Question 1

In the short run in periods of low inflation, an increase in aggregate demand from a position of full employment leads to:

Accepted Answer

A)  higher prices and higher unemployment. 
B)  higher prices and higher output. 
C)  lower prices and higher output. 
D)  lower prices and higher unemployment. 
A)  higher prices and higher unemployment. 
B)  higher prices and higher output. 
C)  lower prices and higher output. 
D)  lower prices and higher unemployment.

Question 2

In the classical model, it is thought that the long-run:

Accepted Answer

A)  and short-run aggregate supply curves are both upward sloping. 
B)  aggregate supply curve is vertical and the short-run aggregate supply curve is upward sloping. 
C)  and short-run aggregate supply curves are both vertical. 
D)  aggregate supply curve is upward sloping and the short-run aggregate supply curve is vertical. 
A)  and short-run aggregate supply curves are both upward sloping. 
B)  aggregate supply curve is vertical and the short-run aggregate supply curve is upward sloping. 
C)  and short-run aggregate supply curves are both vertical. 
D)  aggregate supply curve is upward sloping and the short-run aggregate supply curve is vertical.

Question 3

Suppose that the unemployment rate rises as the inflation rate declines. This situation is consistent with a movement along the _____ Phillips curve.

Accepted Answer

A)  vertical 
B)  horizontal 
C)  positively sloped 
D)  negatively sloped 
A)  vertical 
B)  horizontal 
C)  positively sloped 
D)  negatively sloped

Question 4

Okun's law is less than a 1:1 ratio because some:

Accepted Answer

A)  employers quickly lay off workers. 
B)  employers change the working hours of current employees as demand changes. 
C)  employees act to job share. 
D)  workers are not counted as unemployed when they are actively seeking work. 
A)  employers quickly lay off workers. 
B)  employers change the working hours of current employees as demand changes. 
C)  employees act to job share. 
D)  workers are not counted as unemployed when they are actively seeking work.

Question 5

A long-run Phillips curve has a(n) _____ slope because _____.

Accepted Answer

A)  negative; there is a positive relationship between the output gap and the nonaccelerating inflation rate of unemployment (NAIRU) 
B)  infinite; any unemployment rate below the NAIRU leads to ever-accelerating inflation 
C)  zero; there is a positive relationship between expected inflation and unemployment 
D)  positive; any unemployment rate above the NAIRU leads to ever-accelerating inflation 
A)  negative; there is a positive relationship between the output gap and the nonaccelerating inflation rate of unemployment (NAIRU) 
B)  infinite; any unemployment rate below the NAIRU leads to ever-accelerating inflation 
C)  zero; there is a positive relationship between expected inflation and unemployment 
D)  positive; any unemployment rate above the NAIRU leads to ever-accelerating inflation

Question 6

The inflation tax is the effect on the public of:

Accepted Answer

A)  the increase in the real value of money caused by inflation. 
B)  the decrease in the real value of money caused by inflation. 
C)  the result of indexing wages to inflation. 
D)  cost of living adjustments. 
A)  the increase in the real value of money caused by inflation. 
B)  the decrease in the real value of money caused by inflation. 
C)  the result of indexing wages to inflation. 
D)  cost of living adjustments.

Question 7

In economies with persistently high inflation, an increase in the money supply will have:

Accepted Answer

A)  a positive effect on the real quantity of money in the long run. 
B)  a negative effect on the real quantity of money, as the aggregate price level increases by more than the money supply. 
C)  a positive effect on the aggregate real output in the long run. 
D)  no effect on the real quantity of money, making money neutral in the long run. 
A)  a positive effect on the real quantity of money in the long run. 
B)  a negative effect on the real quantity of money, as the aggregate price level increases by more than the money supply. 
C)  a positive effect on the aggregate real output in the long run. 
D)  no effect on the real quantity of money, making money neutral in the long run.

Question 8

According to current estimates of Okun's law, if the output gap is 3%, the natural rate of unemployment is 4%, and the expected rate of inflation is 5%, then the unemployment rate is _____%.

Accepted Answer

A)  3.5 
B)  3 
C)  2.5 
D)  1.5 
A)  3.5 
B)  3 
C)  2.5 
D)  1.5

Question 9

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 equilibrium point will:

Accepted Answer

A)  not change. 
B)  immediately move from E1 to E2. 
C)  immediately move from E2 to E1. 
D)  immediately move from E1 to E3. 
A)  not change. 
B)  immediately move from E1 to E2. 
C)  immediately move from E2 to E1. 
D)  immediately move from E1 to E3.

Question 10

If the economy is in a liquidity trap, monetary policy is _____ and fiscal policy is _____.

Accepted Answer

A)  effective; effective 
B)  ineffective; ineffective 
C)  effective; ineffective 
D)  ineffective; effective 
A)  effective; effective 
B)  ineffective; ineffective 
C)  effective; ineffective 
D)  ineffective; effective

Question 11

A large inflation tax does NOT cause people to:

Accepted Answer

A)  substitute real goods for money. 
B)  substitute interest-bearing assets for money. 
C)  reduce their real money holdings. 
D)  sell gold. 
A)  substitute real goods for money. 
B)  substitute interest-bearing assets for money. 
C)  reduce their real money holdings. 
D)  sell gold.

Question 12

If actual output growth is 5% when potential output growth is 5%, then the unemployment rate will:

Accepted Answer

A)  not change. 
B)  rise. 
C)  fall. 
D)  be zero. 
A)  not change. 
B)  rise. 
C)  fall. 
D)  be zero.

Question 13

Expectations of a higher inflation rate shift the short-run aggregate supply curve to the _____, changing the trade-off between inflation and unemployment. As a result, the short-run Phillips curve shifts _____.

Accepted Answer

A)  left; down 
B)  right; up 
C)  left; up 
D)  right; down 
A)  left; down 
B)  right; up 
C)  left; up 
D)  right; down

Question 14

As people try to avoid the inflation tax, the government must _____ the inflation rate to _____.

Accepted Answer

A)  lower; avoid a budget deficit 
B)  lower; raise the same revenue from inflation 
C)  increase; raise the same revenue from inflation 
D)  increase; avoid a budget surplus, which will harm employment 
A)  lower; avoid a budget deficit 
B)  lower; raise the same revenue from inflation 
C)  increase; raise the same revenue from inflation 
D)  increase; avoid a budget surplus, which will harm employment

Question 15

Use the following to answer questions:  
-(Figure: AD-AS Model and the Short-Run Phillips Curve) Refer to Figure: AD-AS Model and the Short-Run Phillips Curve. If the central bank decreases the money supply so that aggregate demand shifts from AD2 to AD1, then the unemployment rate will be:

Accepted Answer

A)  zero. 
B)  2%. 
C)  4%. 
D)  6%. 
A)  zero. 
B)  2%. 
C)  4%. 
D)  6%.

Question 16

During periods of deflation _____ will be hurt and _____ will be helped.

Accepted Answer

A)  firms; borrowers 
B)  borrowers; lenders 
C)  consumers; firms 
D)  home buyers; home sellers 
A)  firms; borrowers 
B)  borrowers; lenders 
C)  consumers; firms 
D)  home buyers; home sellers

Question 17

To bring disinflation to an economy, policy makers must:

Accepted Answer

A)  slow down labor productivity growth. 
B)  increase the money supply to release the economy from the liquidity trap. 
C)  keep unemployment below its natural rate for an extended period. 
D)  announce and commit to a credible policy of disinflation. 
A)  slow down labor productivity growth. 
B)  increase the money supply to release the economy from the liquidity trap. 
C)  keep unemployment below its natural rate for an extended period. 
D)  announce and commit to a credible policy of disinflation.

Question 18

Use the following to answer questions:  
-(Figure: Actual and Natural Rates of Unemployment) Refer to Figure 16-4: Actual and Natural Rates of Unemployment. In 1982, the cyclical unemployment rate was approximately:

Accepted Answer

A)  zero. 
B)  4%. 
C)  6%. 
D)  10%. 
A)  zero. 
B)  4%. 
C)  6%. 
D)  10%.

Question 19

In economies with persistently high inflation, an increase in the money supply will:

Accepted Answer

A)  translate into a proportional increase in the aggregate price level much faster than usual. 
B)  translate into a proportional increase in the aggregate price level only in the long run. 
C)  not affect either the aggregate price level or the aggregate output. 
D)  translate into a proportional increase in the aggregate output much faster than usual. 
A)  translate into a proportional increase in the aggregate price level much faster than usual. 
B)  translate into a proportional increase in the aggregate price level only in the long run. 
C)  not affect either the aggregate price level or the aggregate output. 
D)  translate into a proportional increase in the aggregate output much faster than usual.

Question 20

When the output gap is positive, the unemployment rate is:

Accepted Answer

A)  positive. 
B)  above the natural rate. 
C)  below the natural rate. 
D)  negative. 
A)  positive. 
B)  above the natural rate. 
C)  below the natural rate. 
D)  negative.

In the short run in periods of low inflation, an increase in aggregate demand from a position of full employment leads to:

In the classical model, it is thought that the long-run:

Suppose that the unemployment rate rises as the inflation rate declines. This situation is consistent with a movement along the _____ Phillips curve.

Okun's law is less than a 1:1 ratio because some:

A long-run Phillips curve has a(n) _ slope because _.

The inflation tax is the effect on the public of:

In economies with persistently high inflation, an increase in the money supply will have:

According to current estimates of Okun's law, if the output gap is 3%, the natural rate of unemployment is 4%, and the expected rate of inflation is 5%, then the unemployment rate is _____%.

If the economy is in a liquidity trap, monetary policy is _ and fiscal policy is _.

A large inflation tax does NOT cause people to:

If actual output growth is 5% when potential output growth is 5%, then the unemployment rate will:

Expectations of a higher inflation rate shift the short-run aggregate supply curve to the _, changing the trade-off between inflation and unemployment. As a result, the short-run Phillips curve shifts _.

As people try to avoid the inflation tax, the government must _ the inflation rate to _.

Use the following to answer questions: -(Figure: AD-AS Model and the Short-Run Phillips Curve) Refer to Figure: AD-AS Model and the Short-Run Phillips Curve. If the central bank decreases the money supply so that aggregate demand shifts from AD₂ to AD₁, then the unemployment rate will be:

During periods of deflation _ will be hurt and _ will be helped.

To bring disinflation to an economy, policy makers must:

Use the following to answer questions: -(Figure: Actual and Natural Rates of Unemployment) Refer to Figure 16-4: Actual and Natural Rates of Unemployment. In 1982, the cyclical unemployment rate was approximately:

In economies with persistently high inflation, an increase in the money supply will:

When the output gap is positive, the unemployment rate is:

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 short run in periods of low inflation, an increase in aggregate demand from a position of full employment leads to:

In the classical model, it is thought that the long-run:

Suppose that the unemployment rate rises as the inflation rate declines. This situation is consistent with a movement along the _____ Phillips curve.

Okun's law is less than a 1:1 ratio because some:

A long-run Phillips curve has a(n) _____ slope because _____.

The inflation tax is the effect on the public of:

In economies with persistently high inflation, an increase in the money supply will have:

According to current estimates of Okun's law, if the output gap is 3%, the natural rate of unemployment is 4%, and the expected rate of inflation is 5%, then the unemployment rate is _____%.

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 equilibrium point will:

If the economy is in a liquidity trap, monetary policy is _____ and fiscal policy is _____.

A large inflation tax does NOT cause people to:

If actual output growth is 5% when potential output growth is 5%, then the unemployment rate will:

Expectations of a higher inflation rate shift the short-run aggregate supply curve to the _____, changing the trade-off between inflation and unemployment. As a result, the short-run Phillips curve shifts _____.

As people try to avoid the inflation tax, the government must _____ the inflation rate to _____.

Use the following to answer questions: -(Figure: AD-AS Model and the Short-Run Phillips Curve) Refer to Figure: AD-AS Model and the Short-Run Phillips Curve. If the central bank decreases the money supply so that aggregate demand shifts from AD2 to AD1, then the unemployment rate will be:

During periods of deflation _____ will be hurt and _____ will be helped.

To bring disinflation to an economy, policy makers must:

Use the following to answer questions: -(Figure: Actual and Natural Rates of Unemployment) Refer to Figure 16-4: Actual and Natural Rates of Unemployment. In 1982, the cyclical unemployment rate was approximately:

In economies with persistently high inflation, an increase in the money supply will:

When the output gap is positive, the unemployment rate is:

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

A long-run Phillips curve has a(n) _ slope because _.

If the economy is in a liquidity trap, monetary policy is _ and fiscal policy is _.

Expectations of a higher inflation rate shift the short-run aggregate supply curve to the _, changing the trade-off between inflation and unemployment. As a result, the short-run Phillips curve shifts _.

As people try to avoid the inflation tax, the government must _ the inflation rate to _.

Use the following to answer questions: -(Figure: AD-AS Model and the Short-Run Phillips Curve) Refer to Figure: AD-AS Model and the Short-Run Phillips Curve. If the central bank decreases the money supply so that aggregate demand shifts from AD₂ to AD₁, then the unemployment rate will be:

During periods of deflation _ will be hurt and _ will be helped.