MEcon Master of Economics Master of Economics: Introduction to Macroeconomics 4

Question 1

Which of the following best captures the distinction between the short-run and long-run Phillips curves?

Accepted Answer

The short-run curve is downward-sloping; the long-run curve is vertical at the natural rate

Answer

In the long run, inflation expectations adjust fully, eliminating the inflation-unemployment trade-off and making the curve vertical.

Question 2

A central bank that follows a strict inflation-targeting regime primarily uses which instrument to achieve its goal?

Accepted Answer

A short-term policy interest rate

Answer

Inflation-targeting central banks adjust a short-term policy rate (e.g., the federal funds rate) to steer inflation toward the announced target.

Question 3

In the context of national income accounting, which identity must always hold?

Accepted Answer

All of the above are always true by accounting identity

Answer

GDP can be measured by expenditure (Y=C+I+G+NX), income distribution, or saving-investment identity — all are accounting identities that always hold.

Question 4

What does the term 'liquidity trap' describe in macroeconomics?

Accepted Answer

A condition in which monetary policy cannot lower interest rates further to stimulate demand

Answer

In a liquidity trap, the nominal interest rate hits zero and additional money creation is held as cash, rendering conventional monetary policy ineffective.

Question 5

Real Business Cycle (RBC) theory attributes economic fluctuations primarily to:

Accepted Answer

Technology shocks and other real supply-side disturbances

Answer

RBC models explain business cycles as optimal responses to real technology or preference shocks, without relying on nominal rigidities.

MEcon Master of Economics Practice Test

MEcon Master of Economics Practice Test

MEcon Master of Economics Master of Economics: Introduction to Macroeconomics 4