University of Houston Intermediate Macroeconomics Quiz Questions QUESTION 1 1.Consider Figure 13.2. The aggregate demand curve __________ displays a relat

University of Houston Intermediate Macroeconomics Quiz Questions QUESTION 1

1.Consider Figure 13.2. The aggregate demand curve __________ displays a relatively aggressive monetary policy, while the curve __________ displays a monetary policy completely unresponsive to changes in inflation.

AD2; AD1

AD2; AD3

AD3; AD4

AD1; AD3

None of the above

2 points

QUESTION 2

1.On the aggregate supply curve, an increase in inflation causes __________, while a price shock causes __________.

an upward movement along the curve; the curve to shift.

downward movement along the curve; the curve to shift.

the curve to shift; movement along the curve.

downward movement along the curve; upward movement along the curve.

Not enough information is given.

2 points

QUESTION 3

1.The adjustment process back to the steady state in the short-run model hinges on the:

rate of unemployment.

immediate reaction to a change in the inflation rate.

consumer’s response to inflation shocks.

government’s response to inflation shocks.

slow adjustment of inflation reflected in the aggregate supply curve.

2 points

QUESTION 4

1.Consider the government’s intertemporal budget constraint:

Term A is __________, and term B is __________.

the present value of government spending; the initial debt

the total annual spending; the deficit

the initial period’s spending; the initial debt

the present value of government spending and taxes; the present value of government spending

None of the above is correct.

2 points

QUESTION 5

1.The economic meaning of the intertemporal budget constraint is that:

the government’s budget never has to balance.

the government’s budget must balance period by period.

the present discounted value of the government’s budget must balance.

the government can always push its debt on future generations.

every generation faces the same tax schedule.

2 points

QUESTION 6

1.An implication of the intertemporal budget constraint is that:

the government can borrow only as much as it can credibly pay back.

the government can borrow as much as it wants.

the government must always have a balanced budget.

the government must balance its budget over the business cycle.

all generations pay the same amount of taxes.

2 points

QUESTION 7

1.Consider the IS–MP model in Figure 14.2 above. Starting from the long-run equilibrium, the burst of the housing bubble and the appropriate Fed response, WITHOUT a financial friction, can be shown as a movement from point ________ to point ________, and the economy is in ________.

c; e; its long-run equilibrium

d; b; its long-run equilibrium

b; a; an expansion

a; d; a recession

a; d; an expansion

2 points

QUESTION 8

1.Consider the IS–MP model in Figure 14.2 above. Starting from the long-run equilibrium, the burst of the housing bubble and the appropriate Fed response, with a large, positive financial friction, can be shown as a movement from point ________ to point ________, and the economy is in ________.

d; b; its long-run equilibrium

b; a; an expansion

d; f ; a recession

d; c; its long-run equilibrium

e; f ; a recession

2 points

QUESTION 9

1.Consider Figure 14.4 above. Throughout the first three-fourths or so of 2009 the:

real interest rate on 10-year bonds was lower than the nominal interest rate

10-year-bonds’ nominal interest rate was higher than the real interest rate

inflation rate was negative

real interest rate was negative

inflation rate was higher than the nominal interest rate

2 points

QUESTION 10

1.Consider Figure 14.4 above. For most of 2008 the:

real interest rate was negative

10-year-bonds’ nominal interest rate was less than the real interest rate

real interest rate was zero

real interest rate was positive

None of these answers are correct.

2 points

QUESTION 11

1.Why the aggregate supply curve (AS curve of Ch. 13) is upward sloping?

QUESTION 12

1.What is the most pressing fiscal problem for the twenty-first century? What could be done to correct it?

QUESTION 13

SECTION 1
Because deflation is so costly, some have argued that setting an inflation target at 2 percent is too low and it should be set higher, to 3 percent, especially in the economic environment of 2007–2010.

a.Consider the impact of such an increase in the inflation target using the AD/AS framework in the short and long run. Begin your analysis in the long-run equilibrium.

b.How would you change your answer if expectations are rational and the FED is credible?

SECTION 2

Your uncle is pleased to hear you are taking macroeconomics; the whole financial crisis of 2008-2009 puzzled him. He was not happy about “bailing” out the banks. He is pretty good with graphs, so do not be afraid to use the IS-MP framework to explain the following:

a.How does the rapid decline of the housing market and the subprime implosion affect the macroeconomy?

b.Why the monetary policy was not being effective to stimulate the economy?

c.And why, pray tell, would we bail out the banks? Aren’t there potential long-run problems with doing this? QUESTION 1
1.
Consider Figure 13.2. The aggregate demand curve __________ displays a
relatively aggressive monetary policy, while the curve __________ displays a monetary
policy completely unresponsive to changes in inflation.
AD2; AD1
AD2; AD3
AD3; AD4
AD1; AD3
None of the above
2 points
QUESTION 2
1.
On the aggregate supply curve, an increase in inflation causes __________, while a price shock causes __________.
an upward movement along the curve; the curve to shift.
downward movement along the curve; the curve to shift.
the curve to shift; movement along the curve.
downward movement along the curve; upward movement along the curve.
Not enough information is given.
2 points
QUESTION 3
1.
The adjustment process back to the steady state in the short-run model hinges on the:
rate of unemployment.
immediate reaction to a change in the inflation rate.
consumer’s response to inflation shocks.
government’s response to inflation shocks.
slow adjustment of inflation reflected in the aggregate supply curve.
2 points
QUESTION 4
1.
Consider the government’s intertemporal budget constraint:
Term A is __________, and term B is __________.
the present value of government spending; the initial debt
the total annual spending; the deficit
the initial period’s spending; the initial debt
the present value of government spending and taxes; the present value of government spending
None of the above is correct.
2 points
QUESTION 5
1.
The economic meaning of the intertemporal budget constraint is that:
the government’s budget never has to balance.
the government’s budget must balance period by period.
the present discounted value of the government’s budget must balance.
the government can always push its debt on future generations.
every generation faces the same tax schedule.
2 points
QUESTION 6
1.
An implication of the intertemporal budget constraint is that:
the government can borrow only as much as it can credibly pay back.
the government can borrow as much as it wants.
the government must always have a balanced budget.
the government must balance its budget over the business cycle.
all generations pay the same amount of taxes.
2 points
QUESTION 7
1.
Consider the IS–MP model in Figure 14.2 above. Starting from the long-run equilibrium, the
burst of the housing bubble and the appropriate Fed response, WITHOUT a financial
friction, can be shown as a movement from point ________ to point ________, and the economy
is in ________.
c; e; its long-run equilibrium
d; b; its long-run equilibrium
b; a; an expansion
a; d; a recession
a; d; an expansion
2 points
QUESTION 8
1.
Consider the IS–MP model in Figure 14.2 above. Starting from the long-run equilibrium, the
burst of the housing bubble and the appropriate Fed response, with a large, positive
financial friction, can be shown as a movement from point ________ to point ________, and the
economy is in ________.
d; b; its long-run equilibrium
b; a; an expansion
d; f ; a recession
d; c; its long-run equilibrium
e; f ; a recession
2 points
QUESTION 9
1.
Consider Figure 14.4 above. Throughout the first three-fourths or so of 2009 the:
real interest rate on 10-year bonds was lower than the nominal interest rate
10-year-bonds’ nominal interest rate was higher than the real interest rate
inflation rate was negative
real interest rate was negative
inflation rate was higher than the nominal interest rate
2 points
QUESTION 10
1.
Consider Figure 14.4 above. For most of 2008 the:
real interest rate was negative
10-year-bonds’ nominal interest rate was less than the real interest rate
real interest rate was zero
real interest rate was positive
None of these answers are correct.
2 points
QUESTION 11
1.
Why the aggregate supply curve (AS curve of Ch. 13) is upward sloping?
QUESTION 12
1.
What is the most pressing fiscal problem for the twenty-first century? What could be done to correct it?
QUESTION 13
SECTION 1
Because deflation is so costly, some have argued that setting an inflation target at 2 percent
is too low and it should be set higher, to 3 percent, especially in the economic environment
of 2007–2010.
a.
Consider the impact of such an increase in the inflation target using the AD/AS
framework in the short and long run. Begin your analysis in the long-run equilibrium.
b.
How would you change your answer if expectations are rational and the FED is
credible?
SECTION 2
Your uncle is pleased to hear you are taking macroeconomics; the whole financial crisis
of 2008-2009 puzzled him. He was not happy about “bailing” out the banks. He is pretty
good with graphs, so do not be afraid to use the IS-MP framework to explain the
following:
a.
How does the rapid decline of the housing market and the subprime implosion
affect the macroeconomy?
b.
Why the monetary policy was not being effective to stimulate the economy?
c.
And why, pray tell, would we bail out the banks? Aren’t there potential long-run
problems with doing this?

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