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Multiple Choice Quiz
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1
The aggregate demand curve shows the quantity of:
A)Nominal output demanded at each level of inflation.
B)Real output demanded at each level of inflation.
C)Output made available at each level of inflation.
D)Real output demanded at each level of real interest rate.
2
Business cycles are viewed as:
A)Movements in the short-run equilibrium.
B)Situations where aggregate demand does not equal short-run aggregate supply.
C)Inevitable; every economy must experience them.
D)Movements in the long-run equilibrium.
3
In the long run, current output will:
A)Equal potential output.
B)Be less than potential output.
C)Be above potential output.
D)Only equal potential output if unemployment is zero.
4
In the long run, if we ignore changes in velocity, inflation will:
A)Be zero.
B)Equal the rate of money growth.
C)Equal money growth less the growth in potential output.
D)Equal money growth plus the growth in potential output.
5
To an economist, the term "inflation" refers to:
A)Any price increases.
B)A continually rising price level.
C)A one-time change in the average price level.
D)Increases in prices of important goods like food and energy.
6
In the U.S., most of the recessions are the result of:
A)Ill-timed fiscal policy.
B)Decreasing net exports.
C)Decreases in investment.
D)Large decreases in consumption.
7
If policymakers are aggressive in keeping current inflation near the target inflation rate then the monetary policy reaction curve will:
A)Be steep.
B)Be flat.
C)Have an undefined slope.
D)Be vertical.
8
The effect on the monetary policy reaction curve resulting from policymakers increasing their inflation target would be:
A)The monetary policy reaction curve shifting to the left.
B)A movement up the existing monetary policy reaction curve.
C)A movement down the existing monetary policy reaction curve.
D)The monetary policy reaction curve shifting to the right.
9
If monetary policymakers fear a recession resulting from increased pessimism on the part of business people, and they want to avoid the recession, they would:
A)Shift the monetary policy reaction curve to the right.
B)Shift the monetary policy reaction curve to the left.
C)Likely lower their target rate for inflation.
D)Encourage fiscal policymakers to act.
10
Which of the following statements seems to be verified by economic data?
A)Inflation tends to rise during recessions.
B)Inflation adjusts within three months to output gaps.
C)Inflation tends to fall during expansions.
D)It can take over a year for inflation to adjust to output gaps.
11
The self-correcting mechanism to return the economy to potential output from output gaps is the change in:
A)Potential output.
B)Aggregate demand.
C)Short-run aggregate supply.
D)The real interest rate by the central bank.
12
The short-run effects from an increase in aggregate demand will include:
A)An increase in potential output.
B)An increase in the current inflation rate.
C)A decrease in current output.
D)A recessionary gap.
13
An output gap occurs when:
A)Aggregate demand does not equal short-run aggregate supply.
B)Aggregate demand equals long-run aggregate supply.
C)Aggregate demand equals short-run aggregate supply but not long-run aggregate supply.
D)Short-run aggregate supply equals long-run aggregate supply.
14
Inflation reduces aggregate demand mainly by:
A)Increasing nominal GDP.
B)Increasing velocity.
C)Reducing real balances.
D)Increasing wealth.
15
If inflation is very high, say 50 or 100 percent a year, monetary policymakers will shift their focus to controlling:
A)The long-term interest rate.
B)The short-term interest rate.
C)The exchange rate.
D)Money growth.





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