Question 1

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 2

The Phillips curve shows the relationship between

Accepted Answer

A)  the rate of inflation and the rate of unemployment. 
B)  the rate of growth of real GDP and the rate of unemployment. 
C)  real prices and real GDP. 
D)  the rate of inflation and the rate of growth of real GDP. 
A)  the rate of inflation and the rate of unemployment. 
B)  the rate of growth of real GDP and the rate of unemployment. 
C)  real prices and real GDP. 
D)  the rate of inflation and the rate of growth of real GDP.

Question 3

What is the effect of supply-side inflation on the short-run Phillips curve?

Accepted Answer

The short-run Phillips curve is drawn on

Question 4

At the natural rate of unemployment, the long-run Phillips curve has a(n)

Accepted Answer

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

Question 5

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 6

Figure 33-8
 
In Figure 33-8, which of the following movements illustrates the response of the economy to a stimulation of aggregate demand when workers systematically underpredict inflation?

Accepted Answer

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

Question 7

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 8

If you believe that expectations react quickly, you are likely a

Accepted Answer

A)  believer in rational expectations. 
B)  Keynesian. 
C)  theoretical economist. 
D)  None of the above is correct. 
A)  believer in rational expectations. 
B)  Keynesian. 
C)  theoretical economist. 
D)  None of the above is correct.

Question 9

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 10

If AD and AS increase at exactly the same rate, 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 11

Politicians and economists who are generally conservative tend to believe that

Accepted Answer

A)  the self-correcting mechanism is slow and unpredictable. 
B)  the short-run Phillips curve is relatively steep. 
C)  the costs of unemployment are high. 
D)  expectations in reaction to policy measures are very slow to change. 
A)  the self-correcting mechanism is slow and unpredictable. 
B)  the short-run Phillips curve is relatively steep. 
C)  the costs of unemployment are high. 
D)  expectations in reaction to policy measures are very slow to change.

Question 12

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 13

Most economists now agree that the Phillips curve demonstrates that there is

Accepted Answer

A)  an unemployment-inflation trade-off in the long run, but not in the short run. 
B)  an unemployment-inflation trade-off in both the short run and the long run. 
C)  an unemployment-inflation trade-off in the short run, but not the long run 
D)  no unemployment-inflation trade-off in either the short run or the long run. 
A)  an unemployment-inflation trade-off in the long run, but not in the short run. 
B)  an unemployment-inflation trade-off in both the short run and the long run. 
C)  an unemployment-inflation trade-off in the short run, but not the long run 
D)  no unemployment-inflation trade-off in either the short run or the long run.

Question 14

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 15

One of the reasons why the Phillips curve is no longer viewed as a "menu" of possible choices available to policymakers is that

Accepted Answer

A)  in the 1970s and 1980s there was no inflation at all. 
B)  analysis indicates there was no such "menu" in the 1960s. 
C)  in the 1970s and 1980s much inflation came from the supply side. 
D)  economic theory is unable to explain the curve and, therefore, it has been rejected. 
A)  in the 1970s and 1980s there was no inflation at all. 
B)  analysis indicates there was no such "menu" in the 1960s. 
C)  in the 1970s and 1980s much inflation came from the supply side. 
D)  economic theory is unable to explain the curve and, therefore, it has been rejected.

Question 16

Figure 33-8
 
In Figure 33-8, which of the following movements reflects the Fed's anti-inflationary policy of the early 1980s and the following market adjustment?

Accepted Answer

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

Question 17

An increase in AD 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 18

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 19

Who gains if inflation turns out to be higher than expected: the lender or borrower? What happens if inflation turns out to be lower than expected?

Accepted Answer

Borrowers and lenders normally incorpora

Question 20

Figure 33-8
 
In Figure 33-8, which of the following movements illustrates the response of the economy to an increase in aggregate demand when expectations are "rational"?

Accepted Answer

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

Exam 33: The Trade-Off Between Inflation and Unemployment

In the rational expectations model, government control over aggregate demand

The Phillips curve shows the relationship between

What is the effect of supply-side inflation on the short-run Phillips curve?

At the natural rate of unemployment, the long-run Phillips curve has a(n)

Demand-side inflation is normally accompanied by

Figure 33-8 In Figure 33-8, which of the following movements illustrates the response of the economy to a stimulation of aggregate demand when workers systematically underpredict inflation?

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

If you believe that expectations react quickly, you are likely a

One reason why the Phillips curve "broke down" is

If AD and AS increase at exactly the same rate, the result will be

Politicians and economists who are generally conservative tend to believe that

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

Most economists now agree that the Phillips curve demonstrates that there is

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

One of the reasons why the Phillips curve is no longer viewed as a "menu" of possible choices available to policymakers is that

Figure 33-8 In Figure 33-8, which of the following movements reflects the Fed's anti-inflationary policy of the early 1980s and the following market adjustment?

An increase in AD will trigger less inflation under which of the following conditions?

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

Who gains if inflation turns out to be higher than expected: the lender or borrower? What happens if inflation turns out to be lower than expected?

Figure 33-8 In Figure 33-8, which of the following movements illustrates the response of the economy to an increase in aggregate demand when expectations are "rational"?

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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