Principles Of Macroeconomics 5th Edition By Ben Bernanke – Test Bank

Overview

Chapter 11
Testbank Key

1. The aggregate demand curve shows the relationship between short-run equilibrium output and the ______ rate.
A. nominal interest
B. real interest
C. unemployment
D. inflation
Ans: D
AACSB: Analytical thinking
Blooms: Knowledge
Difficulty: Easy
LO: 11.1 What does an aggregate demand curve show?
Topic: Inflation, spending and output: Aggregate demand curve

2. For a given level of inflation, if there is a greater reluctance on the part of foreigners to purchase domestic goods, then the _____ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply line; upward
D. aggregate supply line; downward
Ans: B
AACSB: Analytical thinking
Blooms: Analysis
Difficulty: Medium
LO: 11.3 For what reasons might the aggregate demand curve shift?
Topic: Inflation, spending and output: Aggregate demand curve

3. Since increases in inflation reduce planned spending and short-run equilibrium output:
A. the aggregate supply line is downward sloping
B. the aggregate supply line is upward sloping
C. the aggregate demand curve is horizontal
D. the aggregate demand curve is downward sloping
Ans: D
AACSB: Analytical thinking
Blooms: Knowledge
Difficulty: Easy
LO: 11.1 What does an aggregate demand curve show?
Topic: Inflation, spending and output: Aggregate demand curve

4. For a given level of inflation, if an increase in threats to domestic security causes the government to increase military spending, then the _____ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply line; upward
D. aggregate supply line; downward
Ans: A
AACSB: Analytical thinking
Blooms: Analysis
Difficulty: Medium
LO: 11.3 For what reasons might the aggregate demand curve shift?
Topic: Inflation, spending and output: Aggregate demand curve

5. For a given level of inflation, if a rise in the stock market makes consumers more willing to spend (the wealth effect), then the _____ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply line; upward
D. aggregate supply line; downward
Ans: A
AACSB: Analytical thinking
Difficulty: Medium
LO: 11.3 For what reasons might the aggregate demand curve shift?
Topic: Inflation, spending and output: Aggregate demand curve

6. If there were stagflation in the economy caused by a decrease in aggregate supply:
A. both the real output and price levels would fall
B. real output would rise and increases in the price level would be greater
C. real output would fall while the price level increases
D. real output would increase while increases in the price level would be smaller
Ans: C
AACSB: Analytical thinking
Blooms: Analysis
Difficulty: Medium
LO: 11.8 What are the main sources of inflation?
Topic: Sources of inflation

7. Based on the Reserve Bank’s policy reaction function, when inflation is high, the Reserve Bank ____ interest rates, thereby _____ short-run equilibrium output.
A. increases; increasing
B. increases; decreasing
C. does not change; increasing
D. decreases; increasing
Ans: B
AACSB: Analytical thinking
Blooms: Analysis
Difficulty: Medium
LO: 11.2 What implications do the Reserve Bank’s anti-inflation policies have for the slope of the aggregate demand curve?
Topic: Inflation, spending and output: Aggregate demand curve

8. Pre-emptive strikes of tighter monetary policy are used by central banks such as the Reserve Bank of Australia to __________ and avoid the need for ____________.
A. keep inflation constant; costly re-inflation
B. keep inflation constant; costly fiscal expenditure
C. keep inflation low; costly dis-inflation
D. keep inflation low; costly fiscal expenditure
Ans: C
AACSB: Analytical thinking
Blooms: Analysis
Difficulty: Medium
LO: 11.10 How can monetary policy influence the rate of inflation?
Topic: Controlling inflation

9. Suppose in an economy PAE = 5000 + .75Y – 10 000r and the central bank acts according to the policy reaction function set out in the table.

Rate of inflation (π) Real interest rate set by central bank (r)
0.00 (=0%) 0.01 (=1%)
0.01 0.02
0.02 0.03
0.03 0.04
0.04 0.05

If inflation is 0%, the central bank will set a real interest rate of ____ per cent and short-run equilibrium output will equal _____.
A. 0; 20 000
B. 1; 20 000
C. 1; 19 600
D. 1; 15 000
Ans: C
AACSB: Analytical thinking
Blooms: Application
Difficulty: Hard
LO: 11.2 What implications do the Reserve Bank’s anti-inflation policies have for the slope of the aggregate demand curve?
Topic: Inflation, spending and output: Aggregate demand curve

10. Use the figure that follows to answer the question.
%media:chapter11_10_png.ext%
This economy has a(n) ____ gap, with a short-run equilibrium combination of inflation and output indicated by point ___.
A. recessionary; A
B. recessionary; B
C. expansionary; C
D. expansionary; A
Ans: A