Question 1

When economists state that there is a zero bound on nominal interest rates, they mean that the:

Accepted Answer

A)  real interest rate cannot go below zero. 
B)  nominal interest rate cannot go below zero. 
C)  real interest rate can very well be negative. 
D)  nominal interest rate can always go below zero. 
A)  real interest rate cannot go below zero. 
B)  nominal interest rate cannot go below zero. 
C)  real interest rate can very well be negative. 
D)  nominal interest rate can always go below zero.

Question 2

In debt deflation, deflation raises the cost of existing debt by increasing the value of money needed to pay it off, leading to a(n) _____ in aggregate _____.

Accepted Answer

A)  increase; supply 
B)  reduction; supply 
C)  increase; demand 
D)  reduction; demand 
A)  increase; supply 
B)  reduction; supply 
C)  increase; demand 
D)  reduction; demand

Question 3

Use the following to answer questions:  
-(Figure: AD-AS) Refer to Figure: AD-AS. If our economy is at equilibrium with low-level inflation and the Fed uses expansionary monetary policy, the initial effect is that _____ will shift to _____ and the economy will move from _____.

Accepted Answer

A)  AD1; AD2; E1 to E2 
B)  SRAS1; SRAS2; E2 to E3 
C)  SRAS2; SRAS1; E3 to E2 
D)  AD2; AD1; E2 to E1 
A)  AD1; AD2; E1 to E2 
B)  SRAS1; SRAS2; E2 to E3 
C)  SRAS2; SRAS1; E3 to E2 
D)  AD2; AD1; E2 to E1

Question 4

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. Finally, the economy moves to E3. The classical model of price level assumes that the economy moves from _____; thus, inflation _____ and real GDP _____.

Accepted Answer

A)  E1 to E3, ignoring E2; increases; remains the same 
B)  E2 to E3, ignoring E1; remains the same; increases 
C)  E2 to E3; decreases; remains the same 
D)  E1 to E2, ignoring E3; remains the same; remains the same 
A)  E1 to E3, ignoring E2; increases; remains the same 
B)  E2 to E3, ignoring E1; remains the same; increases 
C)  E2 to E3; decreases; remains the same 
D)  E1 to E2, ignoring E3; remains the same; remains the same

Question 5

Which shape accurately portrays the long-run Phillips curve?

Accepted Answer

A)  a horizontal curve 
B)  a vertical curve 
C)  an upward-sloping curve 
D)  a downward-sloping curve 
A)  a horizontal curve 
B)  a vertical curve 
C)  an upward-sloping curve 
D)  a downward-sloping curve

Question 6

Use the following to answer questions:  
-(Figure: Actual and Natural Rates of Unemployment) Refer to Figure: Actual and Natural Rates of Unemployment. In 2011, the natural unemployment rate was approximately:

Accepted Answer

A)  zero. 
B)  3%. 
C)  5.5%. 
D)  9%. 
A)  zero. 
B)  3%. 
C)  5.5%. 
D)  9%.

Question 7

A supply shock:

Accepted Answer

A)  moves our economy along the short-run aggregate supply curve. 
B)  moves us along the short-run Phillips curve. 
C)  shifts the short-run Phillips curve. 
D)  shifts the short-run aggregate supply curve but not the short-run Phillips curve. 
A)  moves our economy along the short-run aggregate supply curve. 
B)  moves us along the short-run Phillips curve. 
C)  shifts the short-run Phillips curve. 
D)  shifts the short-run aggregate supply curve but not the short-run Phillips curve.

Question 8

From 2000 to 2008 Zimbabwe's prices:

Accepted Answer

A)  decreased by 50%. 
B)  increased by 50%. 
C)  increased by 100%. 
D)  increased by 80 trillion percent. 
A)  decreased by 50%. 
B)  increased by 50%. 
C)  increased by 100%. 
D)  increased by 80 trillion percent.

Question 9

The short-run Phillips curve is:

Accepted Answer

A)  upward sloping because inflation and unemployment rates have a positive relationship in the short run. 
B)  vertical because there is no trade-off between inflation and unemployment rates in the short run. 
C)  downward sloping because there is a trade-off between inflation and unemployment rates in the short run. 
D)  horizontal because there is no trade-off between inflation and unemployment rates in the short run. 
A)  upward sloping because inflation and unemployment rates have a positive relationship in the short run. 
B)  vertical because there is no trade-off between inflation and unemployment rates in the short run. 
C)  downward sloping because there is a trade-off between inflation and unemployment rates in the short run. 
D)  horizontal because there is no trade-off between inflation and unemployment rates in the short run.

Question 10

The NAIRU is:

Accepted Answer

A)  the inflation rate at which the unemployment rate does not change over time. 
B)  a trade-off between unemployment and inflation. 
C)  the unemployment rate at which inflation does not change over time. 
D)  a rate at which it is possible to achieve lower unemployment by accepting higher inflation. 
A)  the inflation rate at which the unemployment rate does not change over time. 
B)  a trade-off between unemployment and inflation. 
C)  the unemployment rate at which inflation does not change over time. 
D)  a rate at which it is possible to achieve lower unemployment by accepting higher inflation.

Question 11

If the public holds $300 billion in monetary purchasing power and the inflation rate is 5%, then the inflation tax that year is:

Accepted Answer

A)  $5 billion. 
B)  $15 billion. 
C)  $60 billion. 
D)  $1,500 billion. 
A)  $5 billion. 
B)  $15 billion. 
C)  $60 billion. 
D)  $1,500 billion.

Question 12

The inflation tax refers to:

Accepted Answer

A)  moving into higher tax brackets. 
B)  the reduction in the real value of money when inflation falls. 
C)  the reduction in the real value of money when inflation rises. 
D)  the tax imposed on inflation by the government. 
A)  moving into higher tax brackets. 
B)  the reduction in the real value of money when inflation falls. 
C)  the reduction in the real value of money when inflation rises. 
D)  the tax imposed on inflation by the government.

Question 13

If the short-run Phillips curve has shifted upward, the _____ curve has shifted to the _____.

Accepted Answer

A)  AD; right 
B)  AD; left 
C)  SRAS; right 
D)  SRAS; left 
A)  AD; right 
B)  AD; left 
C)  SRAS; right 
D)  SRAS; left

Question 14

If potential output is higher than actual output, then the unemployment rate is:

Accepted Answer

A)  below the natural rate. 
B)  above the natural rate. 
C)  equal to the natural rate. 
D)  zero. 
A)  below the natural rate. 
B)  above the natural rate. 
C)  equal to the natural rate. 
D)  zero.

Question 15

Use the following to answer questions:  
-(Figure: Actual and Natural Rates of Unemployment) Refer to Figure: Actual and Natural Rates of Unemployment. In 2011 the output gap was:

Accepted Answer

A)  positive. 
B)  negative. 
C)  zero. 
D)  impossible to determine without more information. 
A)  positive. 
B)  negative. 
C)  zero. 
D)  impossible to determine without more information.

Question 16

Use the following to answer questions:  
-(Figure: Actual and Natural Rates of Unemployment) Refer to Figure: Actual and Natural Rates of Unemployment. In 2000, the output gap was:

Accepted Answer

A)  positive. 
B)  negative. 
C)  zero. 
D)  impossible to determine without more information. 
A)  positive. 
B)  negative. 
C)  zero. 
D)  impossible to determine without more information.

Question 17

People can avoid the inflation tax by reducing their real money balances.

Accepted Answer

A) True 
 B)False

Question 18

When workers and firms become aware of a rise in the general price level:

Accepted Answer

A)  they will not do anything, because they know they are powerless to counter any economic changes. 
B)  they will incorporate higher prices into their expectations. 
C)  firms with sticky prices will ultimately adjust their prices downward. 
D)  they will agree to renegotiate wage contracts downward. 
A)  they will not do anything, because they know they are powerless to counter any economic changes. 
B)  they will incorporate higher prices into their expectations. 
C)  firms with sticky prices will ultimately adjust their prices downward. 
D)  they will agree to renegotiate wage contracts downward.

Question 19

In 1958, _____ came up with a theory regarding the trade-off between unemployment and inflation.

Accepted Answer

A)  A. W. H. Phillips 
B)  John Maynard Keynes 
C)  Joseph Schumpeter 
D)  Milton Friedman 
A)  A. W. H. Phillips 
B)  John Maynard Keynes 
C)  Joseph Schumpeter 
D)  Milton Friedman

Question 20

Historically, governments have turned to seignorage to pay their bills when the:

Accepted Answer

A)  economy is growing. 
B)  government lacks the will to reduce the budget deficit by raising taxes or reducing spending. 
C)  inflation rate is low. 
D)  unemployment rate is low. 
A)  economy is growing. 
B)  government lacks the will to reduce the budget deficit by raising taxes or reducing spending. 
C)  inflation rate is low. 
D)  unemployment rate is low.

When economists state that there is a zero bound on nominal interest rates, they mean that the:

In debt deflation, deflation raises the cost of existing debt by increasing the value of money needed to pay it off, leading to a(n) _ in aggregate _.

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. If our economy is at equilibrium with low-level inflation and the Fed uses expansionary monetary policy, the initial effect is that ___ will shift to _ and the economy will move from ___.

Which shape accurately portrays the long-run Phillips curve?

Use the following to answer questions: -(Figure: Actual and Natural Rates of Unemployment) Refer to Figure: Actual and Natural Rates of Unemployment. In 2011, the natural unemployment rate was approximately:

A supply shock:

From 2000 to 2008 Zimbabwe's prices:

The short-run Phillips curve is:

The NAIRU is:

If the public holds $300 billion in monetary purchasing power and the inflation rate is 5%, then the inflation tax that year is:

The inflation tax refers to:

If the short-run Phillips curve has shifted upward, the _ curve has shifted to the _.

If potential output is higher than actual output, then the unemployment rate is:

Use the following to answer questions: -(Figure: Actual and Natural Rates of Unemployment) Refer to Figure: Actual and Natural Rates of Unemployment. In 2011 the output gap was:

Use the following to answer questions: -(Figure: Actual and Natural Rates of Unemployment) Refer to Figure: Actual and Natural Rates of Unemployment. In 2000, the output gap was:

People can avoid the inflation tax by reducing their real money balances.

When workers and firms become aware of a rise in the general price level:

In 1958, _____ came up with a theory regarding the trade-off between unemployment and inflation.

Historically, governments have turned to seignorage to pay their bills when the:

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

When economists state that there is a zero bound on nominal interest rates, they mean that the:

In debt deflation, deflation raises the cost of existing debt by increasing the value of money needed to pay it off, leading to a(n) _____ in aggregate _____.

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. If our economy is at equilibrium with low-level inflation and the Fed uses expansionary monetary policy, the initial effect is that _____ will shift to _____ and the economy will move from _____.

Which shape accurately portrays the long-run Phillips curve?

Use the following to answer questions: -(Figure: Actual and Natural Rates of Unemployment) Refer to Figure: Actual and Natural Rates of Unemployment. In 2011, the natural unemployment rate was approximately:

A supply shock:

From 2000 to 2008 Zimbabwe's prices:

The short-run Phillips curve is:

The NAIRU is:

If the public holds $300 billion in monetary purchasing power and the inflation rate is 5%, then the inflation tax that year is:

The inflation tax refers to:

If the short-run Phillips curve has shifted upward, the _____ curve has shifted to the _____.

If potential output is higher than actual output, then the unemployment rate is:

Use the following to answer questions: -(Figure: Actual and Natural Rates of Unemployment) Refer to Figure: Actual and Natural Rates of Unemployment. In 2011 the output gap was:

Use the following to answer questions: -(Figure: Actual and Natural Rates of Unemployment) Refer to Figure: Actual and Natural Rates of Unemployment. In 2000, the output gap was:

People can avoid the inflation tax by reducing their real money balances.

When workers and firms become aware of a rise in the general price level:

In 1958, _____ came up with a theory regarding the trade-off between unemployment and inflation.

Historically, governments have turned to seignorage to pay their bills when the:

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

In debt deflation, deflation raises the cost of existing debt by increasing the value of money needed to pay it off, leading to a(n) _ in aggregate _.

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. If our economy is at equilibrium with low-level inflation and the Fed uses expansionary monetary policy, the initial effect is that ___ will shift to _ and the economy will move from ___.

If the short-run Phillips curve has shifted upward, the _ curve has shifted to the _.