Question 1

A decrease in AS will trigger less 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 2

Figure 17-8
  
-In Figure 17-8, which of the following points illustrate the expansionary monetary policies of the mid-1990s and the accompanying favorable supply shocks?

Accepted Answer

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

Question 3

If fluctuations in economic activity come from the supply side, higher inflation is associated with

Accepted Answer

A)  lower interest rates. 
B)  structural deficits. 
C)  higher rates of unemployment. 
D)  lower rates of unemployment. 
A)  lower interest rates. 
B)  structural deficits. 
C)  higher rates of unemployment. 
D)  lower rates of unemployment.

Question 4

If the favorable supply shocks of the 1990s were reversed in the future, we should expect a(n)

Accepted Answer

A)  increase in inflation and unemployment. 
B)  decrease in inflation and unemployment. 
C)  increase in inflation and a decrease in unemployment. 
D)  decrease in inflation and an increase in unemployment. 
A)  increase in inflation and unemployment. 
B)  decrease in inflation and unemployment. 
C)  increase in inflation and a decrease in unemployment. 
D)  decrease in inflation and an increase in unemployment.

Question 5

Demand-side inflation differs from supply-side inflation in the following way:

Accepted Answer

A)  demand-side inflation has higher output; supply-side inflation has lower output. 
B)  demand-side inflation has lower output; supply-side inflation has higher output. 
C)  demand-side inflation is always followed by stagflation; supply-side inflation is always followed by demand-side inflation. 
D)  demand-side inflation has a self-correcting mechanism; supply-side inflation does not. 
A)  demand-side inflation has higher output; supply-side inflation has lower output. 
B)  demand-side inflation has lower output; supply-side inflation has higher output. 
C)  demand-side inflation is always followed by stagflation; supply-side inflation is always followed by demand-side inflation. 
D)  demand-side inflation has a self-correcting mechanism; supply-side inflation does not.

Question 6

In the 1970s, why did the short-run Phillips curve fail to depict the unemployment-inflation trade-off?

Accepted Answer

The 1970s were affected by the twin OPEC

Question 7

Figure 17-6
  
-The long-run Phillips curve in Figure 17-6 (b) would include which of the following points?

Accepted Answer

A)  g, e, m 
B)  g, e, r 
C)  j, e, r 
D)  j, e, m 
A)  g, e, m 
B)  g, e, r 
C)  j, e, r 
D)  j, e, m

Question 8

The U.S.economy in the 1990s benefited from an aggregate supply curve shifting outward.

Accepted Answer

A) True 
 B)False

Question 9

If the short-run Phillips curve has a very flat slope, the

Accepted Answer

A)  structural deficit will grow during inflation. 
B)  structural deficit will fall during recession. 
C)  inflation costs of reducing unemployment are relatively low. 
D)  inflation costs of reducing unemployment are relatively high. 
A)  structural deficit will grow during inflation. 
B)  structural deficit will fall during recession. 
C)  inflation costs of reducing unemployment are relatively low. 
D)  inflation costs of reducing unemployment are relatively high.

Question 10

Stagflation can be defined as a situation characterized by

Accepted Answer

A)  rising prices and rising output. 
B)  rising prices and falling output. 
C)  falling prices and falling output. 
D)  falling prices and rising output. 
A)  rising prices and rising output. 
B)  rising prices and falling output. 
C)  falling prices and falling output. 
D)  falling prices and rising output.

Question 11

If strong fiscal policy stimulus is used to combat a recessionary 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 lower 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 lower unemployment and higher inflation 
D)  a slow movement toward lower unemployment and lower inflation.

Question 12

The period from the late 1990s to the winter of 2000 was marked by falling unemployment rates and falling inflation rates as well.How does economic theory explain this apparent violation of the Phillips curve model?

Accepted Answer

Just as the stagflation of the 1970s and

Question 13

If nominal wages increase at the same rate as inflation, then the aggregate supply curve will be a horizontal line.

Accepted Answer

A) True 
 B)False

Question 14

The economy's self-correcting mechanism

Accepted Answer

A)  tends to push unemployment toward a specific point called the natural rate of unemployment. 
B)  works better at correcting inflationary gaps than recessionary gaps. 
C)  cannot work if the Phillips curve is vertical. 
D)  ensures that the economy will not have to endure a long period of high unemployment. 
A)  tends to push unemployment toward a specific point called the natural rate of unemployment. 
B)  works better at correcting inflationary gaps than recessionary gaps. 
C)  cannot work if the Phillips curve is vertical. 
D)  ensures that the economy will not have to endure a long period of high unemployment.

Question 15

A movement from an upper point to a lower point on the Phillips curve shows

Accepted Answer

A)  decrease in the inflation and decrease in the unemployment. 
B)  increase in the inflation and decrease in the employment. 
C)  increase in the inflation and increase in the employment. 
D)  decrease in the inflation and increase in the unemployment. 
A)  decrease in the inflation and decrease in the unemployment. 
B)  increase in the inflation and decrease in the employment. 
C)  increase in the inflation and increase in the employment. 
D)  decrease in the inflation and increase in the unemployment.

Question 16

Policy makers who believe that the costs of unemployment are very high will tend to favor which of the following during a recessionary 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 17

What will tend to happen to wages if workers and employers foresee inflation?

Accepted Answer

A)  Both parties will seek to reduce nominal wages and therefore keep real wages the same. 
B)  Nominal wages will remain constant but real wages will increase to avoid the effects of inflation. 
C)  Inflation erodes purchasing power of workers, and real wages are unchanged. 
D)  Nominal wages will increase by an amount that keeps real wages constant. 
A)  Both parties will seek to reduce nominal wages and therefore keep real wages the same. 
B)  Nominal wages will remain constant but real wages will increase to avoid the effects of inflation. 
C)  Inflation erodes purchasing power of workers, and real wages are unchanged. 
D)  Nominal wages will increase by an amount that keeps real wages constant.

Question 18

Policies to lower the natural rate of unemployment include

Accepted Answer

A)  proposals to raise the minimum wage rate. 
B)  mandated prison sentences for drug dealers. 
C)  retraining programs and employment services. 
D)  changes in the tax laws. 
A)  proposals to raise the minimum wage rate. 
B)  mandated prison sentences for drug dealers. 
C)  retraining programs and employment services. 
D)  changes in the tax laws.

Question 19

If AS increases at a faster rate than AD, the result will be

Accepted Answer

A)  demand-side inflation. 
B)  supply-side inflation. 
C)  falling prices. 
D)  stable prices. 
A)  demand-side inflation. 
B)  supply-side inflation. 
C)  falling prices. 
D)  stable prices.

Question 20

Which of the following observations concerning the Phillips curve is not true?

Accepted Answer

A)  They are normally upward-sloping. 
B)  They are more commonly constructed for price inflation. 
C)  They depict the inverse relation between wage inflation and unemployment. 
D)  They depict the rate of unemployment on the horizontal axis. 
A)  They are normally upward-sloping. 
B)  They are more commonly constructed for price inflation. 
C)  They depict the inverse relation between wage inflation and unemployment. 
D)  They depict the rate of unemployment on the horizontal axis.

Exam 34: The Trade-Off between Inflation and Unemployment

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

Figure 17-8 -In Figure 17-8, which of the following points illustrate the expansionary monetary policies of the mid-1990s and the accompanying favorable supply shocks?

If fluctuations in economic activity come from the supply side, higher inflation is associated with

If the favorable supply shocks of the 1990s were reversed in the future, we should expect a(n)

Demand-side inflation differs from supply-side inflation in the following way:

In the 1970s, why did the short-run Phillips curve fail to depict the unemployment-inflation trade-off?

Figure 17-6 -The long-run Phillips curve in Figure 17-6 (b) would include which of the following points?

The U.S.economy in the 1990s benefited from an aggregate supply curve shifting outward.

If the short-run Phillips curve has a very flat slope, the

Stagflation can be defined as a situation characterized by

If strong fiscal policy stimulus is used to combat a recessionary gap, what will happen?

The period from the late 1990s to the winter of 2000 was marked by falling unemployment rates and falling inflation rates as well.How does economic theory explain this apparent violation of the Phillips curve model?

If nominal wages increase at the same rate as inflation, then the aggregate supply curve will be a horizontal line.

The economy's self-correcting mechanism

A movement from an upper point to a lower point on the Phillips curve shows

Policy makers who believe that the costs of unemployment are very high will tend to favor which of the following during a recessionary gap?

What will tend to happen to wages if workers and employers foresee inflation?

Policies to lower the natural rate of unemployment include

If AS increases at a faster rate than AD, the result will be

Which of the following observations concerning the Phillips curve is not true?

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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