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The new classical theory argues that the primary factor leading to business cycles is


A) unexpected fluctuations in short- run aggregate supply.
B) expected fluctuations in aggregate demand.
C) unexpected fluctuations in long- run aggregate supply.
D) unexpected fluctuations in aggregate demand.
E) expected fluctuations in short- run aggregate supply.

F) C) and D)
G) A) and B)

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Use the figure below to answer the following questions. Use the figure below to answer the following questions. Figure 12.2.2 -Refer to Figure 12.2.2.If the short- run aggregate supply curve does not shift, and remains at SAS<sub>0</sub>, then the expected inflation rate is A) 15 percent. B) zero. C) 10 percent. D) - 10 percent. E) 5 percent. Figure 12.2.2 -Refer to Figure 12.2.2.If the short- run aggregate supply curve does not shift, and remains at SAS0, then the expected inflation rate is


A) 15 percent.
B) zero.
C) 10 percent.
D) - 10 percent.
E) 5 percent.

F) B) and E)
G) C) and D)

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Use the figure below to answer the following questions. Use the figure below to answer the following questions. Figure 12.4.1 -Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.What is the natural unemployment rate? A) 6 percent B) 7 percent C) 4 percent D) 9 percent E) cannot be determined without more information Figure 12.4.1 -Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.What is the natural unemployment rate?


A) 6 percent
B) 7 percent
C) 4 percent
D) 9 percent
E) cannot be determined without more information

F) None of the above
G) A) and D)

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Choose the statement that is incorrect.


A) A one- time fall in the price level occurs either because aggregate demand decreases or because short- run aggregate supply increases.
B) In a deflation, the inflation rate is positive but decreasing in consequent years.
C) A one- time fall in the price level occurs when there is an increase in capital that increases potential GDP.
D) In a deflation, the price level persistently falls.
E) A one- time fall in the price level is not a deflation.

F) None of the above
G) B) and E)

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Use the figure below to answer the following questions. Use the figure below to answer the following questions. Figure 12.2.2 -Refer to Figure 12.2.2.If SAS shifts from SAS<sub>0 </sub>to SAS<sub>1</sub>, then A) inflation will be 10 percent. B) unemployment will fall. C) potential GDP will decrease D) deflation occurs. E) inflation is expected to be 10 percent. Figure 12.2.2 -Refer to Figure 12.2.2.If SAS shifts from SAS0 to SAS1, then


A) inflation will be 10 percent.
B) unemployment will fall.
C) potential GDP will decrease
D) deflation occurs.
E) inflation is expected to be 10 percent.

F) C) and D)
G) D) and E)

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A correctly anticipated increase in the quantity of money


A) increases the price level and increases real GDP.
B) increases the price level with no change in real GDP.
C) does not change the price level but increases real GDP.
D) does not change the price level or real GDP.
E) does not change the price level but decreases real GDP.

F) A) and E)
G) C) and D)

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Use the figure below to answer the following questions. Use the figure below to answer the following questions. Figure 12.4.1 -Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.If the current inflation rate is 3 percent a year, what is the current unemployment rate? A) 9 percent B) 6 percent C) 3 percent D) 4 percent E) cannot be determined without more information Figure 12.4.1 -Refer to Figure 12.4.1.The figure illustrates an economy's Phillips curves.If the current inflation rate is 3 percent a year, what is the current unemployment rate?


A) 9 percent
B) 6 percent
C) 3 percent
D) 4 percent
E) cannot be determined without more information

F) All of the above
G) C) and E)

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Use the figure below to answer the following questions. Use the figure below to answer the following questions. Figure 12.2.6 -Refer to Figure 12.2.6.Starting at point A, the initial effect of a cost- push inflation is a move to point _______.As a cost- push inflation spiral proceeds, it follows the path _______. A) C; E, H, I B) B; D, G, I C) E; I D) C; B, H, G, I E) B; E, G, I Figure 12.2.6 -Refer to Figure 12.2.6.Starting at point A, the initial effect of a cost- push inflation is a move to point _______.As a cost- push inflation spiral proceeds, it follows the path _______.


A) C; E, H, I
B) B; D, G, I
C) E; I
D) C; B, H, G, I
E) B; E, G, I

F) A) and B)
G) A) and D)

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The short- run Phillips curve shows the relationship between _______, holding constant the expected inflation rate and the natural unemployment rate.


A) the inflation rate and the growth of the money wage rate.
B) the inflation rate and the unemployment rate
C) the inflation rate and the economic growth rate
D) growth and potential GDP.
E) unemployment and the economic growth rate

F) B) and D)
G) A) and D)

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Use the figure below to answer the following question. Use the figure below to answer the following question. Figure 12.2.5 -Refer to Figure 12.2.5.Which one of the graphs in the figure represents an economy experiencing stagflation? A) a only B) b only C) c only D) d only E) Both a and c Figure 12.2.5 -Refer to Figure 12.2.5.Which one of the graphs in the figure represents an economy experiencing stagflation?


A) a only
B) b only
C) c only
D) d only
E) Both a and c

F) All of the above
G) C) and D)

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A correctly anticipated increase in the quantity of money, in an economy with an unchanging long- run aggregate supply, will result in


A) no change in the price level and no change in real GDP.
B) a rise in the price level and a decrease in real GDP.
C) no change in the price level and an increase in real GDP.
D) a rise in the price level and an increase in real GDP.
E) a proportional rise in the price level and no change in real GDP.

F) A) and E)
G) D) and E)

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When the price level is rising and, simultaneously, real GDP is decreasing,


A) potential GDP is decreasing.
B) the natural unemployment rate is rising.
C) stagflation is occurring.
D) the economy is experiencing an expansionary gap.
E) the natural unemployment rate is falling.

F) A) and B)
G) A) and C)

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Which of the following are business cycle theories that regard fluctuations in aggregate demand as the factor tha business cycles? I.Keynesian cycle theory II.real business cycle theory III.monetarist cycle theory


A) I, II and III
B) I and III
C) I only
D) I and II
E) II and III

F) A) and E)
G) None of the above

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According to the real business cycle theory, what effects follow from a change in productivity? I.Investment demand changes. II.The demand for labour changes. III.Government expenditure changes.


A) I
B) I and II
C) I and III
D) II and III
E) I, II and III

F) A) and B)
G) A) and C)

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Use the table below to answer the following questions. Table 12.4.1 Use the table below to answer the following questions. Table 12.4.1 -Refer to Table 12.4.1.The table gives points on a short- run Phillips curve.If the expected inflation rate is 10 percent, and the inflation rate unexpectedly rises to 12 percent and stays there for some period of time, the expected inflation rate becomes _______ percent a year and the natural unemployment rate is _______ percent. A) 10; 6 B) 10; 4 C) 12; 4 D) 12; 5 E) 12; 6 -Refer to Table 12.4.1.The table gives points on a short- run Phillips curve.If the expected inflation rate is 10 percent, and the inflation rate unexpectedly rises to 12 percent and stays there for some period of time, the expected inflation rate becomes _______ percent a year and the natural unemployment rate is _______ percent.


A) 10; 6
B) 10; 4
C) 12; 4
D) 12; 5
E) 12; 6

F) A) and B)
G) A) and E)

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Stagflation is the result of


A) an increase in short- run aggregate supply.
B) a decrease in short- run aggregate supply.
C) a decrease in aggregate demand.
D) a decrease in short- run aggregate supply combined with a simultaneous increase in aggregate supply.
E) an increase in aggregate demand.

F) B) and D)
G) C) and E)

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Use the figure below to answer the following questions. Use the figure below to answer the following questions. Figure 12.2.3 -Refer to Figure 12.2.3.Assume that the figure illustrates an economy initially in equilibrium at the intersection of the SAS<sub>0 </sub>curve and the AD<sub>0 </sub>curve.If the aggregate demand curve is correctly expected to shift to AD<sub>1</sub>, new equilibrium real GDP is _______ and the new equilibrium price level is _______. A) $500 billion; 150 B) $620 billion; 125 C) $380 billion; 125 D) $500 billion; 100 E) $500 billion; 125 Figure 12.2.3 -Refer to Figure 12.2.3.Assume that the figure illustrates an economy initially in equilibrium at the intersection of the SAS0 curve and the AD0 curve.If the aggregate demand curve is correctly expected to shift to AD1, new equilibrium real GDP is _______ and the new equilibrium price level is _______.


A) $500 billion; 150
B) $620 billion; 125
C) $380 billion; 125
D) $500 billion; 100
E) $500 billion; 125

F) None of the above
G) B) and C)

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Choose the statement that is incorrect.


A) The price level falls if aggregate supply increases at a persistently slower rate than aggregate demand.
B) Deflation can end if the central bank ensures that the quantity of money grows at the target inflation rate plus the growth rate of potential GDP minus the growth rate of the velocity of circulation.
C) A one- time fall in the price level is not deflation.
D) An economy experiences deflation when it has a persistently falling price level.
E) During a period of deflation, the inflation rate is negative.

F) C) and E)
G) A) and B)

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The economy starts out at a full- employment equilibrium.Some events then occur that generate a demand- pull inflation.All of the following events except an increase in _______ might start a demand- pull inflation.


A) government expenditure
B) transfer payments
C) the quantity of money
D) exports
E) the money wage rate

F) B) and E)
G) None of the above

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Stagflation can result from


A) a rightward shift of the short- run aggregate supply curve.
B) a rightward shift of the long- run aggregate supply curve.
C) a rightward shift of the demand curve.
D) a leftward shift of the short- run aggregate supply curve.
E) a leftward shift of the demand curve.

F) B) and D)
G) C) and D)

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