Question 1

The government can fight inflation by manipulating both aggregate demand and aggregate supply.

Accepted Answer

A) True 
 B)False

Question 2

Figure 17-5
  
-Over a five-year period, economists observed that the unemployment-inflation relationship appeared as in Figure 17-5.Economic theory would conclude that the period

Accepted Answer

A)  was dominated by supply shocks such as increased energy and food costs. 
B)  was affected by both supply and demand shocks, with demand shocks dominating. 
C)  was dominated by demand-side changes. 
D)  cannot be explained because the relationship is the opposite of what the Phillips curve would predict. 
A)  was dominated by supply shocks such as increased energy and food costs. 
B)  was affected by both supply and demand shocks, with demand shocks dominating. 
C)  was dominated by demand-side changes. 
D)  cannot be explained because the relationship is the opposite of what the Phillips curve would predict.

Question 3

If actual inflation differs from expected inflation, what is the slope of the aggregate supply curve?

Accepted Answer

A)  It is horizontal in the short and long run. 
B)  It is vertical in the short and long run. 
C)  It is vertical in the short run and upward sloping in the long run. 
D)  It is upward sloping in the short run and vertical in the long run. 
A)  It is horizontal in the short and long run. 
B)  It is vertical in the short and long run. 
C)  It is vertical in the short run and upward sloping in the long run. 
D)  It is upward sloping in the short run and vertical in the long run.

Question 4

One reason why the Phillips curve "broke down" is

Accepted Answer

A)  most of the inflation of the 1970s was from the demand side. 
B)  most of the inflation of the 1970s was from the supply side. 
C)  the inflation of the 1970s was foreseen, unlike the inflation of the 1980s. 
D)  the inflation of the 1970s was purely random and could not be explained with economic theory. 
A)  most of the inflation of the 1970s was from the demand side. 
B)  most of the inflation of the 1970s was from the supply side. 
C)  the inflation of the 1970s was foreseen, unlike the inflation of the 1980s. 
D)  the inflation of the 1970s was purely random and could not be explained with economic theory.

Question 5

Figure 17-3
  
-Given the situation in graph (1) in Figure 17-3, 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 6

The Keynesian view of the world is that the

Accepted Answer

A)  self-correcting mechanism is unreliable. 
B)  benefits of fighting unemployment are high and the costs are low. 
C)  short-run Phillips curve is relatively flat. 
D)  All of the above are correct. 
A)  self-correcting mechanism is unreliable. 
B)  benefits of fighting unemployment are high and the costs are low. 
C)  short-run Phillips curve is relatively flat. 
D)  All of the above are correct.

Question 7

If expectations are rational, the difference between the actual rate of inflation and the expected rate of inflation will be zero.

Accepted Answer

A) True 
 B)False

Question 8

If inflationary expectations are quite sluggish (that is, they do not adapt quickly), then the short-run Phillips curve will

Accepted Answer

A)  be vertical. 
B)  be horizontal. 
C)  slope downward. 
D)  slope upward. 
A)  be vertical. 
B)  be horizontal. 
C)  slope downward. 
D)  slope upward.

Question 9

The unemployment rate was increasing from 6 percent to 7 percent could be interpreted as an increase in the natural rate of

Accepted Answer

A)  inflation. 
B)  unemployment. 
C)  economic growth. 
D)  aggregate supply. 
A)  inflation. 
B)  unemployment. 
C)  economic growth. 
D)  aggregate supply.

Question 10

Figure 17-8
  
-In Figure 17-8, the aggregate supply curve is shifting inward as we move from

Accepted Answer

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

Question 11

Which of the following is most likely to result in inflation?

Accepted Answer

A)  Aggregate demand and aggregate supply grow at the same rate. 
B)  Neither aggregate demand nor aggregate supply grows at all. 
C)  Aggregate supply grows more rapidly than aggregate demand. 
D)  Aggregate demand grows more rapidly than aggregate supply. 
A)  Aggregate demand and aggregate supply grow at the same rate. 
B)  Neither aggregate demand nor aggregate supply grows at all. 
C)  Aggregate supply grows more rapidly than aggregate demand. 
D)  Aggregate demand grows more rapidly than aggregate supply.

Question 12

Demand-side inflation is normally accompanied by

Accepted Answer

A)  falling real GDP, while supply-side inflation may be accompanied by rising real GDP. 
B)  falling real GDP; the same is true of supply-side inflation. 
C)  rising real GDP, while supply-side inflation may be accompanied by falling real GDP. 
D)  rising real GDP; the same is true of supply-side inflation. 
A)  falling real GDP, while supply-side inflation may be accompanied by rising real GDP. 
B)  falling real GDP; the same is true of supply-side inflation. 
C)  rising real GDP, while supply-side inflation may be accompanied by falling real GDP. 
D)  rising real GDP; the same is true of supply-side inflation.

Question 13

If policy makers do nothing in response to an inflationary gap, what will happen?

Accepted Answer

A)  a rapid movement toward lower unemployment and higher inflation 
B)  a rapid movement toward lower unemployment and lower inflation 
C)  a slow movement toward higher unemployment and higher inflation 
D)  a slow movement toward lower unemployment and lower inflation 
A)  a rapid movement toward lower unemployment and higher inflation 
B)  a rapid movement toward lower unemployment and lower inflation 
C)  a slow movement toward higher unemployment and higher inflation 
D)  a slow movement toward lower unemployment and lower inflation

Question 14

Figure 17-8
  
-In Figure 17-8, which of the following points cannot be observed in the long run?

Accepted Answer

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

Question 15

Figure 17-8
  
-In Figure 17-8, which of the following movements reflects the closing of a recessionary gap with an expansionary monetary and fiscal policy?

Accepted Answer

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

Question 16

Figure 17-8
  
-In Figure 17-8, which of the following movements would you associate with a "negative supply shock"?

Accepted Answer

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

Question 17

If unemployment and inflation move inversely, then we can infer that business fluctuations are

Accepted Answer

A)  from the demand side. 
B)  from the supply side. 
C)  from both the demand and supply side. 
D)  purely random events. 
A)  from the demand side. 
B)  from the supply side. 
C)  from both the demand and supply side. 
D)  purely random events.

Question 18

Most economists agree that the self-correcting mechanism works

Accepted Answer

A)  very slowly. 
B)  very rapidly. 
C)  rapidly in the short run and slowly in the long run. 
D)  slowly in the short run and rapidly in the long run. 
A)  very slowly. 
B)  very rapidly. 
C)  rapidly in the short run and slowly in the long run. 
D)  slowly in the short run and rapidly in the long run.

Question 19

The suggestion that the Fed concentrate only on reducing inflation is an attempt to

Accepted Answer

A)  stabilize the level of unemployment and inflation. 
B)  shift the long-run Phillips curve to the right. 
C)  improve the efficiency of the self-correcting mechanism. 
D)  simplify demand management by focusing on only one goal. 
A)  stabilize the level of unemployment and inflation. 
B)  shift the long-run Phillips curve to the right. 
C)  improve the efficiency of the self-correcting mechanism. 
D)  simplify demand management by focusing on only one goal.

Question 20

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

Accepted Answer

A)  an increase in aggregate demand 
B)  a decrease in aggregate demand 
C)  an increase in aggregate supply 
D)  a decrease in aggregate supply 
A)  an increase in aggregate demand 
B)  a decrease in aggregate demand 
C)  an increase in aggregate supply 
D)  a decrease in aggregate supply

Exam 34: The Trade-Off between Inflation and Unemployment

The government can fight inflation by manipulating both aggregate demand and aggregate supply.

Figure 17-5 -Over a five-year period, economists observed that the unemployment-inflation relationship appeared as in Figure 17-5.Economic theory would conclude that the period

If actual inflation differs from expected inflation, what is the slope of the aggregate supply curve?

One reason why the Phillips curve "broke down" is

Figure 17-3 -Given the situation in graph (1) in Figure 17-3, what movement would be expected in graph (2) from the economy's self-correcting mechanism?

The Keynesian view of the world is that the

If expectations are rational, the difference between the actual rate of inflation and the expected rate of inflation will be zero.

If inflationary expectations are quite sluggish (that is, they do not adapt quickly), then the short-run Phillips curve will

The unemployment rate was increasing from 6 percent to 7 percent could be interpreted as an increase in the natural rate of

Figure 17-8 -In Figure 17-8, the aggregate supply curve is shifting inward as we move from

Which of the following is most likely to result in inflation?

Demand-side inflation is normally accompanied by

If policy makers do nothing in response to an inflationary gap, what will happen?

Figure 17-8 -In Figure 17-8, which of the following points cannot be observed in the long run?

Figure 17-8 -In Figure 17-8, which of the following movements reflects the closing of a recessionary gap with an expansionary monetary and fiscal policy?

Figure 17-8 -In Figure 17-8, which of the following movements would you associate with a "negative supply shock"?

If unemployment and inflation move inversely, then we can infer that business fluctuations are

Most economists agree that the self-correcting mechanism works

The suggestion that the Fed concentrate only on reducing inflation is an attempt to

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

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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