Question 1

The reservation wage tends to increase as the duration of unemployment increases.

Accepted Answer

A) True 
 B)False

Question 2

Figure 16-1  
-Refer to Figure 16-1. Moving from B to A shows a tradeoff of

Accepted Answer

A)  more unemployment for less inflation. 
B)  less unemployment for more inflation. 
C)  a fixed amount of unemployment for more inflation. 
D)  less unemployment for less inflation. 
A)  more unemployment for less inflation. 
B)  less unemployment for more inflation. 
C)  a fixed amount of unemployment for more inflation. 
D)  less unemployment for less inflation.

Question 3

Since 1979 when inflation soared into the double-digit, the Federal Reserve's policies

Accepted Answer

A)  have been focused on moving the economy to its potential output. 
B)  have clearly shown a reduced tolerance for inflation. 
C)  were concentrated on bringing the price of oil down. 
D)  have moved toward restraining growth in financial markets. 
A)  have been focused on moving the economy to its potential output. 
B)  have clearly shown a reduced tolerance for inflation. 
C)  were concentrated on bringing the price of oil down. 
D)  have moved toward restraining growth in financial markets.

Question 4

Which of the following characterizes the relationship between inflation and unemployment in the United States? 
I. There have been periods in which a clear tradeoff between inflation and unemployment
Jseem to exist.
II. There have been periods in which inflation and unemployment rose together.
III. There have been periods in which inflation and unemployment fell together.

Accepted Answer

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

Question 5

Consider the following statement: "President Carter expressed concern about reports of rising inflation but insisted the economy is on the right course. He pointed to recent reductions in unemployment as evidence that his economic policies are working." Identify the stage of the inflation-unemployment relationship.

Accepted Answer

A)  The stagflation phase 
B)  The recovery phase 
C)  The Phillips phase 
D)  The contraction phase 
A)  The stagflation phase 
B)  The recovery phase 
C)  The Phillips phase 
D)  The contraction phase

Question 6

Figure 16-2  
-Refer to Figure 16-2. Which of the following movements represents a recovery phase?

Accepted Answer

A)  The movement from A to B 
B)  The movement from B to C 
C)  The movement from C to D 
D)  The movement from C to B 
A)  The movement from A to B 
B)  The movement from B to C 
C)  The movement from C to D 
D)  The movement from C to B

Question 7

Structural unemployment exists because

Accepted Answer

A)  workers may not be willing to accept jobs at the going wage rate. 
B)  of fluctuations in economic activity. 
C)  technological changes make the skills of the workers incompatible with the skills used on the job. 
D)  it takes time for people seeking jobs and employers seeking workers to find each other. 
A)  workers may not be willing to accept jobs at the going wage rate. 
B)  of fluctuations in economic activity. 
C)  technological changes make the skills of the workers incompatible with the skills used on the job. 
D)  it takes time for people seeking jobs and employers seeking workers to find each other.

Question 8

A Phillips phase of the inflation-unemployment relationship occurs when both inflation and
Junemployment increase.

Accepted Answer

A) True 
 B)False

Question 9

Figure 16-7  
-Refer to Figure 16-7. Over time, the aggregate supply curve shifts from SRAS1 to SRAS2 Jbecause of

Accepted Answer

A)  rising output prices. 
B)  economic agents adjust their expectations regarding prices and wages downwards. 
C)  a fall in nominal wages. 
D)  economic agents adjust their expectations regarding prices and wages upwards. 
A)  rising output prices. 
B)  economic agents adjust their expectations regarding prices and wages downwards. 
C)  a fall in nominal wages. 
D)  economic agents adjust their expectations regarding prices and wages upwards.

Question 10

In the long run, unemployment will be at the natural rate. This implies that

Accepted Answer

A)  there is a one-to-one relationship between unemployment and inflation and consequently, the long-run Phillips curve is vertical. 
B)  there is no relationship between unemployment and inflation and consequently, the long-run Phillips curve is vertical. 
C)  there is a positive relationship between unemployment and inflation and consequently, the long-run Phillips curve is upward-sloping. 
D)  there is a negative relationship between unemployment and inflation and consequently, the long-run Phillips curve is downward-sloping. 
A)  there is a one-to-one relationship between unemployment and inflation and consequently, the long-run Phillips curve is vertical. 
B)  there is no relationship between unemployment and inflation and consequently, the long-run Phillips curve is vertical. 
C)  there is a positive relationship between unemployment and inflation and consequently, the long-run Phillips curve is upward-sloping. 
D)  there is a negative relationship between unemployment and inflation and consequently, the long-run Phillips curve is downward-sloping.

Question 11

Figure 16-7  
-Refer to Figure 16-7. At point 4, the economy is experiencing

Accepted Answer

A)  an inflationary gap. 
B)  a recessionary gap. 
C)  long-run equilibrium. 
D)  a recovery. 
A)  an inflationary gap. 
B)  a recessionary gap. 
C)  long-run equilibrium. 
D)  a recovery.

Question 12

Figure 16-1  
-Refer to Figure 16-1. Consider point B where unemployment is relatively high and inflation is relatively low. In order to move up the curve toward point A, what fiscal policy measures should the policymakers undertake?

Accepted Answer

A)  Decrease taxes and government spending 
B)  Increase taxes and government spending 
C)  Increase taxes and decrease government spending 
D)  Decrease taxes and increase government spending 
A)  Decrease taxes and government spending 
B)  Increase taxes and government spending 
C)  Increase taxes and decrease government spending 
D)  Decrease taxes and increase government spending

Question 13

Figure 16-7  
-Refer to Figure 16-7. If the economy is at point 4, boosting aggregate demand through Jexpansionary policies will most likely lead to

Accepted Answer

A)  a stagflation phase. 
B)  a recovery phase. 
C)  a Phillips phase. 
D)  a contraction phase. 
A)  a stagflation phase. 
B)  a recovery phase. 
C)  a Phillips phase. 
D)  a contraction phase.

Question 14

The efficiency-wage theory predicts that

Accepted Answer

A)  profit-maximizing firms will maintain the wage level at a rate too low to achieve full employment in the labor market. 
B)  wage rigidities will be eliminated even in the short-run. 
C)  firms will maintain the wage level at a rate too high to achieve full employment in the labor market. 
D)  the labor market clears at a wage rate above equilibrium. 
A)  profit-maximizing firms will maintain the wage level at a rate too low to achieve full employment in the labor market. 
B)  wage rigidities will be eliminated even in the short-run. 
C)  firms will maintain the wage level at a rate too high to achieve full employment in the labor market. 
D)  the labor market clears at a wage rate above equilibrium.

Question 15

Figure 16-6  
-Refer to Figure 16-6. Suppose the economy was operating at point e in period 1. Expansionary fiscal and monetary policies adopted in period 1 resulted in a movement to point g in period 3. What happens when workers and firms become aware of a rise in the general price to Pg?

Accepted Answer

A)  Workers will agree to take wage cuts and firms will agree to lower prices to ward off inflation. 
B)  They will revise their expectations of future prices to incorporate the higher price level. 
C)  Firms with sticky prices will ultimately adjust their prices downward. 
D)  Firms and workers will agree to renegotiate wage contracts downward. 
A)  Workers will agree to take wage cuts and firms will agree to lower prices to ward off inflation. 
B)  They will revise their expectations of future prices to incorporate the higher price level. 
C)  Firms with sticky prices will ultimately adjust their prices downward. 
D)  Firms and workers will agree to renegotiate wage contracts downward.

Question 16

In a Phillips phase, real GDP rises and inflation falls.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that an economy experiences an increase in the unemployment rate and a decline in Jthe inflation rate simultaneously. This situation would be consistent with a movement along a

Accepted Answer

A)  vertical Phillips curve. 
B)  horizontal Phillips curve. 
C)  positively sloped Phillips curve. 
D)  negatively sloped Phillips curve. 
A)  vertical Phillips curve. 
B)  horizontal Phillips curve. 
C)  positively sloped Phillips curve. 
D)  negatively sloped Phillips curve.

Question 18

Suppose the full-employment level of real GDP is increasing at a rate of 4% per period. If policymakers are committed to keeping the long-run inflation rate at 3% per period, then what is the targeted money growth rate, assuming constant velocity?

Accepted Answer

A)  7% 
B)  4% 
C)  1% 
D)  -1% 
A)  7% 
B)  4% 
C)  1% 
D)  -1%

Question 19

If the efficiency wage theory holds,

Accepted Answer

A)  only highly qualified, efficient workers get the jobs. 
B)  the labor market clears at the equilibrium wage rate in the long-run. 
C)  workers with jobs will receive high wages and workers without jobs would be willing to work for lower wages but are closed out of the market. 
D)  the labor market is efficient. 
A)  only highly qualified, efficient workers get the jobs. 
B)  the labor market clears at the equilibrium wage rate in the long-run. 
C)  workers with jobs will receive high wages and workers without jobs would be willing to work for lower wages but are closed out of the market. 
D)  the labor market is efficient.

Question 20

The notion that there is a tradeoff between inflation and unemployment is expressed as a

Accepted Answer

A)  Phillips curve. 
B)  Keynes curve. 
C)  Schumpeter curve. 
D)  Friedman curve. 
A)  Phillips curve. 
B)  Keynes curve. 
C)  Schumpeter curve. 
D)  Friedman curve.

The reservation wage tends to increase as the duration of unemployment increases.

Figure 16-1 -Refer to Figure 16-1. Moving from B to A shows a tradeoff of

Since 1979 when inflation soared into the double-digit, the Federal Reserve's policies

Figure 16-2 -Refer to Figure 16-2. Which of the following movements represents a recovery phase?

Structural unemployment exists because

A Phillips phase of the inflation-unemployment relationship occurs when both inflation and Junemployment increase.

Figure 16-7 -Refer to Figure 16-7. Over time, the aggregate supply curve shifts from SRAS₁ to SRAS₂ Jbecause of

In the long run, unemployment will be at the natural rate. This implies that

Figure 16-7 -Refer to Figure 16-7. At point 4, the economy is experiencing

Figure 16-1 -Refer to Figure 16-1. Consider point B where unemployment is relatively high and inflation is relatively low. In order to move up the curve toward point A, what fiscal policy measures should the policymakers undertake?

Figure 16-7 -Refer to Figure 16-7. If the economy is at point 4, boosting aggregate demand through Jexpansionary policies will most likely lead to

The efficiency-wage theory predicts that

Figure 16-6 -Refer to Figure 16-6. Suppose the economy was operating at point e in period 1. Expansionary fiscal and monetary policies adopted in period 1 resulted in a movement to point g in period 3. What happens when workers and firms become aware of a rise in the general price to P_g?

In a Phillips phase, real GDP rises and inflation falls.

Suppose that an economy experiences an increase in the unemployment rate and a decline in Jthe inflation rate simultaneously. This situation would be consistent with a movement along a

Suppose the full-employment level of real GDP is increasing at a rate of 4% per period. If policymakers are committed to keeping the long-run inflation rate at 3% per period, then what is the targeted money growth rate, assuming constant velocity?

If the efficiency wage theory holds,

The notion that there is a tradeoff between inflation and unemployment is expressed as a

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Exam 16: Inflation and Unemployment

The reservation wage tends to increase as the duration of unemployment increases.

Figure 16-1 -Refer to Figure 16-1. Moving from B to A shows a tradeoff of

Since 1979 when inflation soared into the double-digit, the Federal Reserve's policies

Figure 16-2 -Refer to Figure 16-2. Which of the following movements represents a recovery phase?

Structural unemployment exists because

A Phillips phase of the inflation-unemployment relationship occurs when both inflation and Junemployment increase.

Figure 16-7 -Refer to Figure 16-7. Over time, the aggregate supply curve shifts from SRAS1 to SRAS2 Jbecause of

In the long run, unemployment will be at the natural rate. This implies that

Figure 16-7 -Refer to Figure 16-7. At point 4, the economy is experiencing

Figure 16-1 -Refer to Figure 16-1. Consider point B where unemployment is relatively high and inflation is relatively low. In order to move up the curve toward point A, what fiscal policy measures should the policymakers undertake?

Figure 16-7 -Refer to Figure 16-7. If the economy is at point 4, boosting aggregate demand through Jexpansionary policies will most likely lead to

The efficiency-wage theory predicts that

Figure 16-6 -Refer to Figure 16-6. Suppose the economy was operating at point e in period 1. Expansionary fiscal and monetary policies adopted in period 1 resulted in a movement to point g in period 3. What happens when workers and firms become aware of a rise in the general price to Pg?

In a Phillips phase, real GDP rises and inflation falls.

Suppose that an economy experiences an increase in the unemployment rate and a decline in Jthe inflation rate simultaneously. This situation would be consistent with a movement along a

Suppose the full-employment level of real GDP is increasing at a rate of 4% per period. If policymakers are committed to keeping the long-run inflation rate at 3% per period, then what is the targeted money growth rate, assuming constant velocity?

If the efficiency wage theory holds,

The notion that there is a tradeoff between inflation and unemployment is expressed as a

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Figure 16-7 -Refer to Figure 16-7. Over time, the aggregate supply curve shifts from SRAS₁ to SRAS₂ Jbecause of

Figure 16-6 -Refer to Figure 16-6. Suppose the economy was operating at point e in period 1. Expansionary fiscal and monetary policies adopted in period 1 resulted in a movement to point g in period 3. What happens when workers and firms become aware of a rise in the general price to P_g?