Question 1

If people underestimate the effects of expansionary policy, an increase in the growth rate of aggregate demand will tend to increase real GDP:

Accepted Answer

In the short run, an increase in growth rate of aggregate demand will increase real GDP due to increases in consumption, investment and government spending. However, in the long run, prices also adjust, leading to an increase in input prices, wages etc., resulting in less increase in real GDP. Therefore, the increase in real GDP is only seen in the short run but not in the long run.

Question 2

If an increase in the growth rate of AD leads to an increase in real GDP in the short run:

Accepted Answer

If the increase in AD leads to an increase in real GDP in the short run, it indicates that the increase in AD was more than what was initially anticipated as it led to higher production levels and increased economic output.

Question 3

With rational expectations, a correctly anticipated policy that would increase AD would lead to:

Accepted Answer

With rational expectations, if a policy that increases aggregate demand (AD) is correctly anticipated, people adjust their expectations accordingly. This means that workers and firms adjust their wage and price settings in anticipation of higher inflation, leading to an increase in inflation without affecting unemployment, as the economy adjusts without the surprise element that could temporarily lower unemployment.

Question 4

Rational expectations theory would imply that the graphical relationship between unemployment and inflation indicated by the Phillips curve is ____ in the short-run.

Accepted Answer

Rational expectations theory implies that in the short-run, the Phillips curve is vertical, meaning that there is no trade-off between unemployment and inflation.

Question 5

If the public has rational expectations, an attempt to increase aggregate demand to stimulate the economy will:

Accepted Answer

When the public has rational expectations, they anticipate government actions and adjust their behavior accordingly. If a shift in aggregate demand is predictable, people will adjust their expectations and actions in advance, making the policy ineffective in stimulating the economy.

Question 6

With rational expectations, a policy that would decrease AD would certainly lead to:

Accepted Answer

The answer of With rational expectations, a policy that would...

Question 7

Exhibit 19-1 -Refer to Exhibit 19-1. If an increase in aggregate demand from AD₀ to AD₁ is fully anticipated, the economy will move from point A to point ____ in the short run.

Accepted Answer

The answer of ​Exhibit 19-1
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-Refer to Exhibit 19-1....

Question 8

If a decrease in the growth rate of AD leads to a decrease in real GDP in the short run:

Accepted Answer

The answer of If a decrease in the growth rate...

Question 9

If the shifts in AD that will result from policy changes are fully and accurately anticipated, an increase in government purchases or a decrease in taxes would result in which of the following in the short run?

Accepted Answer

The answer of If the shifts in AD that will...

Question 10

​Exhibit 19-1
​  ​
​
-Refer to Exhibit 19-1. If a decrease in aggregate demand from AD1 to AD0 is fully anticipated, the economy will move from point E to point ____ in the short run.

Accepted Answer

If the decrease in aggregate demand is fully anticipated, the economy will adjust in the short run to a new equilibrium point on the short-run aggregate supply curve, which is typically represented by point A in such diagrams.

Question 11

Which of the following statements was probably made by an adherent of rational expectations?

Accepted Answer

An adherent of rational expectations would likely believe that programs designed to stimulate employment will not be effective because individuals and businesses will adjust their behavior in anticipation of these programs, resulting in higher prices without any meaningful increase in employment. Thus, statement C is the most consistent with this perspective. Statements A and D do not reflect an understanding of the trade-offs between employment and inflation, and statement B does not necessarily reflect a belief in rational expectations theory.

Question 12

If people correctly anticipate the effects of expansionary policy, an increase in the growth rate of aggregate demand will tend to increase real GDP:

Accepted Answer

The answer of If people correctly anticipate the effects of...

Question 13

With rational expectations, a policy that would increase AD would lead to:

Accepted Answer

Rational expectations suggest that individuals will anticipate the effects of monetary policy on inflation. If they correctly anticipate an increase in aggregate demand (AD) due to policy actions, they will adjust their behavior in advance, leading to higher inflation but no change in real output in the short run, as any potential increase in output would be offset by the adjustments in expectations and behavior.

Question 14

If expectations are rational, how can government influence unemployment in a predictable way?

Accepted Answer

When expectations are rational, individuals and businesses anticipate the effects of government policies on the economy. Therefore, standard policy tools may become ineffective in influencing unemployment as people adjust their behavior in anticipation of these policies. The only way for the government to influence unemployment in a predictable manner under these conditions is through surprise changes in policy, as these cannot be anticipated and people do not have time to adjust their expectations and behaviors accordingly.

Question 15

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Accepted Answer

Rational expectation theory suggests that if changes in aggregate demand are accurately anticipated, individuals (including input suppliers) will adjust their behavior in response to their expectations about inflation or other economic conditions. This means that any potential effects on real GDP (RGDP) or inflation might be neutralized or offset by these anticipatory actions, rather than leading to long-term changes in RGDP or affecting it in a way that is not counterbalanced.

Question 16

If the shifts in AD that will result from policy changes are fully and accurately anticipated, a decrease in government purchases or an increase in taxes would result in which of the following in the short run?

Accepted Answer

A decrease in government purchases or an increase in taxes would typically lead to a decrease in aggregate demand, resulting in a lower level of real output and a lower price level in the short run, which is not listed among the options provided.

Question 17

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Accepted Answer

Rational expectation theory suggests that if changes in aggregate demand are accurately anticipated, individuals and firms will adjust their behavior accordingly, neutralizing any impact on real GDP in both the short and long run.

Question 18

With rational expectations, a policy that would decrease AD would lead to:

Accepted Answer

With rational expectations, people will adjust their behavior based on their expectations of the policy's effect on inflation and other economic variables. If people underestimate the effect of the policy on inflation, they will expect lower inflation, and the central bank will need to lower interest rates to stimulate demand. However, this may lead to higher unemployment in the short run, as firms may not be able to increase production quickly enough to meet the increased demand. Therefore, a policy that decreases AD would lead to lower inflation and higher unemployment in the short run if people underestimate the effect of the policy on inflation.

Question 19

If expectations are rational, the difference between the actual inflation rate and the forecast for inflation is:

Accepted Answer

Rational expectations theory suggests that individuals and businesses use all available information efficiently to predict future events, including inflation. Therefore, the difference between the actual inflation rate and the forecast for inflation would be random, as forecasts would already incorporate expectations about future inflation, making systematic errors unlikely.

Question 20

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Accepted Answer

Rational expectation theory suggests that if changes in aggregate demand are accurately anticipated, people will adjust their behavior in advance. This means that while nominal GDP may be affected due to changes in the price level, real GDP, which is adjusted for inflation, will not be affected in the short run because individuals and businesses have already adjusted their actions based on their expectations.

Quiz 19: Measuring Economic Performance

If people underestimate the effects of expansionary policy, an increase in the growth rate of aggregate demand will tend to increase real GDP:

If an increase in the growth rate of AD leads to an increase in real GDP in the short run:

With rational expectations, a correctly anticipated policy that would increase AD would lead to:

Rational expectations theory would imply that the graphical relationship between unemployment and inflation indicated by the Phillips curve is ____ in the short-run.

If the public has rational expectations, an attempt to increase aggregate demand to stimulate the economy will:

With rational expectations, a policy that would decrease AD would certainly lead to:

Exhibit 19-1 -Refer to Exhibit 19-1. If an increase in aggregate demand from AD₀ to AD₁ is fully anticipated, the economy will move from point A to point ____ in the short run.

If a decrease in the growth rate of AD leads to a decrease in real GDP in the short run:

If the shifts in AD that will result from policy changes are fully and accurately anticipated, an increase in government purchases or a decrease in taxes would result in which of the following in the short run?

Exhibit 19-1 -Refer to Exhibit 19-1. If a decrease in aggregate demand from AD1 to AD0 is fully anticipated, the economy will move from point E to point ____ in the short run.

Which of the following statements was probably made by an adherent of rational expectations?

If people correctly anticipate the effects of expansionary policy, an increase in the growth rate of aggregate demand will tend to increase real GDP:

With rational expectations, a policy that would increase AD would lead to:

If expectations are rational, how can government influence unemployment in a predictable way?

Rational expectation theory implies that accurately anticipated change in aggregate demand:

If the shifts in AD that will result from policy changes are fully and accurately anticipated, a decrease in government purchases or an increase in taxes would result in which of the following in the short run?

Rational expectation theory implies that accurately anticipated change in aggregate demand:

With rational expectations, a policy that would decrease AD would lead to:

If expectations are rational, the difference between the actual inflation rate and the forecast for inflation is:

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Quiz 19: Measuring Economic Performance

If people underestimate the effects of expansionary policy, an increase in the growth rate of aggregate demand will tend to increase real GDP:

If an increase in the growth rate of AD leads to an increase in real GDP in the short run:

With rational expectations, a correctly anticipated policy that would increase AD would lead to:

Rational expectations theory would imply that the graphical relationship between unemployment and inflation indicated by the Phillips curve is ____ in the short-run.

If the public has rational expectations, an attempt to increase aggregate demand to stimulate the economy will:

With rational expectations, a policy that would decrease AD would certainly lead to:

​Exhibit 19-1 ​ ​ ​ -Refer to Exhibit 19-1. If an increase in aggregate demand from AD0 to AD1 is fully anticipated, the economy will move from point A to point ____ in the short run.

If a decrease in the growth rate of AD leads to a decrease in real GDP in the short run:

If the shifts in AD that will result from policy changes are fully and accurately anticipated, an increase in government purchases or a decrease in taxes would result in which of the following in the short run?

​Exhibit 19-1 ​ ​ ​ -Refer to Exhibit 19-1. If a decrease in aggregate demand from AD1 to AD0 is fully anticipated, the economy will move from point E to point ____ in the short run.

Which of the following statements was probably made by an adherent of rational expectations?

If people correctly anticipate the effects of expansionary policy, an increase in the growth rate of aggregate demand will tend to increase real GDP:

With rational expectations, a policy that would increase AD would lead to:

If expectations are rational, how can government influence unemployment in a predictable way?

Rational expectation theory implies that accurately anticipated change in aggregate demand:

If the shifts in AD that will result from policy changes are fully and accurately anticipated, a decrease in government purchases or an increase in taxes would result in which of the following in the short run?

Rational expectation theory implies that accurately anticipated change in aggregate demand:

With rational expectations, a policy that would decrease AD would lead to:

If expectations are rational, the difference between the actual inflation rate and the forecast for inflation is:

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Exhibit 19-1 -Refer to Exhibit 19-1. If an increase in aggregate demand from AD₀ to AD₁ is fully anticipated, the economy will move from point A to point ____ in the short run.

Exhibit 19-1 -Refer to Exhibit 19-1. If a decrease in aggregate demand from AD1 to AD0 is fully anticipated, the economy will move from point E to point ____ in the short run.