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Question 1

The rational expectations hypothesis does not imply:

a) People do not make systematic errors.

b) On average the economy will be close to the LAS curve.

c) Policy makers have better information about the economy than other economic actors.

d) Macroeconomic policy changes must come as a surprise in order to have an impact on the real economy.

Question 2

Which of the following would not be a cost of inflation?

a) Anticipated inflation leads to redistribution between borrowers and lenders.

b) Random redistributions that occur when relative price fluctuations rise with inflation.

c) Variable rates of inflation begin to mask the meaning of relative price changes.

d) The loss of value of money in inflation leads to real costs when households engage in efforts to economize on their cash holdings.

Question 3

According to the _______________, ill-timed policy interventions may actually worsen the business cycle due to the long and variable lags between the recognition of an economic problem and the ultimate impact of a change in monetary policy.

a) Friedman Critique

b) Phelps' Doctrine

c) Lucas Model

d) Taylor Rule

Question 4

Whether an economic shock is identified as being a supply shock or a demand shock makes a great difference for aggregate demand management because….

a) …this matters for the choice of using either fiscal or monetary policy to respond to the economic shock.

b) …supply shocks demand contractionary aggregate demand policy but expansionary monetary policy.

c) …partisan business cycles are generated by supply shocks and real business cycles are generated by demand shocks.

d) …in the face of a supply shock aggregate demand policy will not be particularly useful since it will either compound the impact on inflation or unemployment of a supply shock.

Question 5

The dominant way of thinking about business cycles is the…

a) …real business cycle theory.

b) …impulse propagation mechanism.

c) …deterministic AS-AD system

d) …political business cycles.

Oxford University Press, Online Resource Centre, Chapter 16.

Chapter 16

Instructions

Question 1

Question 2

Question 3

Question 4

Question 5