decreases in the inflation rate. D) unexpected decreases in the inflation rate.

If the unemployment rate initially equals its natural rate, then if the inflation rate rises above its expected rate, the unemployment rate A) equals the natural rate. B) remains constant. C) falls below its natural rate. D) rises above its natural rate.

Along a short-run Phillips curve, suppose the expected inflation rate is 6 percent. If the actual inflation rate turns out to be 8 percent, then A) there is a movement upward along the short-run Phillips curve. B) there is a movement downward along the short-run Phillips curve. C) there is a downward shift of the short-run Phillips curve. D) None of the above answers are correct.

Suppose that the expected inflation rate is 8 percent and the unemployment rate is 3 percent. If the actual inflation rate rises to 10 percent and the expected inflation rate does not change, then A) the short-run Phillips curve will shift upward. B) the short-run Phillips curve will shift downward. C) there will be a movement along the short-run Phillips curve. D) the natural unemployment rate will rise.

Suppose that last year the economy of Suffera was experiencing an expected inflation rate of 8 percent and unemployment rate of 12 percent. An unexpected increase in the inflation rate would A) increase the unemployment rate. B) increase the inflation rate and decrease the unemployment rate. C) increase the inflation rate but have no effect on the unemployment rate. D) None of the above answers is correct.

Which of the following leads to a rightward shift in the short-run Phillips curve? I) a reduction in the expected inflation rate II) an increase in the natural unemployment rate A) I only B) II only C) I and II D) neither I nor II

An increase in the expected inflation rate shifts the A) short-run Phillips curve downward. B) short-run Phillips curve upward. C) long-run Phillips curve upward. D) long-run Phillips curve downward.

An increase in the expected inflation rate leads to ________ the short-run Phillips curve. A) a movement upward along B) a movement downward along C) an upward shift of D) a downward shift of

Which of the following leads to a downward shift in the short-run Phillips curve? A) People expected inflation to be 5 percent last year and now expect inflation to be 3 percent this year. B) People expect the unemployment rate to increase. C) The long-run Phillips curve shifts rightward. D) Unexpected inflation increases.

Suppose that the expected inflation rate is 12 percent and the unemployment rate is 5 percent. If the expected inflation rate increases to 13 percent, then A) the short-run Phillips curve will shift upward. B) the short-run Phillips curve will shift downward. C) there will be a movement along the short-run Phillips curve. D) the natural unemployment rate will rise.

The Cleveland Federal Reserve Bank's estimate of expected inflation has fallen from 3.5 percent in 2000 to 1.5 percent in 2013. This fall means that A) the short-run Phillips curve shifted upward. B) the short-run Phillips curve shifted downward. C) there was a movement along the short-run Phillips curve. D) the natural unemployment rate increased.

The government estimates that the natural unemployment rate has increased from 4.8 percent in 2006 to 5.2 percent in late 2012. If these estimates are accurate, the short-run Phillips curve has A) shifted rightward. B) shifted leftward. C) not shifted. D) None of the above answers are correct because the effect on the short-run Phillips curve is ambiguous.

-In the above figure, suppose that the economy is at point A. An unexpected increase in the inflation rate to 6 percent will result in a movement to point A) A, that is, there is no movement. B) B. C) C. D) D.

-In the above figure, suppose that the economy is at point A. An expected increase in the inflation rate to 6 percent will result in a movement to point A) A, that is, there is no movement. B) B. C) C. D) D.

The long-run Phillips curve shows the relationship between the inflation rate and the unemployment rate when the A) real interest rate equals the nominal interest rate. B) real interest rate is zero. C) actual inflation rate equals the expected inflation rate. D) inflation rate is zero.

The long-run Phillips curve is A) vertical at potential GDP. B) the horizontal sum of the short-run Phillips curves. C) vertical at the natural unemployment rate. D) the vertical sum of the short-run Phillips curves.

The long-run Phillips curve is A) horizontal at the expected inflation rate. B) vertical at the natural unemployment rate. C) horizontal at the actual inflation rate. D) vertical at the actual inflation rate.

Along the long-run Phillips curve A) actual inflation is greater than expected inflation. B) actual inflation is equal to expected inflation. C) actual inflation is less than expected inflation. D) None of the above answers is correct.

The long-run Phillips curve shows that in the long run, policymakers can A) lower unemployment if they are willing to accept more inflation forever. B) lower inflation if they are willing to accept higher unemployment forever. C) choose the unemployment rate but not the inflation rate. D) lower inflation without increasing unemployment.

The position of the long-run Phillips curve is determined by A) the quantity of money. B) the natural unemployment rate. C) the inflation rate. D) the expected inflation rate.

The Cleveland Federal Reserve Bank's estimate of expected inflation has fallen from 3.5 percent in 2000 to 1.5 percent in 2013. This fall means that A) the long-run Phillips curve shifted leftward. B) the long-run Phillips curve shifted rightward. C) the long-run Phillips curve shifted downward. D) None of the above answers are correct because a change in the expected inflation rate does not shift the long-run Phillips curve.

Which of the following statements about the long-run Phillips curve is CORRECT? A) The long-run Phillips curve is horizontal. B) The long-run Phillips curve shifts leftward if the natural unemployment rate decreases. C) The long-run Phillips curve shifts rightward and upward if the expected inflation rate increases. D) The long-run Phillips curve shifts leftward if the natural unemployment rate increases.

-In the above figure, which of the following curves represents the long-run Phillips curve? A) 1 B) 2 C) 3 D) 4

-Which of the diagrams in the above figure best illustrates a short-run Phillips curve? A) Figure A B) Figure B C) both Figure A and Figure B D) neither Figure A nor Figure B

In Figure B above, which of the following is being held constant while moving along the curve in the figure? A) the expected inflation rate B) the natural unemployment rate C) the AD curve D) Both answers A and B are correct.

Which of the diagrams in the above figure best illustrates a long-run Phillips curve? A) Figure A B) Figure B C) both Figure A and Figure B D) neither Figure A nor Figure B

The short-run Phillips curve intersects the long-run Phillips curve at the A) natural interest rate. B) nominal interest rate. C) natural inflation rate. D) expected inflation rate.

The Cleveland Federal Reserve Bank estimates the expected inflation rate is 1.5 percent in 2013. This estimate means that A) the long-run and short-run Phillips curve cross at an inflation rate of 1.5 percent. B) the long-run Phillips curve is vertical at 1.5 percent. C) the short-run Phillips curve is vertical at 1.5 percent. D) the short-run Phillips curve shifts upward by 1.5 percentage points per year.

The short-run Phillips curve and the long-run Phillips curve intersect at the ________ and ________. A) expected inflation rate; the expected unemployment rate B) expected inflation rate; the natural unemployment rate C) natural inflation rate; the expected employment rate D) expected inflation rate; the expected employment rate

An increase in the expected inflation rate shifts A) both the short-run and the long-run Phillips curves upward. B) the short-run but not the long-run Phillips curve upward. C) the long-run but not the short-run Phillips curve upward. D) neither the short-run nor the long-run Phillips curve.

A decrease in the expected inflation rate shifts the short-run Phillips curve A) downward and shifts the long-run Phillips curve leftward. B) upward and shifts long-run Phillips curve rightward. C) downward and creates a movement downward along the long-run Phillips curve. D) upward and creates a movement upward along the long-run Phillips curve.

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) the long-run but not the short-run Phillips curve rightward. D) neither the short-run nor the long-run Phillips curve.

A change in the natural unemployment rate A) shifts only the short-run Phillips curve. B) causes a movement along the short-run Phillips curve. C) shifts only the long-run Phillips curve. D) shifts both the short-run and long-run Phillips curves.