Question 1

The Phillips phase of the inflation-unemployment relationship emerges because

Accepted Answer

A)  prices and wages are flexible. 
B)  nominal wages and prices fall. 
C)  of unanticipated increases in the price level produced by increases in aggregate demand. 
D)  people are reluctant to spend despite expansionary policies pursued by policymakers. 
A)  prices and wages are flexible. 
B)  nominal wages and prices fall. 
C)  of unanticipated increases in the price level produced by increases in aggregate demand. 
D)  people are reluctant to spend despite expansionary policies pursued by policymakers.

Question 2

Figure 16-3
Panel (a) Panel (b)     Suppose the level of potential output (YS1U1B1PS1U1B0) is $1,000 billion and the natural rate of unemployment is 5%. In Panel (a), the aggregate demand curve in Period 1 is ADS1U1B11S1U1B0. Assume that the price level in Period 1 has risen by 1.5% from the previous period and the unemployment rate is 10%. Thus, in Panel (b) point F shows an initial rate of inflation of 1.5% and an unemployment rate of 10%. Similarly, point b in Panel (a) corresponds to point G in Panel (b) and point d in Panel (a) corresponds to point H in Panel (b).
-Refer to Figure 16-3. The Phillips phase of the inflation-unemployment cycle is explained

Accepted Answer

A)  by a stagnant short-run aggregate supply curve. 
B)  by leftward shifts of the aggregate demand curve in each successive period. 
C)  by upward shifts along the LRAS curve in each successive period. 
D)  by rightward shifts of the aggregate demand curve in each successive period. 
A)  by a stagnant short-run aggregate supply curve. 
B)  by leftward shifts of the aggregate demand curve in each successive period. 
C)  by upward shifts along the LRAS curve in each successive period. 
D)  by rightward shifts of the aggregate demand curve in each successive period.

Question 3

Frictional unemployment exists because

Accepted Answer

A)  the quantity demanded of labor exceeds the quantity supplied at the equilibrium 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)  the quantity demanded of labor exceeds the quantity supplied at the equilibrium 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 4

In the long-run, only a change in the _______ is likely to affect the inflation rate associated Jwith a particular rate of growth in the money supply.

Accepted Answer

A)  aggregate demand 
B)  short-run aggregate supply 
C)  rate of economic growth 
D)  expectations about the price level 
A)  aggregate demand 
B)  short-run aggregate supply 
C)  rate of economic growth 
D)  expectations about the price level

Question 5

In the equation of exchange, if velocity is stable,

Accepted Answer

A)  %∆V = 0. 
B)  %∆V = 1. 
C)  %∆V is a positive constant value > 0. 
D)  %∆V = infinity. 
A)  %∆V = 0. 
B)  %∆V = 1. 
C)  %∆V is a positive constant value > 0. 
D)  %∆V = infinity.

Question 6

Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (YP) in the long run?

Accepted Answer

A) If %∆M > %∆ YP , then %∆P > %∆M. B) If %∆M > %∆ YP , then %∆P > %∆ YP. C) If %∆M = %∆ YP , then %∆P = 0. D) If %∆M = %∆ YP , then %∆P < 0. A) If %∆M > %∆ YP , then %∆P > %∆M. B) If %∆M > %∆ YP , then %∆P > %∆ YP. C) If %∆M = %∆ YP , then %∆P = 0. D) If %∆M = %∆ YP , then %∆P < 0.

Question 7

Evidence suggests that all countries with very high

Accepted Answer

A)  inflation rates also have very high money growth rates. 
B)  unemployment rates also have very high GDP growth rates. 
C)  GDP growth rates also have very high government budget deficits. 
D)  government budget deficits also have very high inflation rates. 
A)  inflation rates also have very high money growth rates. 
B)  unemployment rates also have very high GDP growth rates. 
C)  GDP growth rates also have very high government budget deficits. 
D)  government budget deficits also have very high inflation rates.

Question 8

The lowest wage that a worker would accept, if offered a job, is called

Accepted Answer

A)  the reservation wage. 
B)  a subsistence wage. 
C)  the exploitation wage. 
D)  the equilibrium market wage. 
A)  the reservation wage. 
B)  a subsistence wage. 
C)  the exploitation wage. 
D)  the equilibrium market wage.

Question 9

The efficiency-wage theory holds that the market equilibrium wage is the efficient wage.

Accepted Answer

A) True 
 B)False

Question 10

Figure 16-7  
-Refer to Figure 16-7. The movement from point 3 to point 4 is consistent with which phase Jof the inflation-unemployment relationship?

Accepted Answer

A)  Phillips phase because inflation is increasing while unemployment is falling 
B)  recovery phase because although inflation has risen, unemployment is closer to its natural rate 
C)  stagflation phase because inflation and unemployment have risen 
D)  recovery phase because the inflationary gap has been eliminated 
A)  Phillips phase because inflation is increasing while unemployment is falling 
B)  recovery phase because although inflation has risen, unemployment is closer to its natural rate 
C)  stagflation phase because inflation and unemployment have risen 
D)  recovery phase because the inflationary gap has been eliminated

Question 11

Figure 16-8  
-Refer to Figure 16-8. The movement from point 3 to point 4 is consistent with which Jsegment in the diagram below?

Accepted Answer

A)  Segment A to D 
B)  Segment A to B 
C)  Segment B to C 
D)  Segment C to D 
A)  Segment A to D 
B)  Segment A to B 
C)  Segment B to C 
D)  Segment C to D

Question 12

Along an actual (observed) Phillips curve,

Accepted Answer

A)  aggregate output varies inversely with the unemployment rate. 
B)  aggregate output directly inversely with the inflation rate. 
C)  the inflation rate varies inversely with the unemployment rate. 
D)  the inflation rate varies directly with the unemployment rate. 
A)  aggregate output varies inversely with the unemployment rate. 
B)  aggregate output directly inversely with the inflation rate. 
C)  the inflation rate varies inversely with the unemployment rate. 
D)  the inflation rate varies directly with the unemployment rate.

Question 13

The vertical long-run Phillips curve occurs in the long run because

Accepted Answer

A)  the aggregate supply curve is vertical which means that changes in aggregate demand will not change unemployment. 
B)  wage and price rigidities prevent changes in aggregate demand to change unemployment. 
C)  economic agents are quick to respond to changes in the price level. 
D)  of lags in monetary and fiscal policies. 
A)  the aggregate supply curve is vertical which means that changes in aggregate demand will not change unemployment. 
B)  wage and price rigidities prevent changes in aggregate demand to change unemployment. 
C)  economic agents are quick to respond to changes in the price level. 
D)  of lags in monetary and fiscal policies.

Question 14

Figure 16-3
Panel (a) Panel (b)     Suppose the level of potential output (YS1U1B1PS1U1B0) is $1,000 billion and the natural rate of unemployment is 5%. In Panel (a), the aggregate demand curve in Period 1 is ADS1U1B11S1U1B0. Assume that the price level in Period 1 has risen by 1.5% from the previous period and the unemployment rate is 10%. Thus, in Panel (b) point F shows an initial rate of inflation of 1.5% and an unemployment rate of 10%. Similarly, point b in Panel (a) corresponds to point G in Panel (b) and point d in Panel (a) corresponds to point H in Panel (b).
-Refer to Figure 16-3. If the economy were experiencing a recessionary gap, it would be Joperating at

Accepted Answer

A)  point a only. 
B)  point b only. 
C)  either point a or point b. 
D)  point d only. 
A)  point a only. 
B)  point b only. 
C)  either point a or point b. 
D)  point d only.

Question 15

Each point on a Phillips curve is a different combination of

Accepted Answer

A)  aggregate output and the unemployment rate. 
B)  the inflation rate and the unemployment rate. 
C)  aggregate output and the inflation rate. 
D)  saving and disposable income. 
A)  aggregate output and the unemployment rate. 
B)  the inflation rate and the unemployment rate. 
C)  aggregate output and the inflation rate. 
D)  saving and disposable income.

Question 16

What are the three phases of the inflation-unemploymentrelationship? What are the critical
Jfeatures that mark these phases?

Accepted Answer

The three phases of the inflation-unempl

Question 17

Figure 16-7  
-Refer to Figure 16-7. At point 4, if policymakers are concerned about economic performance, they will most likely respond by

Accepted Answer

A)  increasing government purchases and the money supply. 
B)  increasing taxes. 
C)  decreasing aggregate demand. 
D)  having the Fed sell bonds. 
A)  increasing government purchases and the money supply. 
B)  increasing taxes. 
C)  decreasing aggregate demand. 
D)  having the Fed sell bonds.

Question 18

Which of the following statements is true of the U.S. experience with regards to the Phillips curve hypothesis? 
I. Annual observations of inflation and unemployment from 1961 to 2008 seem consistent with a Phillips curve.
II. A Phillips curve relationship best fits observations of inflation and unemployment in the 1960s.
III. The Phillips curve relationship in the inflation and unemployment data began to disintegrate in the 1970s.

Accepted Answer

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

Question 19

In the short run and in the long run, there is a tradeoff between inflation and
Junemployment.

Accepted Answer

A) True 
 B)False

Question 20

Efficiency wages cause unemployment because

Accepted Answer

A)  firms pay wages that are below the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied. 
B)  firms pay wages that are below the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied. 
C)  firms pay wages that are above the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied. 
D)  firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied. 
A)  firms pay wages that are below the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied. 
B)  firms pay wages that are below the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied. 
C)  firms pay wages that are above the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied. 
D)  firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied.

The Phillips phase of the inflation-unemployment relationship emerges because

Frictional unemployment exists because

In the long-run, only a change in the _______ is likely to affect the inflation rate associated Jwith a particular rate of growth in the money supply.

In the equation of exchange, if velocity is stable,

Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (Y_P) in the long run?

Evidence suggests that all countries with very high

The lowest wage that a worker would accept, if offered a job, is called

The efficiency-wage theory holds that the market equilibrium wage is the efficient wage.

Figure 16-7 -Refer to Figure 16-7. The movement from point 3 to point 4 is consistent with which phase Jof the inflation-unemployment relationship?

Figure 16-8 -Refer to Figure 16-8. The movement from point 3 to point 4 is consistent with which Jsegment in the diagram below?

Along an actual (observed) Phillips curve,

The vertical long-run Phillips curve occurs in the long run because

Each point on a Phillips curve is a different combination of

What are the three phases of the inflation-unemploymentrelationship? What are the critical Jfeatures that mark these phases?

Figure 16-7 -Refer to Figure 16-7. At point 4, if policymakers are concerned about economic performance, they will most likely respond by

In the short run and in the long run, there is a tradeoff between inflation and Junemployment.

Efficiency wages cause unemployment because

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

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Exam 16: Inflation and Unemployment

The Phillips phase of the inflation-unemployment relationship emerges because

Frictional unemployment exists because

In the long-run, only a change in the _______ is likely to affect the inflation rate associated Jwith a particular rate of growth in the money supply.

In the equation of exchange, if velocity is stable,

Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (YP) in the long run?

Evidence suggests that all countries with very high

The lowest wage that a worker would accept, if offered a job, is called

The efficiency-wage theory holds that the market equilibrium wage is the efficient wage.

Figure 16-7 -Refer to Figure 16-7. The movement from point 3 to point 4 is consistent with which phase Jof the inflation-unemployment relationship?

Figure 16-8 -Refer to Figure 16-8. The movement from point 3 to point 4 is consistent with which Jsegment in the diagram below?

Along an actual (observed) Phillips curve,

The vertical long-run Phillips curve occurs in the long run because

Each point on a Phillips curve is a different combination of

What are the three phases of the inflation-unemploymentrelationship? What are the critical Jfeatures that mark these phases?

Figure 16-7 -Refer to Figure 16-7. At point 4, if policymakers are concerned about economic performance, they will most likely respond by

In the short run and in the long run, there is a tradeoff between inflation and Junemployment.

Efficiency wages cause unemployment because

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

Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (Y_P) in the long run?