Question 1

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 2

The main process by which a recessionary gap is eliminated is a(n)

Accepted Answer

A)  increase in wages that shifts the aggregate supply curve inward. 
B)  drop in wages that shifts the aggregate demand curve inward. 
C)  increase in wages that shifts the aggregate demand curve outward. 
D)  drop in wages that shifts the aggregate supply curve outward. 
A)  increase in wages that shifts the aggregate supply curve inward. 
B)  drop in wages that shifts the aggregate demand curve inward. 
C)  increase in wages that shifts the aggregate demand curve outward. 
D)  drop in wages that shifts the aggregate supply curve outward.

Question 3

Keynesian economists generally agree that unemployment is more costly than inflation.

Accepted Answer

A) True 
 B)False

Question 4

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 demand increases, then data would show the

Accepted Answer

A)  worst recession occurs when output expands most rapidly. 
B)  slowest inflation occurs when output expands most rapidly. 
C)  slowest economic growth occurs when output grows most rapidly. 
D)  most rapid inflation occurs when output expands most rapidly. 
A)  worst recession occurs when output expands most rapidly. 
B)  slowest inflation occurs when output expands most rapidly. 
C)  slowest economic growth occurs when output grows most rapidly. 
D)  most rapid inflation occurs when output expands most rapidly.

Question 5

Figure 33-6
 
The long-run Phillips curve in Figure 33-6 (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 6

Which of the following terms refers to provisions in a law or a contract whereby monetary payments are automatically adjusted whenever a specified price index changes?

Accepted Answer

A)  Contango 
B)  Swap 
C)  Averaging 
D)  Indexing 
A)  Contango 
B)  Swap 
C)  Averaging 
D)  Indexing

Question 7

If economic fluctuations originate on the supply side,

Accepted Answer

A)  there will be no relationship between unemployment and inflation. 
B)  real wage increases will be necessary to eliminate unemployment. 
C)  inflation and unemployment will be negatively related. 
D)  inflation and unemployment will be positively related. 
A)  there will be no relationship between unemployment and inflation. 
B)  real wage increases will be necessary to eliminate unemployment. 
C)  inflation and unemployment will be negatively related. 
D)  inflation and unemployment will be positively related.

Question 8

The economy's self-correcting mechanism ensures that neither recessionary nor inflationary gaps will be eliminated eventually.

Accepted Answer

A) True 
 B)False

Question 9

The economy's self-correcting mechanism tends to push the unemployment rate back to a specific rate of unemployment. How?

Accepted Answer

If the economy is facing a recessionary

Question 10

What reasons would economists give for an increase in the natural rate of unemployment that could have occurred from 2007 to 2011? What argument would suggest that the natural rate of unemployment may not have risen?

Accepted Answer

Some economists claimed that certain job

Question 11

If expectations are rational, forecasting errors are pure random numbers.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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 14

Aggregate demand grows because

Accepted Answer

A)  patent laws protect and stimulate new inventions. 
B)  there is more machinery and technology improvement. 
C)  the government increases its spending, a growing population increases consumer spending, and the Fed increases the money supply. 
D)  All of these responses are correct. 
A)  patent laws protect and stimulate new inventions. 
B)  there is more machinery and technology improvement. 
C)  the government increases its spending, a growing population increases consumer spending, and the Fed increases the money supply. 
D)  All of these responses are correct.

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

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 17

Contractual provisions based on indexing are also called

Accepted Answer

A)  withdrawal clauses. 
B)  swap clauses. 
C)  escalator clauses. 
D)  averaging clauses. 
A)  withdrawal clauses. 
B)  swap clauses. 
C)  escalator clauses. 
D)  averaging clauses.

Question 18

Adverse shocks such as the crop failures of 1972-1973 and the oil price increases of 1974 and 1979 pushed the economy's

Accepted Answer

A)  aggregate supply curve outward. 
B)  Phillips curve inward toward the origin. 
C)  aggregate supply curve inward. 
D)  aggregate demand curve inward. 
A)  aggregate supply curve outward. 
B)  Phillips curve inward toward the origin. 
C)  aggregate supply curve inward. 
D)  aggregate demand curve inward.

Question 19

Indexing seeks to reduce the social costs of inflation.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 33: The Trade-Off Between Inflation and Unemployment

Fighting inflation by slowing the growth of aggregate demand is

The main process by which a recessionary gap is eliminated is a(n)

Keynesian economists generally agree that unemployment is more costly than 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 demand increases, then data would show the

Figure 33-6 The long-run Phillips curve in Figure 33-6 (b) would include which of the following points?

Which of the following terms refers to provisions in a law or a contract whereby monetary payments are automatically adjusted whenever a specified price index changes?

If economic fluctuations originate on the supply side,

The economy's self-correcting mechanism ensures that neither recessionary nor inflationary gaps will be eliminated eventually.

The economy's self-correcting mechanism tends to push the unemployment rate back to a specific rate of unemployment. How?

What reasons would economists give for an increase in the natural rate of unemployment that could have occurred from 2007 to 2011? What argument would suggest that the natural rate of unemployment may not have risen?

If expectations are rational, forecasting errors are pure random numbers.

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

Which of the following could trigger demand-side inflation?

Aggregate demand grows because

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

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

Contractual provisions based on indexing are also called

Adverse shocks such as the crop failures of 1972-1973 and the oil price increases of 1974 and 1979 pushed the economy's

Indexing seeks to reduce the social costs of inflation.

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

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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 Us Economy

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