Question 1

In the long run, when the actual inflation rate gets embedded in people's expectation:

Accepted Answer

A)  the trade-off between inflation and unemployment becomes even stronger. 
B)  it is possible to achieve lower unemployment in the long run by accepting higher inflation. 
C)  there is no longer a trade-off between inflation and unemployment. 
D)  actual inflation at any unemployment rate is always higher than expected inflation. 
A)  the trade-off between inflation and unemployment becomes even stronger. 
B)  it is possible to achieve lower unemployment in the long run by accepting higher inflation. 
C)  there is no longer a trade-off between inflation and unemployment. 
D)  actual inflation at any unemployment rate is always higher than expected inflation.

Question 2

Use the following to answer questions:  
-(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that the economy is initially at E1, where AD1 intersects SRAS1 and LRAS. Now, suppose that the AD1 shifts to AD2. That shift could be due to a(n):

Accepted Answer

A)  increase in the aggregate price level. 
B)  decrease in government expenditure. 
C)  increase in tax rates. 
D)  increase in money supply. 
A)  increase in the aggregate price level. 
B)  decrease in government expenditure. 
C)  increase in tax rates. 
D)  increase in money supply.

Question 3

When the output gap is negative, the actual unemployment rate is:

Accepted Answer

A)  above the natural rate. 
B)  below the natural rate. 
C)  equal to the natural rate. 
D)  The actual and natural unemployment rates are not related to the output gap. 
A)  above the natural rate. 
B)  below the natural rate. 
C)  equal to the natural rate. 
D)  The actual and natural unemployment rates are not related to the output gap.

Question 4

When the output gap is _____, the unemployment rate is _____ the natural rate.

Accepted Answer

A)  negative; below 
B)  zero; zero 
C)  inflationary; above 
D)  positive; below 
A)  negative; below 
B)  zero; zero 
C)  inflationary; above 
D)  positive; below

Question 5

Use the following to answer question 118:  
-(Figure: Expected Inflation and the Short-Run Phillips Curve) SRPC0 is the Phillips curve with an expected inflation rate of zero; SRPC2 is the Phillips curve with an expected inflation rate of 2%. Refer to Figure: Expected Inflation and the Short-Run Phillips Curve. Suppose that this economy has an unemployment rate of 6%, inflation of 2%, and an expectation of 2% future inflation. If the central bank decreases the money supply such that aggregate demand shifts to the left and unemployment rises to 8%, then inflation will:

Accepted Answer

A)  fall to zero. 
B)  not change. 
C)  rise to 2%. 
D)  rise to 4%. 
A)  fall to zero. 
B)  not change. 
C)  rise to 2%. 
D)  rise to 4%.

Question 6

During periods of high inflation, the short-run aggregate supply curve is:

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  upward sloping. 
D)  downward sloping. 
A)  vertical. 
B)  horizontal. 
C)  upward sloping. 
D)  downward sloping.

Question 7

There is a zero bound to:

Accepted Answer

A)  the real money supply. 
B)  nominal interest rates. 
C)  potential output. 
D)  real money demand. 
A)  the real money supply. 
B)  nominal interest rates. 
C)  potential output. 
D)  real money demand.

Question 8

An inflation rate of 5% will increase the purchasing power of $1 to $1.10.

Accepted Answer

A) True 
 B)False

Question 9

In the short run, a lower unemployment rate may be achieved at the cost of a higher inflation rate.

Accepted Answer

A) True 
 B)False

Question 10

When a central bank prints money to pay government debts, causing rising prices that erode the purchasing power of money held by the public, it is called a(n) _____ tax.

Accepted Answer

A)  payroll 
B)  inflation 
C)  currency 
D)  budget 
A)  payroll 
B)  inflation 
C)  currency 
D)  budget

Question 11

To balance its budget, the government of Zimbabwe borrowed large amounts of money in world markets.

Accepted Answer

A) True 
 B)False

Question 12

Use the following to answer questions:  
-(Figure: Classical Model of the Price Level) Refer to Figure: Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD1 to AD2, according to this classical model, the SRAS will:

Accepted Answer

A)  not change, since in the classical model the SRAS and LRAS are both vertical at potential output. 
B)  decrease from SRAS1 to SRAS2. 
C)  increase from SRAS2 to SRAS1. 
D)  increase from SRAS1 to SRAS2. 
A)  not change, since in the classical model the SRAS and LRAS are both vertical at potential output. 
B)  decrease from SRAS1 to SRAS2. 
C)  increase from SRAS2 to SRAS1. 
D)  increase from SRAS1 to SRAS2.

Question 13

Hyperinflation is often a result of a government trying to pay for its spending by using the inflation tax.

Accepted Answer

A) True 
 B)False

Question 14

According to recent estimates of Okun's law, if the unemployment rate fell by a full percentage point, it would most probably be attributable to a _____ in real GDP.

Accepted Answer

A)  3% increase 
B)  2% increase 
C)  1% increase 
D)  3% decrease 
A)  3% increase 
B)  2% increase 
C)  1% increase 
D)  3% decrease

In the long run, when the actual inflation rate gets embedded in people's expectation:

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that the economy is initially at E₁, where AD₁intersects SRAS₁ and LRAS. Now, suppose that the AD₁shifts to AD_2.That shift could be due to a(n):

When the output gap is negative, the actual unemployment rate is:

When the output gap is _, the unemployment rate is _ the natural rate.

During periods of high inflation, the short-run aggregate supply curve is:

There is a zero bound to:

An inflation rate of 5% will increase the purchasing power of $1 to $1.10.

In the short run, a lower unemployment rate may be achieved at the cost of a higher inflation rate.

When a central bank prints money to pay government debts, causing rising prices that erode the purchasing power of money held by the public, it is called a(n) _____ tax.

To balance its budget, the government of Zimbabwe borrowed large amounts of money in world markets.

Use the following to answer questions: -(Figure: Classical Model of the Price Level) Refer to Figure: Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD₁ to AD₂, according to this classical model, the SRAS will:

Hyperinflation is often a result of a government trying to pay for its spending by using the inflation tax.

According to recent estimates of Okun's law, if the unemployment rate fell by a full percentage point, it would most probably be attributable to a _____ in real GDP.

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Exam 16: Inflation, Disinflation, and Deflation

In the long run, when the actual inflation rate gets embedded in people's expectation:

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that the economy is initially at E1, where AD1 intersects SRAS1 and LRAS. Now, suppose that the AD1 shifts to AD2. That shift could be due to a(n):

When the output gap is negative, the actual unemployment rate is:

When the output gap is _____, the unemployment rate is _____ the natural rate.

During periods of high inflation, the short-run aggregate supply curve is:

There is a zero bound to:

An inflation rate of 5% will increase the purchasing power of $1 to $1.10.

In the short run, a lower unemployment rate may be achieved at the cost of a higher inflation rate.

When a central bank prints money to pay government debts, causing rising prices that erode the purchasing power of money held by the public, it is called a(n) _____ tax.

To balance its budget, the government of Zimbabwe borrowed large amounts of money in world markets.

Use the following to answer questions: -(Figure: Classical Model of the Price Level) Refer to Figure: Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD1 to AD2, according to this classical model, the SRAS will:

Hyperinflation is often a result of a government trying to pay for its spending by using the inflation tax.

According to recent estimates of Okun's law, if the unemployment rate fell by a full percentage point, it would most probably be attributable to a _____ in real GDP.

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that the economy is initially at E₁, where AD₁intersects SRAS₁ and LRAS. Now, suppose that the AD₁shifts to AD_2.That shift could be due to a(n):

When the output gap is _, the unemployment rate is _ the natural rate.

Use the following to answer questions: -(Figure: Classical Model of the Price Level) Refer to Figure: Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD₁ to AD₂, according to this classical model, the SRAS will: