Multiple Choice Questions:
1. If expectations are rational?
a. A predictable change in inflation can make the expected inflation rate deviate from the actual inflation rate.
b. Unemployment can exceed the full-employment rate even in the long run.
c. The inflation rate cannot be reduced without a sustained period of high unemployment, because the short-run Phillips curve is downward sloping.
d. An increase in aggregate demand due to government policy will not necessarily increase real output.
2. According to the rational expectations view, the government can change real output?
a. With appropriate, well-publicized fiscal and monetary policies.
b. With appropriate, well-publicized fiscal and monetary policies in the short run, but not in the long run.
c. Only by making unexpected changes in aggregate demand.
d. Without ever affecting the price level.
3. The theory of rational expectations says that?
a. Workers make excellent choices of places to work.
b. Economists expect workers to always correctly forecast the inflation rate.
c. Economists, but not workers, are expected to always correctly forecast the inflation rate.
d. Workers and consumers incorporate the likely consequences of government policy into their expectations rapidly.
4. If expectations are rational, can fiscal and monetary policy control real output?
a. Yes, provided policies are announced in advance.
b. Yes, both policies are effective in altering real output in the desired way.
c. No, because policymakers can’t accurately predict how people’s expectations will be affected by the policies they adopt.
d. No, only fiscal policy can alter unemployment in the short run.
e. No, only monetary policy can alter unemployment in the short run.
5. If expectations are rational, is it possible to reduce inflation without causing increased unemployment?
a. Yes, simply by using monetary policy to reduce aggregate demand instead of fiscal policy.
b. No, no economic theory assumes that this is possible under any conditions.
c. Yes, simply by making a quick move to reduce aggregate demand with no announcement.
d. No, rational expectations theory assumes that any decrease in inflation always triggers mass unemployment.
e. Yes, simply by reducing the growth aggregate demand to a lower level and announcing this in a credible way.
6. Employment will be affected by inflation only if?
a. The inflation rate gets above a certain level.
b. The inflation is expected.
c. The inflation rate is different from what was expected.
d. Unemployment is above the natural rate.
7. Rational expectations theory implies that accurately anticipating aggregate demand?
a. Will increase RGDP in the short run.
b. Will affect RGDP and inflation only in the long run.
c. May affect RGDP but not nominal GDP in the short run.
d. Will do none of the above.
8. Whether people quickly anticipate the effects of government policy changes or not, an increase in the growth rate of aggregate demand will tend to increase nominal GDP?
a. In both the short run and the long run.
b. In the short run but not the long run.
c. In the long run but not the short run.
d. In neither the short run nor the long run.