Question 1

According to the theory of rational expectations, the government can influence output

Accepted Answer

A) with appropriate fiscal and monetary policy. 
B) in the short run, but not in the long run. 
C) without affecting the price level. 
D) only by making unexpected changes in aggregate demand. 
A) with appropriate fiscal and monetary policy. 
B) in the short run, but not in the long run. 
C) without affecting the price level. 
D) only by making unexpected changes in aggregate demand.

Question 2

The short-run relationship between inflation and unemployment is often called as the Phillips curve.

Accepted Answer

A) True 
 B)False

Question 3

Figure 33-2
​  
-Given the situation in graph (1) in Figure 33-2, 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 4

The economy's self-correcting mechanism refers to the way money wages react to either a recessionary gap or an inflationary gap.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

In the rational expectations model, government control over aggregate demand

Accepted Answer

A) can affect real output only if policies are unexpected. 
B) has potential to change real output as long as aggregate supply is vertical. 
C) gives it the ability to change real output and employment. 
D) does not influence the economic behavior of individuals. 
A) can affect real output only if policies are unexpected. 
B) has potential to change real output as long as aggregate supply is vertical. 
C) gives it the ability to change real output and employment. 
D) does not influence the economic behavior of individuals.

Question 8

Which of the following is most likely to lead to demand-side inflation?

Accepted Answer

A) An increase in government spending 
B) A decrease in taxes 
C) An increase in the money supply 
D) All of these responses are correct. 
A) An increase in government spending 
B) A decrease in taxes 
C) An increase in the money supply 
D) All of these responses are correct.

Question 9

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.

Question 10

An economy eliminates a recessionary gap by reducing wages and prices.

Accepted Answer

A) True 
 B)False

Question 11

When deciding on an appropriate course of action to counter a recessionary gap, which of the following do policymakers 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 these responses 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 these responses are correct.

Question 12

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 13

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 14

Natural rate of unemployment is the normal rate of unemployment toward which the economy gravitates.

Accepted Answer

A) True 
 B)False

Question 15

During the 1960s and early 1970s, economists believed that the Phillips curve indicated

Accepted Answer

A) that higher inflation was the price for more unemployment. 
B) that higher levels of employment could be achieved with lower inflation. 
C) a menu of choices for policymakers. 
D) All of these responses are correct. 
A) that higher inflation was the price for more unemployment. 
B) that higher levels of employment could be achieved with lower inflation. 
C) a menu of choices for policymakers. 
D) All of these responses are correct.

Question 16

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 policymakers. 
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 policymakers. 
C) guide to the appropriate mix of fiscal and monetary policy. 
D) guide of political reactions to economic policy.

Question 17

Figure 33-8
​  
-In Figure 33-8, 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 18

Figure 33-4
​  
-Which panel in Figure 33-4 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 19

In the fall of 2007, most economists felt that the

Accepted Answer

A) unemployment was at the natural rate. 
B) unemployment rate was below the natural rate. 
C) inflation rate was above the natural rate. 
D) inflation rate was below the natural rate. 
A) unemployment was at the natural rate. 
B) unemployment rate was below the natural rate. 
C) inflation rate was above the natural rate. 
D) inflation rate was below the natural rate.

Question 20

Restricting demand will lower inflation but

Accepted Answer

A) aggravate the unemployment problem. 
B) reduce the unemployment rate. 
C) have no impact on the unemployment rate. 
D) None of the above is correct. 
A) aggravate the unemployment problem. 
B) reduce the unemployment rate. 
C) have no impact on the unemployment rate. 
D) None of the above is correct.

Exam 33: The Trade-Off Between Inflation and Unemployment

According to the theory of rational expectations, the government can influence output

The short-run relationship between inflation and unemployment is often called as the Phillips curve.

Figure 33-2 ​ -Given the situation in graph (1) in Figure 33-2, what movement would be expected in graph (2) from the economy's self-correcting mechanism?

The economy's self-correcting mechanism refers to the way money wages react to either a recessionary gap or an inflationary gap.

Policies to lower the natural rate of unemployment include

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

In the rational expectations model, government control over aggregate demand

Which of the following is most likely to lead to demand-side inflation?

Most economists believe that the theory of rational expectations is

An economy eliminates a recessionary gap by reducing wages and prices.

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

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

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

Natural rate of unemployment is the normal rate of unemployment toward which the economy gravitates.

During the 1960s and early 1970s, economists believed that the Phillips curve indicated

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

Figure 33-8 ​ -In Figure 33-8, which of the following points cannot be observed in the long run?

Figure 33-4 ​ -Which panel in Figure 33-4 shows the movement associated with a demand-side inflation?

In the fall of 2007, most economists felt that the

Restricting demand will lower inflation but

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

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Figure 33-2 -Given the situation in graph (1) in Figure 33-2, what movement would be expected in graph (2) from the economy's self-correcting mechanism?

Figure 33-8 -In Figure 33-8, which of the following points cannot be observed in the long run?

Figure 33-4 -Which panel in Figure 33-4 shows the movement associated with a demand-side inflation?