Question 1

To make rational forecasts, your predictions do not have to be correct all of the time.

Accepted Answer

A) True 
 B)False

Question 2

Fighting inflation by slowing the growth of aggregate demand is

Accepted Answer

A)  endorsed by most politicians. 
B)  a convenient way to reduce inflation. 
C)  unpopular with politicians. 
D)  always easily accepted by firms and workers. 
A)  endorsed by most politicians. 
B)  a convenient way to reduce inflation. 
C)  unpopular with politicians. 
D)  always easily accepted by firms and workers.

Question 3

Figure 17-5
  
-The data illustrated in Figure 17-5 would be most representative of which decade?

Accepted Answer

A)  the 1960s 
B)  the 1970s 
C)  the 1980s 
D)  the 1990s 
A)  the 1960s 
B)  the 1970s 
C)  the 1980s 
D)  the 1990s

Question 4

Figure 17-8
  
-In Figure 17-8, policy makers can choose any of the following points as sustainable inflation-unemployment combinations:

Accepted Answer

A)  only E. 
B)  A or B. 
C)  A, B, C, D, E. 
D)  B, E, C. 
A)  only E. 
B)  A or B. 
C)  A, B, C, D, E. 
D)  B, E, C.

Question 5

Fiscal and monetary policy can reduce unemployment with no negative side effects.

Accepted Answer

A) True 
 B)False

Question 6

Figure 17-4
  
-Figure 17-4 shows four movements of the inflation rate and the unemployment rate.Which panel shows the movement associated with a "supply shock" like those of the 1970s?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 7

Figure 17-8
  
-In Figure 17-8, which of the following movements illustrates the response of the economy to a stimulation of aggregate demand when workers systematically underpredict inflation?

Accepted Answer

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

Question 8

If expectations are "rational," can the Fed control unemployment?

Accepted Answer

A)  Yes, provided it announces policy in advance. 
B)  Yes, if it affects the aggregate demand curve. 
C)  No, because aggregate supply is vertical even in the short run. 
D)  No, because only fiscal policy can affect unemployment. 
A)  Yes, provided it announces policy in advance. 
B)  Yes, if it affects the aggregate demand curve. 
C)  No, because aggregate supply is vertical even in the short run. 
D)  No, because only fiscal policy can affect unemployment.

Question 9

Which of the following could trigger demand-side inflation?

Accepted Answer

A)  a decrease in the money supply 
B)  an increase in taxes 
C)  an increase in government spending 
D)  an increase in interest rates 
A)  a decrease in the money supply 
B)  an increase in taxes 
C)  an increase in government spending 
D)  an increase in interest rates

Question 10

When the Phillips curve was first formulated (late 1960s), many economists thought that it showed a

Accepted Answer

A)  "menu" of budget deficits from different budget policies. 
B)  "menu" of possible choices available to policy makers. 
C)  guide to the appropriate mix of fiscal and monetary policy. 
D)  guide of political reactions to economic policy. 
A)  "menu" of budget deficits from different budget policies. 
B)  "menu" of possible choices available to policy makers. 
C)  guide to the appropriate mix of fiscal and monetary policy. 
D)  guide of political reactions to economic policy.

Question 11

According to the theory of rational expectations, errors in predicting inflation will

Accepted Answer

A)  be biased upward more often than not. 
B)  be purely random. 
C)  tend to be biased downward when inflation is rising, and tend to be biased upward when inflation is falling. 
D)  tend to be biased upward when inflation is rising, and tend to be biased downward when inflation is falling. 
A)  be biased upward more often than not. 
B)  be purely random. 
C)  tend to be biased downward when inflation is rising, and tend to be biased upward when inflation is falling. 
D)  tend to be biased upward when inflation is rising, and tend to be biased downward when inflation is falling.

Question 12

In 2010 the U.S.economy's inflation rate was higher than its unemployment rate.

Accepted Answer

A) True 
 B)False

Question 13

Who gains if inflation turns out to be higher than expected: the lender or borrower? What happens if inflation turns out to be lower than expected?

Accepted Answer

Borrowers and lenders normally incorpora

Question 14

If the economy in 34-6 (b) is experiencing an inflationary gap (point g), the economy's self-correcting process will move unemployment to ____ and inflation to ____.

Accepted Answer

A)  4 percent; 6 percent 
B)  5.5 percent; 5 percent 
C)  5.5 percent; 7 percent 
D)  5.5 percent; 2 percent 
A)  4 percent; 6 percent 
B)  5.5 percent; 5 percent 
C)  5.5 percent; 7 percent 
D)  5.5 percent; 2 percent

Question 15

Most economists think that the economy's self-correcting mechanism is

Accepted Answer

A)  relatively rapid. 
B)  rapid in the short run and sluggish in the long run. 
C)  sluggish in the short run and rapid in the long run. 
D)  relatively sluggish. 
A)  relatively rapid. 
B)  rapid in the short run and sluggish in the long run. 
C)  sluggish in the short run and rapid in the long run. 
D)  relatively sluggish.

Question 16

When deciding on an appropriate course of action to counter a recessionary gap, which of the following do policy makers consider?

Accepted Answer

A)  the slope of the short-run Phillips curve 
B)  the costs of inflation and unemployment 
C)  the efficiency of the economy's self-correcting mechanism 
D)  All of the above are correct. 
A)  the slope of the short-run Phillips curve 
B)  the costs of inflation and unemployment 
C)  the efficiency of the economy's self-correcting mechanism 
D)  All of the above are correct.

Question 17

Most economists think that, in the short run, there is

Accepted Answer

A)  a trade-off between inflation and unemployment, but not in the long run. 
B)  no trade-off between inflation and unemployment, nor is there one in the long run. 
C)  a trade-off between inflation and unemployment, and in the long run also. 
D)  no trade-off between inflation and unemployment, but there is one in the long run also. 
A)  a trade-off between inflation and unemployment, but not in the long run. 
B)  no trade-off between inflation and unemployment, nor is there one in the long run. 
C)  a trade-off between inflation and unemployment, and in the long run also. 
D)  no trade-off between inflation and unemployment, but there is one in the long run also.

Question 18

One way in which the Phillips curve is misinterpreted is to think of it as

Accepted Answer

A)  a model of economic activity that explains changes in unemployment and inflation by changes in aggregate demand. 
B)  a statistical relationship between inflation and unemployment. 
C)  depicting a number of alternative equilibrium points the economy could achieve. 
D)  All of the above. 
A)  a model of economic activity that explains changes in unemployment and inflation by changes in aggregate demand. 
B)  a statistical relationship between inflation and unemployment. 
C)  depicting a number of alternative equilibrium points the economy could achieve. 
D)  All of the above.

Question 19

The rational expectations hypothesis is impeccably logical, but inconsistent with the facts.

Accepted Answer

A) True 
 B)False

Question 20

Most economists believe that the theory of rational expectations is

Accepted Answer

A)  more correct in the long run than the short run. 
B)  more correct in the short run than the long run. 
C)  correct in both the long run and short run. 
D)  incorrect because it is based on false logic. 
A)  more correct in the long run than the short run. 
B)  more correct in the short run than the long run. 
C)  correct in both the long run and short run. 
D)  incorrect because it is based on false logic.

Exam 34: The Trade-Off between Inflation and Unemployment

To make rational forecasts, your predictions do not have to be correct all of the time.

Fighting inflation by slowing the growth of aggregate demand is

Figure 17-5 -The data illustrated in Figure 17-5 would be most representative of which decade?

Figure 17-8 -In Figure 17-8, policy makers can choose any of the following points as sustainable inflation-unemployment combinations:

Fiscal and monetary policy can reduce unemployment with no negative side effects.

Figure 17-4 -Figure 17-4 shows four movements of the inflation rate and the unemployment rate.Which panel shows the movement associated with a "supply shock" like those of the 1970s?

Figure 17-8 -In Figure 17-8, which of the following movements illustrates the response of the economy to a stimulation of aggregate demand when workers systematically underpredict inflation?

If expectations are "rational," can the Fed control unemployment?

Which of the following could trigger demand-side inflation?

When the Phillips curve was first formulated (late 1960s), many economists thought that it showed a

According to the theory of rational expectations, errors in predicting inflation will

In 2010 the U.S.economy's inflation rate was higher than its unemployment rate.

Who gains if inflation turns out to be higher than expected: the lender or borrower? What happens if inflation turns out to be lower than expected?

If the economy in 34-6 (b) is experiencing an inflationary gap (point g), the economy's self-correcting process will move unemployment to ____ and inflation to ____.

Most economists think that the economy's self-correcting mechanism is

When deciding on an appropriate course of action to counter a recessionary gap, which of the following do policy makers consider?

Most economists think that, in the short run, there is

One way in which the Phillips curve is misinterpreted is to think of it as

The rational expectations hypothesis is impeccably logical, but inconsistent with the facts.

Most economists believe that the theory of rational expectations is

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

Filters

If the economy in 34-6 (b) is experiencing an inflationary gap (point g), the economy's self-correcting process will move unemployment to and inflation to .