Question

Principles of Macroeconomics

Q. 1 If the CPI was 132.5 at the end of last year and 140.2 at the end of this year, the rate of inflation was

Group of answer choices

A.5.3 percent.

B. 5.8 percent.

C. 7.7 percent.

D. 4.4 percent.

Q. 2 In general, monetary policy has a longer ________ lag than fiscal policy but shorter ________ lag.

Group of answer choices

A. implementation; response

B. implementation; recognition

C. response; implementation

D. recognition; response

Q.3 ________ economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment.

Group of answer choices

A.Monetarist

B. Keynesian

C. Classical

D. All

Q.4 Suppose the current situation is such that the price level is 120, real GDP is $17 trillion, and GDP along the long-run aggregate supply curve is $16.6 trillion. How will the economy self-correct to restore the long-run equilibrium?

A. The money wage rate will rise until real GDP reaches $16.6 trillion.

B.The price level will fall and money wage rates will rise until real GDP along the long-run aggregate supply curve is $17 trillion.

C. Aggregate demand will increase until both short-run and long-run aggregate supply equal $17 trillion.

D. The price level will fall until long-run aggregate supply increases to $17 trillion.

Q.5 Suppose the economy is experiencing frictional unemployment of 1.5 percent, structural unemployment of 1.5 percent and cyclical unemployment of 4 percent. What is the natural unemployment rate?

A.7 percent

B.5 percent

C. 4 percent

D.3 percent

Q.6 In the short run, the Federal Reserve faces a tradeoff between

A. real GDP growth and potential GDP growth.

B.economic growth and employment.

C. inflation and unemployment.

D. inflation and price stability.

Answer 1

1) If the CPI was 132.5 at the end of last year and 140.2 at the end of this year, the rate of inflation was = CPI x - CPIx-¹/CPIx-¹ × 100

Rate of inflation = 140.2-132.5/132.5 × 100

Rate of inflation = 5.8 percent.

So, B is the correct option.

2)In general, monetary policy has a longer _implementation_ lag than fiscal policy but shorter _response_ lag.

So, correct option is A.

3)___Keynesian_____ economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment.

So, correct option is B.

4) Suppose the current situation is such that the price level is 120, real GDP is $17 trillion, and GDP along the long-run aggregate supply curve is $16.6 trillion. To restore the long run equilibrium, the prices will fall until long rum aggregate supply increases to $17 trillion.

So, correct option is D.

5)Natural rate of unemployment = Frictional Unemployment + Structural Unemployment = 1.5+1.5= 3 %.

So, D is the correct option.

6) In the short run, the Federal Reserve faces a tradeoff between inflation and unemployment.

So, option C is correct.

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