Question 1

Disinflation means a decrease in:

Accepted Answer

A)  prices. 
B)  the rate of inflation. 
C)  aggregate supply. 
D)  the money supply. 
A)  prices. 
B)  the rate of inflation. 
C)  aggregate supply. 
D)  the money supply.

Question 2

In the long run, there is a negative relationship between the inflation rate and the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 3

In the long run, any given percentage increase in the money supply:

Accepted Answer

A)  decreases real GDP. 
B)  leads to an equal percentage increase in the overall price level. 
C)  increases real GDP. 
D)  leads to an equal percentage decrease in the unemployment rate. 
A)  decreases real GDP. 
B)  leads to an equal percentage increase in the overall price level. 
C)  increases real GDP. 
D)  leads to an equal percentage decrease in the unemployment rate.

Question 4

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, real GDP will:

Accepted Answer

A)  not change. 
B)  increase from YE to Y1. 
C)  increase from Y1 to YE. 
D)  establish a new potential output. 
A)  not change. 
B)  increase from YE to Y1. 
C)  increase from Y1 to YE. 
D)  establish a new potential output.

Question 5

Assume that workers and businesses are sensitized to inflation and are quick to raise wages and prices in response to changes in the money supply. This implies that inflation is _____ and there are _____ adjustments of wages and prices of intermediate goods.

Accepted Answer

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

Question 6

_____ depicts a trade-off between unemployment and inflation.

Accepted Answer

A)  The Phillips curve 
B)  Keynes's law 
C)  The multiplier 
D)  The Friedman curve 
A)  The Phillips curve 
B)  Keynes's law 
C)  The multiplier 
D)  The Friedman curve

Question 7

Reduction of inflation that is embedded in expectations is called:

Accepted Answer

A)  disinflation. 
B)  deflation. 
C)  hyperinflation. 
D)  the natural rate of inflation. 
A)  disinflation. 
B)  deflation. 
C)  hyperinflation. 
D)  the natural rate of inflation.

Question 8

The inflation tax is the effect on the public of the:

Accepted Answer

A)  higher tax paid by individuals whose incomes are indexed to inflation. 
B)  sales taxes paid during periods of inflation. 
C)  reduction in the value of money caused by inflation. 
D)  higher prices consumers pay due to inflation. 
A)  higher tax paid by individuals whose incomes are indexed to inflation. 
B)  sales taxes paid during periods of inflation. 
C)  reduction in the value of money caused by inflation. 
D)  higher prices consumers pay due to inflation.

Question 9

If the natural rate of unemployment _____, the nonaccelerating inflation rate of unemployment _____, and the long-run Phillips curve shifts to the left.

Accepted Answer

A)  falls; falls 
B)  rises; rises 
C)  falls; rises 
D)  rises; falls 
A)  falls; falls 
B)  rises; rises 
C)  falls; rises 
D)  rises; falls

Question 10

Okun's law suggests that a _____% increase in a positive output gap _____ the unemployment rate by _____%.

Accepted Answer

A)  1; increases; 0.5 
B)  1; decreases; 0.5 
C)  0.5; increases; 1 
D)  0.5; decreases; 1 
A)  1; increases; 0.5 
B)  1; decreases; 0.5 
C)  0.5; increases; 1 
D)  0.5; decreases; 1

Question 11

Politicians may accept moderate inflation in an election year, since the _____ in aggregate _____ serves to _____.

Accepted Answer

A)  increase; supply; increase output 
B)  decrease; supply; decrease employment 
C)  decrease; demand; decrease output 
D)  increase; demand; increase output 
A)  increase; supply; increase output 
B)  decrease; supply; decrease employment 
C)  decrease; demand; decrease output 
D)  increase; demand; increase output

Question 12

According to the classical model of the price level, an increase in the money supply will cause _____ and _____ increase in real GDP.

Accepted Answer

A)  inflation; no long-run 
B)  inflation; a long-run 
C)  no inflation; a long-run 
D)  deflation; no long-run 
A)  inflation; no long-run 
B)  inflation; a long-run 
C)  no inflation; a long-run 
D)  deflation; no long-run

Question 13

The short-run Phillips curve represents the relationship between the unemployment rate and the rate of change in:

Accepted Answer

A)  the interest rate. 
B)  output. 
C)  wages only. 
D)  the aggregate price level. 
A)  the interest rate. 
B)  output. 
C)  wages only. 
D)  the aggregate price level.

Question 14

The inflation tax is likely to be high when:

Accepted Answer

A)  there is a budget surplus. 
B)  the government relies on seignorage to finance large portions of a budget deficit. 
C)  the Fed decreases the money supply. 
D)  corporate and personal income tax rates are increased. 
A)  there is a budget surplus. 
B)  the government relies on seignorage to finance large portions of a budget deficit. 
C)  the Fed decreases the money supply. 
D)  corporate and personal income tax rates are increased.

Question 15

The long-run Phillips curve is vertical at the nonaccelerating inflation rate of unemployment (NAIRU) because an unemployment rate _____ the NAIRU will lead to _____ inflation.

Accepted Answer

A)  below; ever-accelerating 
B)  equal to; zero 
C)  above; ever-accelerating 
D)  below; ever-decelerating 
A)  below; ever-accelerating 
B)  equal to; zero 
C)  above; ever-accelerating 
D)  below; ever-decelerating

Question 16

Deflation leads to winners and losers; for example:

Accepted Answer

A)  mortgage holders lose, but banks awaiting mortgage payments benefit. 
B)  landlords lose, but people paying rent gain. 
C)  savings account holders lose, but the banks gain. 
D)  bond and stock holders lose, but the brokerage company gains. 
A)  mortgage holders lose, but banks awaiting mortgage payments benefit. 
B)  landlords lose, but people paying rent gain. 
C)  savings account holders lose, but the banks gain. 
D)  bond and stock holders lose, but the brokerage company gains.

Question 17

The relationship between the output gap and cyclical unemployment is expressed by:

Accepted Answer

A)  the real business cycle theory. 
B)  the Taylor rule. 
C)  the natural rate hypothesis. 
D)  Okun's law. 
A)  the real business cycle theory. 
B)  the Taylor rule. 
C)  the natural rate hypothesis. 
D)  Okun's law.

Question 18

Use the following to answer questions:  
-(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that the economy starts at E1 and moves to E2, where AD2 intersects SRAS1. SRAS1 will shift to SRAS2 because:

Accepted Answer

A)  real wages rise in the long run. 
B)  nominal wages rise in the long run. 
C)  the real money supply rises in the long run. 
D)  aggregate real output rises in the long run. 
A)  real wages rise in the long run. 
B)  nominal wages rise in the long run. 
C)  the real money supply rises in the long run. 
D)  aggregate real output rises in the long run.

Question 19

The idea that a 1% increase in the output gap will decrease the unemployment rate by 0.5% is known as _____ law.

Accepted Answer

A)  Okun's 
B)  Phillips's 
C)  Greenspan's 
D)  Keynes's 
A)  Okun's 
B)  Phillips's 
C)  Greenspan's 
D)  Keynes's

Question 20

If the Fed reduces the inflation rate from 5% to 3%, it is:

Accepted Answer

A)  following a policy rule. 
B)  engaging in disinflation. 
C)  increasing employment. 
D)  raising economic growth. 
A)  following a policy rule. 
B)  engaging in disinflation. 
C)  increasing employment. 
D)  raising economic growth.

Disinflation means a decrease in:

In the long run, there is a negative relationship between the inflation rate and the unemployment rate.

In the long run, any given percentage increase in the money supply:

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, real GDP will:

Assume that workers and businesses are sensitized to inflation and are quick to raise wages and prices in response to changes in the money supply. This implies that inflation is _ and there are _ adjustments of wages and prices of intermediate goods.

_____ depicts a trade-off between unemployment and inflation.

Reduction of inflation that is embedded in expectations is called:

The inflation tax is the effect on the public of the:

If the natural rate of unemployment _, the nonaccelerating inflation rate of unemployment _, and the long-run Phillips curve shifts to the left.

Okun's law suggests that a ___% increase in a positive output gap _ the unemployment rate by ___%.

Politicians may accept moderate inflation in an election year, since the ___ in aggregate _ serves to ___.

According to the classical model of the price level, an increase in the money supply will cause _ and _ increase in real GDP.

The short-run Phillips curve represents the relationship between the unemployment rate and the rate of change in:

The inflation tax is likely to be high when:

The long-run Phillips curve is vertical at the nonaccelerating inflation rate of unemployment (NAIRU) because an unemployment rate _ the NAIRU will lead to _ inflation.

Deflation leads to winners and losers; for example:

The relationship between the output gap and cyclical unemployment is expressed by:

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that the economy starts at E₁ and moves to E₂, where AD₂intersects SRAS_1. SRAS₁willshift to SRAS₂because:

The idea that a 1% increase in the output gap will decrease the unemployment rate by 0.5% is known as _____ law.

If the Fed reduces the inflation rate from 5% to 3%, it 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

Disinflation means a decrease in:

In the long run, there is a negative relationship between the inflation rate and the unemployment rate.

In the long run, any given percentage increase in the money supply:

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, real GDP will:

Assume that workers and businesses are sensitized to inflation and are quick to raise wages and prices in response to changes in the money supply. This implies that inflation is _____ and there are _____ adjustments of wages and prices of intermediate goods.

_____ depicts a trade-off between unemployment and inflation.

Reduction of inflation that is embedded in expectations is called:

The inflation tax is the effect on the public of the:

If the natural rate of unemployment _____, the nonaccelerating inflation rate of unemployment _____, and the long-run Phillips curve shifts to the left.

Okun's law suggests that a _____% increase in a positive output gap _____ the unemployment rate by _____%.

Politicians may accept moderate inflation in an election year, since the _____ in aggregate _____ serves to _____.

According to the classical model of the price level, an increase in the money supply will cause _____ and _____ increase in real GDP.

The short-run Phillips curve represents the relationship between the unemployment rate and the rate of change in:

The inflation tax is likely to be high when:

The long-run Phillips curve is vertical at the nonaccelerating inflation rate of unemployment (NAIRU) because an unemployment rate _____ the NAIRU will lead to _____ inflation.

Deflation leads to winners and losers; for example:

The relationship between the output gap and cyclical unemployment is expressed by:

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that the economy starts at E1 and moves to E2, where AD2 intersects SRAS1. SRAS1 will shift to SRAS2 because:

The idea that a 1% increase in the output gap will decrease the unemployment rate by 0.5% is known as _____ law.

If the Fed reduces the inflation rate from 5% to 3%, it 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

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, real GDP will:

Assume that workers and businesses are sensitized to inflation and are quick to raise wages and prices in response to changes in the money supply. This implies that inflation is _ and there are _ adjustments of wages and prices of intermediate goods.

If the natural rate of unemployment _, the nonaccelerating inflation rate of unemployment _, and the long-run Phillips curve shifts to the left.

Okun's law suggests that a ___% increase in a positive output gap _ the unemployment rate by ___%.

Politicians may accept moderate inflation in an election year, since the ___ in aggregate _ serves to ___.

According to the classical model of the price level, an increase in the money supply will cause _ and _ increase in real GDP.

The long-run Phillips curve is vertical at the nonaccelerating inflation rate of unemployment (NAIRU) because an unemployment rate _ the NAIRU will lead to _ inflation.

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that the economy starts at E₁ and moves to E₂, where AD₂intersects SRAS_1. SRAS₁willshift to SRAS₂because: