Question 1

The short-run Phillips curve shows:

Accepted Answer

A)  a direct relationship between unemployment and inflation. 
B)  an inverse relationship between unemployment and inflation. 
C)  consequences of the misperceptions theory. 
D)  the optimal level of employment. 
A)  a direct relationship between unemployment and inflation. 
B)  an inverse relationship between unemployment and inflation. 
C)  consequences of the misperceptions theory. 
D)  the optimal level of employment.

Question 2

The notion that the real quantity of money is always at its long-run equilibrium level is associated with the _____ of the price level.

Accepted Answer

A)  classical model 
B)  Keynesian model 
C)  monetarist model 
D)  modern view 
A)  classical model 
B)  Keynesian model 
C)  monetarist model 
D)  modern view

Question 3

Policies that reduce inflation are popular with voters because they lead to higher output and lower unemployment.

Accepted Answer

A) True 
 B)False

Question 4

The classical model of the price level is most likely to be a good approximation of reality during periods of:

Accepted Answer

A)  recession. 
B)  high unemployment. 
C)  low inflation. 
D)  high inflation. 
A)  recession. 
B)  high unemployment. 
C)  low inflation. 
D)  high inflation.

Question 5

The liquidity trap is NOT associated with:

Accepted Answer

A)  a large reduction in the demand for loanable funds. 
B)  the nominal interest rate falling to zero. 
C)  monetary policy becoming ineffective. 
D)  fiscal policy becoming ineffective. 
A)  a large reduction in the demand for loanable funds. 
B)  the nominal interest rate falling to zero. 
C)  monetary policy becoming ineffective. 
D)  fiscal policy becoming ineffective.

Question 6

As people get used to inflation:

Accepted Answer

A)  the short-run aggregate demand curve adjusts more rapidly. 
B)  wages adjust faster, and the short-run aggregate supply shifts quickly to the right. 
C)  wages adjust faster, and the short-run aggregate supply shifts quickly to the left. 
D)  the long-run aggregate demand adjusts more slowly. 
A)  the short-run aggregate demand curve adjusts more rapidly. 
B)  wages adjust faster, and the short-run aggregate supply shifts quickly to the right. 
C)  wages adjust faster, and the short-run aggregate supply shifts quickly to the left. 
D)  the long-run aggregate demand adjusts more slowly.

Question 7

Use the following to answer questions:  
-(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%, no inflation, and no expectation of 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 -2%. 
B)  not change. 
C)  rise to 2%. 
D)  rise to 4%. 
A)  fall to -2%. 
B)  not change. 
C)  rise to 2%. 
D)  rise to 4%.

Question 8

The difference between the actual and potential GDP is the output gap.

Accepted Answer

A) True 
 B)False

Question 9

Use the following to answer questions:  
-(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% inflation. If the central bank increases the money supply such that aggregate demand shifts to the right and unemployment falls to 4%, then inflation will:

Accepted Answer

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

Question 10

The negative relationship between the inflation rate and the unemployment rate is known as the _____curve.

Accepted Answer

A)  short-run Phillips 
B)  short-run aggregate supply 
C)  long-run Phillips 
D)  aggregate demand 
A)  short-run Phillips 
B)  short-run aggregate supply 
C)  long-run Phillips 
D)  aggregate demand

Question 11

An inflation tax is:

Accepted Answer

A)  the reduction in purchasing power due to inflation. 
B)  a tax on businesses for raising prices. 
C)  a tax on people with inflated incomes. 
D)  an excise tax on new automobile tires. 
A)  the reduction in purchasing power due to inflation. 
B)  a tax on businesses for raising prices. 
C)  a tax on people with inflated incomes. 
D)  an excise tax on new automobile tires.

Question 12

An inflation tax is the effect on the public of a reduction in the value of money caused by inflation.

Accepted Answer

A) True 
 B)False

Question 13

Policies that expand output and decrease unemployment are popular with voters but are likely to cause inflation later.

Accepted Answer

A) True 
 B)False

Question 14

Use the following to answer question 142:  
-(Figure: The Great Disinflation) Refer to Figure: The Great Disinflation. In the early 1980s, the inflation rate was beaten down by the Federal Reserve's tight monetary policy. In the short run this policy led to a _____ level of actual output and a _____ rate of unemployment.

Accepted Answer

A)  high; high 
B)  low; high 
C)  low; low 
D)  high; low 
A)  high; high 
B)  low; high 
C)  low; low 
D)  high; low

Question 15

When the actual unemployment rate is equal to the natural rate of unemployment:

Accepted Answer

A)  the unemployment rate is zero. 
B)  potential output exceeds actual output. 
C)  the output gap is zero. 
D)  actual output exceeds potential output. 
A)  the unemployment rate is zero. 
B)  potential output exceeds actual output. 
C)  the output gap is zero. 
D)  actual output exceeds potential output.

Question 16

Use the following to answer question 7:  
-(Figure: AD-AS Model) Refer to Figure: AD-AS Model. Suppose that the economy is at YE with a price level of P1. Which of the following would represent the new long-run equilibrium position if the aggregate demand curve shifted to the right from AD1 to AD2 as a result of an increase in the money supply?

Accepted Answer

A)  YE and P2 
B)  YE and P1 
C)  Y1 and P2 
D)  YE and P3 
A)  YE and P2 
B)  YE and P1 
C)  Y1 and P2 
D)  YE and P3

Question 17

Along a Phillips curve:

Accepted Answer

A)  consumption depends on prices. 
B)  the inflation rate varies inversely with the unemployment rate. 
C)  the inflation rate varies directly with the unemployment rate. 
D)  prices and tax rates are directly related. 
A)  consumption depends on prices. 
B)  the inflation rate varies inversely with the unemployment rate. 
C)  the inflation rate varies directly with the unemployment rate. 
D)  prices and tax rates are directly related.

Question 18

A high inflation rate leads people to increase their money holdings, leading to more money printing and higher inflation.

Accepted Answer

A) True 
 B)False

Question 19

As a consequence of the existence of a nonaccelerating inflation rate of unemployment:

Accepted Answer

A)  cyclical unemployment can never be zero. 
B)  there is no short-run trade-off between unemployment and inflation. 
C)  money is neutral. 
D)  there is no long-run trade-off between unemployment and inflation. 
A)  cyclical unemployment can never be zero. 
B)  there is no short-run trade-off between unemployment and inflation. 
C)  money is neutral. 
D)  there is no long-run trade-off between unemployment and inflation.

Question 20

Core inflation excludes the price of:

Accepted Answer

A)  new cars. 
B)  luxury items, such as fur coats. 
C)  houses. 
D)  energy and food. 
A)  new cars. 
B)  luxury items, such as fur coats. 
C)  houses. 
D)  energy and food.

The short-run Phillips curve shows:

The notion that the real quantity of money is always at its long-run equilibrium level is associated with the _____ of the price level.

Policies that reduce inflation are popular with voters because they lead to higher output and lower unemployment.

The classical model of the price level is most likely to be a good approximation of reality during periods of:

The liquidity trap is NOT associated with:

As people get used to inflation:

The difference between the actual and potential GDP is the output gap.

The negative relationship between the inflation rate and the unemployment rate is known as the _____curve.

An inflation tax is:

An inflation tax is the effect on the public of a reduction in the value of money caused by inflation.

Policies that expand output and decrease unemployment are popular with voters but are likely to cause inflation later.

When the actual unemployment rate is equal to the natural rate of unemployment:

Along a Phillips curve:

A high inflation rate leads people to increase their money holdings, leading to more money printing and higher inflation.

As a consequence of the existence of a nonaccelerating inflation rate of unemployment:

Core inflation excludes the price of:

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

The short-run Phillips curve shows:

The notion that the real quantity of money is always at its long-run equilibrium level is associated with the _____ of the price level.

Policies that reduce inflation are popular with voters because they lead to higher output and lower unemployment.

The classical model of the price level is most likely to be a good approximation of reality during periods of:

The liquidity trap is NOT associated with:

As people get used to inflation:

The difference between the actual and potential GDP is the output gap.

The negative relationship between the inflation rate and the unemployment rate is known as the _____curve.

An inflation tax is:

An inflation tax is the effect on the public of a reduction in the value of money caused by inflation.

Policies that expand output and decrease unemployment are popular with voters but are likely to cause inflation later.

When the actual unemployment rate is equal to the natural rate of unemployment:

Along a Phillips curve:

A high inflation rate leads people to increase their money holdings, leading to more money printing and higher inflation.

As a consequence of the existence of a nonaccelerating inflation rate of unemployment:

Core inflation excludes the price of:

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