Question 1

If policy makers do nothing in response to 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 2

European governments accepted prolonged periods of unemployment in the 1990s in order to reduce inflation.

Accepted Answer

A) True 
 B)False

Question 3

Most economists reject the theory of rational expectations because

Accepted Answer

A)  expectations adjust very quickly. 
B)  workers receive wage increases in advance of inflation. 
C)  the short-run aggregate supply curve is vertical. 
D)  labor contracts tend to embody past inflation rates. 
A)  expectations adjust very quickly. 
B)  workers receive wage increases in advance of inflation. 
C)  the short-run aggregate supply curve is vertical. 
D)  labor contracts tend to embody past inflation rates.

Question 4

Supply-side inflation will increase the price level and reduce real GDP.

Accepted Answer

A) True 
 B)False

Question 5

Figure 17-6
  
-The short-run Phillips curve in Figure 17-6 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 6

Figure 17-8
  
-In Figure 17-8, which of the following movements reflects the closing of a recessionary gap through the economy's self-correcting mechanism?

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 7

If the income tax system were indexed, a person whose nominal income went up from $30,000 to $33,000 in a year when the price index rose by 10 percent would pay

Accepted Answer

A)  no increases in nominal income taxes. 
B)  no increases in real income taxes. 
C)  lower taxes in both real and nominal terms. 
D)  higher taxes in both real and nominal terms. 
A)  no increases in nominal income taxes. 
B)  no increases in real income taxes. 
C)  lower taxes in both real and nominal terms. 
D)  higher taxes in both real and nominal terms.

Question 8

If expectations are rational,

Accepted Answer

A)  a predictable change in inflation can make the expected inflation rate deviate from the actual rate. 
B)  unemployment can exceed the full-employment rate even in the long run. 
C)  the difference between the actual inflation rate and the expected inflation rate must be a purely random number. 
D)  the inflation rate cannot be reduced without a period of high unemployment because the Phillips curve is downward sloping. 
A)  a predictable change in inflation can make the expected inflation rate deviate from the actual rate. 
B)  unemployment can exceed the full-employment rate even in the long run. 
C)  the difference between the actual inflation rate and the expected inflation rate must be a purely random number. 
D)  the inflation rate cannot be reduced without a period of high unemployment because the Phillips curve is downward sloping.

Question 9

A reduction in aggregate demand will normally reduce

Accepted Answer

A)  prices. 
B)  real GDP. 
C)  employment. 
D)  All of the above are correct. 
A)  prices. 
B)  real GDP. 
C)  employment. 
D)  All of the above are correct.

Question 10

If employees and employers always accurately predict inflation, what is the shape of the Phillips 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 downward 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 downward sloping in the short run and vertical in the long run.

Question 11

Figure 17-4
  
-Which panel in Figure 17-4 shows the movement associated with a demand-side inflation?

Accepted Answer

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

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 supply 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

Figure 17-4
  
-Which panel in Figure 17-4 shows the movement associated with the supply-side changes of the 1990s?

Accepted Answer

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

Question 14

One piece of evidence that business fluctuations are caused by demand-side changes would be that

Accepted Answer

A)  monetary and fiscal policy will move inversely. 
B)  interest rates and budget deficits will move inversely. 
C)  unemployment and inflation will move inversely. 
D)  unemployment and budget deficits will move inversely. 
A)  monetary and fiscal policy will move inversely. 
B)  interest rates and budget deficits will move inversely. 
C)  unemployment and inflation will move inversely. 
D)  unemployment and budget deficits will move inversely.

Question 15

Opponents of indexing fear that it will lead to a(n)

Accepted Answer

A)  acceleration of inflation. 
B)  abrupt reduction of the money supply. 
C)  shortfall of tax revenues, and increased budget deficits. 
D)  unfair wealth transfer to debtors. 
A)  acceleration of inflation. 
B)  abrupt reduction of the money supply. 
C)  shortfall of tax revenues, and increased budget deficits. 
D)  unfair wealth transfer to debtors.

Question 16

If workers always see inflation coming, and if they demand wage increases in advance so that inflation does not erode real wages, then the economy's aggregate supply curve on the AD-AS diagram will

Accepted Answer

A)  be a vertical line corresponding to potential GDP. 
B)  be a horizontal line corresponding to potential GDP. 
C)  slope downward. 
D)  slope upward. 
A)  be a vertical line corresponding to potential GDP. 
B)  be a horizontal line corresponding to potential GDP. 
C)  slope downward. 
D)  slope upward.

Question 17

An example of indexing is a "cost of living" adjustment clause in a wage contract.

Accepted Answer

A) True 
 B)False

Question 18

Some economists argue that there is no such thing as a short-run Phillips curve.Who are these economists and what is their argument?

Accepted Answer

The theory of rational expectations disa

Question 19

One explanation for the increase in the natural rate of unemployment in 2010 was a mismatch between the skills of the American labor force and the skills that the modern job market demanded.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following led to the collapse of the Phillips Curve?

Accepted Answer

A)  Rightward shift in the demand for labor curve 
B)  Leftward shift of the Phillips curve 
C)  Leftward shift of the aggregate supply curve 
D)  Rightward shift of the aggregate demand curve. 
A)  Rightward shift in the demand for labor curve 
B)  Leftward shift of the Phillips curve 
C)  Leftward shift of the aggregate supply curve 
D)  Rightward shift of the aggregate demand curve.

Exam 34: The Trade-Off between Inflation and Unemployment

If policy makers do nothing in response to a recessionary gap, what will happen?

European governments accepted prolonged periods of unemployment in the 1990s in order to reduce inflation.

Most economists reject the theory of rational expectations because

Supply-side inflation will increase the price level and reduce real GDP.

Figure 17-6 -The short-run Phillips curve in Figure 17-6 would include which of the following points?

Figure 17-8 -In Figure 17-8, which of the following movements reflects the closing of a recessionary gap through the economy's self-correcting mechanism?

If the income tax system were indexed, a person whose nominal income went up from $30,000 to $33,000 in a year when the price index rose by 10 percent would pay

If expectations are rational,

A reduction in aggregate demand will normally reduce

If employees and employers always accurately predict inflation, what is the shape of the Phillips curve?

Figure 17-4 -Which panel in Figure 17-4 shows the movement associated with a demand-side inflation?

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 supply increases, then data would show

Figure 17-4 -Which panel in Figure 17-4 shows the movement associated with the supply-side changes of the 1990s?

One piece of evidence that business fluctuations are caused by demand-side changes would be that

Opponents of indexing fear that it will lead to a(n)

If workers always see inflation coming, and if they demand wage increases in advance so that inflation does not erode real wages, then the economy's aggregate supply curve on the AD-AS diagram will

An example of indexing is a "cost of living" adjustment clause in a wage contract.

Some economists argue that there is no such thing as a short-run Phillips curve.Who are these economists and what is their argument?

One explanation for the increase in the natural rate of unemployment in 2010 was a mismatch between the skills of the American labor force and the skills that the modern job market demanded.

Which of the following led to the collapse of the Phillips Curve?

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