Multiple Choice Questions:
1. Under rational expectations, a fully anticipated decrease in the inflation rate from 6 percent to 2 percent will?
a. Lower unemployment at first, but then unemployment will return to its natural rate.
b. Lower unemployment permanently.
c. Not change unemployment in either the short run or the long run.
d. Raise unemployment at first, but then unemployment will return to its natural rate.
e. Raise unemployment permanently.
2. Which of the following is not a factor emphasized by real business cycle theorists as a cause of business cycles?
a. The growth rate of productivity
b. Technological advances
c. Slow adjustments of markets to changes in inflation
d. All of the above are emphasized by real business cycle theorists as causes of business cycles.
3. According to real business cycle theorists, as a result of a negative productivity shock?
a. The marginal productivity of labor will fall.
b. The real wage rate will fall.
c. The average hours of work will fall.
d. Investment will fall.
e. All of the above will occur.
4. Which of the following would move in a different direction from the others in the case of a positive productivity shock?
a. Investment
b. The average amount of vacation time taken by workers
c. Real wages
d. Real output
e. The marginal productivity of labor
5. Under the Taylor rule, the federal funds rate would be increased by half a point when?
a. Real GDP exceeds target real GDP by 1 percentage point.
b. Target GDP exceeds real GDP by 1 percentage point.
c. Inflation exceeds the inflation target by 1 percentage point.
d. Either a or c occurs.
6. The primary purpose of indexing is to?
a. Lower the inflation rate.
b. Reduce the social costs of inflation.
c. Help the government maintain wage and price controls.
d. All of the above are primary purposes of indexing.
7. Indexing is a method of fighting inflation by?
a. Tying monetary payments to changes in price indexes.
b. Lowering the level of the consumer price index.
c. Keeping prices from rising above government set ceilings.
d. All of the above.
8. An escalator clause generally allows wage increases?
a. Without annual negotiations.
b. Only when prices increase by more than 5 percent.
c. When unemployment threatens a major industry.
d. To protect workers from increases in the prices of a few selected products.
9. Indexing?
a. Is a process of adjusting payment contracts to automatically adjust for changes in the price level.
b. Can reduce the impact of inflation on the distribution of income.
c. May intensify the inflationary effects of expansionary monetary policy by increasing inflationary pressures.
d. Is characterized by all of the above.