Exam 24: The Economic Fluctuations Model

A) inflation occurs only when real GDP exceeds potential GDP.
B) prices usually remain constant.
C) current prices and wages do not depend on what has happened in the past.
D) prices and wages are as likely to decline as they are to increase.
E) inflation is partly due to inertia.

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E

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False

A) Government purchases
B) Exports
C) Consumption
D) Imports
E) Investment

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A) For any given rate of inflation,real GDP will decrease.
B) For any given rate of inflation,real GDP will increase.
C) For any given rate of inflation,potential GDP will increase.
D) There will be an upward movement along the AD curve.
E) There will be a downward movement along the AD curve.

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A) a possible equilibrium combination of potential GDP and inflation.
B) the inflation rate at any point in time.
C) an equilibrium combination of real GDP and inflation.
D) a possible equilibrium combination of real GDP and inflation.
E) an equilibrium combination of potential GDP and inflation.

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A) decreasing while real GDP is increasing relative to potential GDP.
B) increasing while real GDP is falling relative to potential GDP.
C) decreasing while real GDP is falling relative to potential GDP.
D) increasing while real GDP is increasing relative to potential GDP.
E) constant while real GDP is falling relative to potential GDP.

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Changes in the real interest rate affect...

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A) the economy is not in equilibrium and is therefore not on the aggregate demand curve.
B) the aggregate demand curve intersects the inflation adjustment line at a level of real GDP that is less than potential GDP.
C) the aggregate demand curve and the inflation adjustment line do not intersect.
D) the aggregate demand curve intersects the inflation adjustment line at a level of real GDP that is higher than potential GDP.
E) aggregate expenditures are unequal to real GDP.

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A) A decrease in the MPC
B) An increase in real interest rates
C) A decrease in taxes
D) A decrease in real interest rates
E) A weaker value of the domestic currency

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A) An increase in the real rate of interest
B) A decrease in government purchases
C) An increase in government purchases
D) An increase in the rate of inflation
E) A decrease in the rate of inflation

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A) there has to be an inverse relationship between the real interest rate and real GDP and a positive relationship between inflation and the real interest rate.
B) there has to be a positive relationship between the real interest rate and real GDP and a negative relationship between inflation and the real interest rate.
C) there has to be an inverse relationship between the real interest rate and real GDP and an inverse relationship between inflation and the real interest rate.
D) there has to be a positive relationship between the real interest rate and real GDP and a positive relationship between inflation and the real interest rate.
E) there has to be an inverse relationship between the real interest rate and real GDP but there cannot be a relationship between inflation and the real interest rate.

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This statement is false.Reducing the tar...

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A) Not enough information is given to answer this question.
B) It should have decreased.
C) It should have been negative.
D) It should have increased.
E) It should have remained constant.

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A change in real interest rates will cause investment,net exports,and consumption to change in the opposite direction.This change in aggregate expenditure will cause real GDP to change via the multiplier process.

A) the real interest rate must increase to match the increase in inflation.
B) the nominal interest rate must increase to match the increase in inflation.
C) the nominal interest rate must increase by more than the increase in inflation.
D) the real interest rate must increase by less than the increase in inflation.
E) the nominal interest rate must increase by less than the increase in inflation.

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A) the IA line is usually upward-sloping.
B) inflation is highly variable during the short run.
C) inflation does not change very much in the short run.
D) inflation changes immediately after a change in real GDP.
E) the IA line is usually downward-sloping.

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A) real GDP and inflation.
B) potential GDP and inflation.
C) inflation and unemployment.
D) potential GDP and real GDP.
E) real GDP and unemployment.

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