Question 1

There is no long-run trade-off between inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 2

The intent of indexing is to

Accepted Answer

A)  raise tax revenue automatically during inflation. 
B)  shift the short-run Phillips curve to the right. 
C)  take most of the sting out of inflation. 
D)  reduce inflation gradually. 
A)  raise tax revenue automatically during inflation. 
B)  shift the short-run Phillips curve to the right. 
C)  take most of the sting out of inflation. 
D)  reduce inflation gradually.

Question 3

The unemployment rate was increasing from 6 percent to 7 percent could be interpreted as an increase in the natural rate of

Accepted Answer

A)  inflation. 
B)  unemployment. 
C)  economic growth. 
D)  aggregate supply. 
A)  inflation. 
B)  unemployment. 
C)  economic growth. 
D)  aggregate supply.

Question 4

If workers expect inflation, and tend to overestimate actual inflation when they negotiate wage increases, the result will be a continuing

Accepted Answer

A)  shift of AD to the left. 
B)  shift of AD to the right. 
C)  recessionary gap. 
D)  inflationary gap. 
A)  shift of AD to the left. 
B)  shift of AD to the right. 
C)  recessionary gap. 
D)  inflationary gap.

Question 5

Most economists agree that the self-correcting mechanism works

Accepted Answer

A)  very slowly. 
B)  very rapidly. 
C)  rapidly in the short run and slowly in the long run. 
D)  slowly in the short run and rapidly in the long run. 
A)  very slowly. 
B)  very rapidly. 
C)  rapidly in the short run and slowly in the long run. 
D)  slowly in the short run and rapidly in the long run.

Question 6

Most economists today believe that the Phillips curve is

Accepted Answer

A)  vertical in the short run but downward sloping in the long run. 
B)  upward sloping in the short run but vertical in the long run. 
C)  downward sloping in the short run but vertical in the long run. 
D)  vertical in the short run but upward sloping in the long run. 
A)  vertical in the short run but downward sloping in the long run. 
B)  upward sloping in the short run but vertical in the long run. 
C)  downward sloping in the short run but vertical in the long run. 
D)  vertical in the short run but upward sloping in the long run.

Question 7

Figure 33-7
 
In Figure 33-7, the case for expansionary monetary policy and fiscal policy is strongest at point

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
A)  A. 
B)  B. 
C)  C. 
D)  D.

Question 8

To make rational forecasts, your predictions do not have to be correct all of the time.

Accepted Answer

A) True 
 B)False

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

The most extensive indexing in the United States is in

Accepted Answer

A)  interest payments on bonds or savings accounts. 
B)  government transfer payments, including Social Security benefits. 
C)  government contracts for military goods. 
D)  escalator clauses in wage and salary contracts. 
A)  interest payments on bonds or savings accounts. 
B)  government transfer payments, including Social Security benefits. 
C)  government contracts for military goods. 
D)  escalator clauses in wage and salary contracts.

Question 11

A nonpolicy reason for the reduction in the natural rate of unemployment is the

Accepted Answer

A)  expansionary nature of monetary policy. 
B)  aging of the U.S. labor force. 
C)  decline in interest rates. 
D)  growing federal budget surplus. 
A)  expansionary nature of monetary policy. 
B)  aging of the U.S. labor force. 
C)  decline in interest rates. 
D)  growing federal budget surplus.

Question 12

Figure 33-8
 
In Figure 33-8, which of the following movements reflects the closing of a recessionary gap with an expansionary monetary and fiscal policy?

Accepted Answer

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

Question 13

A decrease in the price of foreign oil will affect the U.S. economy by

Accepted Answer

A)  increasing aggregate demand. 
B)  decreasing aggregate demand. 
C)  increasing aggregate supply. 
D)  decreasing aggregate supply. 
A)  increasing aggregate demand. 
B)  decreasing aggregate demand. 
C)  increasing aggregate supply. 
D)  decreasing aggregate supply.

Question 14

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 15

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 16

Figure 33-7
 
In Figure 33-7, the only sustainable long-run equilibrium position is at point

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
A)  A. 
B)  B. 
C)  C. 
D)  D.

Question 17

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 18

Figure 33-8
 
In Figure 33-8, policymakers can choose which of the following points as sustainable inflation-unemployment combinations?

Accepted Answer

A)  Only E 
B)  A or B 
C)  A, B, C, D, E 
D)  B, E, C 
A)  Only E 
B)  A or B 
C)  A, B, C, D, E 
D)  B, E, C

Question 19

The proposition that the Fed should concentrate on price stability rather than reducing unemployment is

Accepted Answer

A)  generally accepted by politicians, although few economists accept this proposal. 
B)  largely accepted by most economists, although politicians do not agree. 
C)  highly debatable because many do not agree that price stability should be the most important goal. 
D)  simply incorrect, and no one accepts this idea anymore. 
A)  generally accepted by politicians, although few economists accept this proposal. 
B)  largely accepted by most economists, although politicians do not agree. 
C)  highly debatable because many do not agree that price stability should be the most important goal. 
D)  simply incorrect, and no one accepts this idea anymore.

Question 20

If policymakers 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

Exam 33: The Trade-Off Between Inflation and Unemployment

There is no long-run trade-off between inflation and unemployment.

The intent of indexing is to

The unemployment rate was increasing from 6 percent to 7 percent could be interpreted as an increase in the natural rate of

If workers expect inflation, and tend to overestimate actual inflation when they negotiate wage increases, the result will be a continuing

Most economists agree that the self-correcting mechanism works

Most economists today believe that the Phillips curve is

Figure 33-7 In Figure 33-7, the case for expansionary monetary policy and fiscal policy is strongest at point

To make rational forecasts, your predictions do not have to be correct all of the time.

Most economists believe that the theory of rational expectations is

The most extensive indexing in the United States is in

A nonpolicy reason for the reduction in the natural rate of unemployment is the

Figure 33-8 In Figure 33-8, which of the following movements reflects the closing of a recessionary gap with an expansionary monetary and fiscal policy?

A decrease in the price of foreign oil will affect the U.S. economy by

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.

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

Figure 33-7 In Figure 33-7, the only sustainable long-run equilibrium position is at point

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

Figure 33-8 In Figure 33-8, policymakers can choose which of the following points as sustainable inflation-unemployment combinations?

The proposition that the Fed should concentrate on price stability rather than reducing unemployment is

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

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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