Question 1

The most extensive indexing in the United States is in

Accepted Answer

A)  interest payments on bonds or savings accounts. 
B)  government transfer payments, including Social Security benefits. 
C)  government contracts for military goods. 
D)  escalator clauses in wage and salary contracts. 
A)  interest payments on bonds or savings accounts. 
B)  government transfer payments, including Social Security benefits. 
C)  government contracts for military goods. 
D)  escalator clauses in wage and salary contracts.

Question 2

Workers expecting inflation will expect wage increases to be built into their wage contracts.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following could trigger supply-side inflation?

Accepted Answer

A)  a decrease in the wage rate for all workers 
B)  an increase in raw materials' prices 
C)  an increase in productivity of capital 
D)  an increase in the labor force 
A)  a decrease in the wage rate for all workers 
B)  an increase in raw materials' prices 
C)  an increase in productivity of capital 
D)  an increase in the labor force

Question 4

If rational expectations are assumed, inflation can be reduced with no corresponding increase in unemployment.

Accepted Answer

A) True 
 B)False

Question 5

According to rational expectations theory, a long period of unemployment is necessary to reduce inflation.

Accepted Answer

A) True 
 B)False

Question 6

Figure 17-2
  
-Given the situation in graph (1) in Figure 17-2, what movement would be expected in graph (2) from the economy's self-correcting mechanism?

Accepted Answer

A)  A to B 
B)  A to D 
C)  C to E 
D)  D to C 
A)  A to B 
B)  A to D 
C)  C to E 
D)  D to C

Question 7

Policy makers who believe that the costs of inflation are very high will tend to favor which of the following during an inflationary gap?

Accepted Answer

A)  moderate fiscal stimulus, no monetary stimulus 
B)  fiscal and monetary tightness 
C)  moderate monetary stimulus, fiscal tightness 
D)  strong fiscal and monetary stimulus 
A)  moderate fiscal stimulus, no monetary stimulus 
B)  fiscal and monetary tightness 
C)  moderate monetary stimulus, fiscal tightness 
D)  strong fiscal and monetary stimulus

Question 8

The Phillips curve assumes that shocks to the economy come from the demand side.

Accepted Answer

A) True 
 B)False

Question 9

The Phillips curve is a statistical relationship that was misrepresented as showing

Accepted Answer

A)  disequilibrium outcomes of uncoordinated policy. 
B)  alternative equilibrium points that the economy could achieve. 
C)  the unemployment rates necessary to close a recessionary gap. 
D)  the increases in interest rates from different inflation rates. 
A)  disequilibrium outcomes of uncoordinated policy. 
B)  alternative equilibrium points that the economy could achieve. 
C)  the unemployment rates necessary to close a recessionary gap. 
D)  the increases in interest rates from different inflation rates.

Question 10

In what way do policy makers have to face a trade-off between inflation and unemployment?

Accepted Answer

A)  The cost of reducing inflation by restrictive fiscal and monetary policies is a temporary increase in unemployment. 
B)  The cost of reducing inflation by restrictive fiscal and monetary policies is a permanent increase in unemployment. 
C)  The cost of reducing unemployment by expansionary fiscal and monetary policies is virtually nonexistent. 
D)  The cost of reducing unemployment by expansionary fiscal and monetary policies involves higher inflation during recessions. 
A)  The cost of reducing inflation by restrictive fiscal and monetary policies is a temporary increase in unemployment. 
B)  The cost of reducing inflation by restrictive fiscal and monetary policies is a permanent increase in unemployment. 
C)  The cost of reducing unemployment by expansionary fiscal and monetary policies is virtually nonexistent. 
D)  The cost of reducing unemployment by expansionary fiscal and monetary policies involves higher inflation during recessions.

Question 11

An increase in AD will trigger more inflation under which of the following conditions?

Accepted Answer

A)  AD is relatively steep. 
B)  AD is relatively flat. 
C)  AS is relatively steep. 
D)  AS is relatively flat. 
A)  AD is relatively steep. 
B)  AD is relatively flat. 
C)  AS is relatively steep. 
D)  AS is relatively flat.

Question 12

If the fluctuations in the economy's real growth rate from year to year are caused primarily by variations in the rate at which aggregate demand increases, then data would show

Accepted Answer

A)  a cyclical relationship between inflation and unemployment. 
B)  a direct relationship between inflation and unemployment. 
C)  an inverse relationship between inflation and unemployment. 
D)  no relationship between inflation and unemployment. 
A)  a cyclical relationship between inflation and unemployment. 
B)  a direct relationship between inflation and unemployment. 
C)  an inverse relationship between inflation and unemployment. 
D)  no relationship between inflation and unemployment.

Question 13

A decrease in AS will trigger more inflation under which of the following conditions?

Accepted Answer

A)  AD is relatively steep. 
B)  AD is relatively flat. 
C)  AS is relatively steep. 
D)  AS is relatively flat. 
A)  AD is relatively steep. 
B)  AD is relatively flat. 
C)  AS is relatively steep. 
D)  AS is relatively flat.

Question 14

The aggregate supply curve slopes upward when the real wage falls initially as the price level rises.

Accepted Answer

A) True 
 B)False

Question 15

In the 1990s, the rising value of the U.S.dollar made imported goods cheaper and this shifted the

Accepted Answer

A)  aggregate demand curve outward. 
B)  aggregate supply curve inward. 
C)  aggregate supply curve outward. 
D)  total expenditures curve upward. 
A)  aggregate demand curve outward. 
B)  aggregate supply curve inward. 
C)  aggregate supply curve outward. 
D)  total expenditures curve upward.

Question 16

If the fluctuations in the economy's real growth rate from year to year are caused primarily by variations in the rate at which aggregate demand increases, then data would show the most rapid inflation occurs when

Accepted Answer

A)  unemployment is the highest, and the lowest inflation occurs when unemployment is the lowest. 
B)  AS grows most rapidly, and the lowest inflation occurs when AS grows most slowly. 
C)  AD rises most slowly, and the lowest inflation occurs when AD rises most rapidly. 
D)  output grows most rapidly and the lowest inflation when output grows most slowly. 
A)  unemployment is the highest, and the lowest inflation occurs when unemployment is the lowest. 
B)  AS grows most rapidly, and the lowest inflation occurs when AS grows most slowly. 
C)  AD rises most slowly, and the lowest inflation occurs when AD rises most rapidly. 
D)  output grows most rapidly and the lowest inflation when output grows most slowly.

Question 17

When inflation comes from the supply side, inflation and unemployment are positively correlated.Does this mean that monetary and fiscal policy makers can escape the trade-off between inflation and unemployment?

Accepted Answer

No.Shifts of the aggregate supply curve

Question 18

Which of the factors below contributed to the collapse of the Phillips curve in the 1970s?

Accepted Answer

A)  Economic research proved there was no relationship between inflation and unemployment rates. 
B)  The U.S.government was running triple-digit deficits in the 1970s, compounding the normal shifts in aggregate demand. 
C)  The 1970s were full of adverse supply shocks such as the oil price increases of 1973-1974. 
D)  The aggregate demand curve shifted to the left at the end of the Vietnam War. 
A)  Economic research proved there was no relationship between inflation and unemployment rates. 
B)  The U.S.government was running triple-digit deficits in the 1970s, compounding the normal shifts in aggregate demand. 
C)  The 1970s were full of adverse supply shocks such as the oil price increases of 1973-1974. 
D)  The aggregate demand curve shifted to the left at the end of the Vietnam War.

Question 19

If an economy's resources are fully employed,

Accepted Answer

A)  a great deal of unemployment will be needed to achieve even a small reduction in inflation. 
B)  the aggregate supply curve (and thus the Phillips curve) will be flat. 
C)  the aggregate supply curve (and thus the Phillips curve) will be steep. 
D)  Both a and c are correct. 
A)  a great deal of unemployment will be needed to achieve even a small reduction in inflation. 
B)  the aggregate supply curve (and thus the Phillips curve) will be flat. 
C)  the aggregate supply curve (and thus the Phillips curve) will be steep. 
D)  Both a and c are correct.

Question 20

The natural rate of unemployment corresponds to what is sometimes called the full employment unemployment rate.

Accepted Answer

A) True 
 B)False

Exam 34: The Trade-Off between Inflation and Unemployment

The most extensive indexing in the United States is in

Workers expecting inflation will expect wage increases to be built into their wage contracts.

Which of the following could trigger supply-side inflation?

If rational expectations are assumed, inflation can be reduced with no corresponding increase in unemployment.

According to rational expectations theory, a long period of unemployment is necessary to reduce inflation.

Figure 17-2 -Given the situation in graph (1) in Figure 17-2, what movement would be expected in graph (2) from the economy's self-correcting mechanism?

Policy makers who believe that the costs of inflation are very high will tend to favor which of the following during an inflationary gap?

The Phillips curve assumes that shocks to the economy come from the demand side.

The Phillips curve is a statistical relationship that was misrepresented as showing

In what way do policy makers have to face a trade-off between inflation and unemployment?

An increase in AD will trigger more inflation under which of the following conditions?

If the fluctuations in the economy's real growth rate from year to year are caused primarily by variations in the rate at which aggregate demand increases, then data would show

A decrease in AS will trigger more inflation under which of the following conditions?

The aggregate supply curve slopes upward when the real wage falls initially as the price level rises.

In the 1990s, the rising value of the U.S.dollar made imported goods cheaper and this shifted the

If the fluctuations in the economy's real growth rate from year to year are caused primarily by variations in the rate at which aggregate demand increases, then data would show the most rapid inflation occurs when

When inflation comes from the supply side, inflation and unemployment are positively correlated.Does this mean that monetary and fiscal policy makers can escape the trade-off between inflation and unemployment?

Which of the factors below contributed to the collapse of the Phillips curve in the 1970s?

If an economy's resources are fully employed,

The natural rate of unemployment corresponds to what is sometimes called the full employment unemployment rate.

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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