Question 1

Both classicals and Keynesians agree that policymakers

Accepted Answer

A) can exploit the Phillips curve in the short run. 
B) cannot exploit the Phillips curve in the short run. 
C) can keep the unemployment rate permanently below the natural rate by permanently running a high rate of inflation. 
D) cannot keep the unemployment rate permanently below the natural rate by permanently running a high rate of inflation. 
A) can exploit the Phillips curve in the short run. 
B) cannot exploit the Phillips curve in the short run. 
C) can keep the unemployment rate permanently below the natural rate by permanently running a high rate of inflation. 
D) cannot keep the unemployment rate permanently below the natural rate by permanently running a high rate of inflation.

Question 2

If nominal interest rates have a lower bound of zero and deflation occurs at 3% (i.e.,the inflation rate equals -3%,then the lowest real interest rate possible is

Accepted Answer

A) -3%. 
B) 0%. 
C) 3%. 
D) 6%. 
A) -3%. 
B) 0%. 
C) 3%. 
D) 6%.

Question 3

Many central banks around the world target an inflation rate of about ________,because of upward bias in measured inflation and to reduce the risk of deflation.

Accepted Answer

A) -2%. 
B) 0%. 
C) 2%. 
D) 5%. 
A) -2%. 
B) 0%. 
C) 2%. 
D) 5%.

Question 4

The Friedman-Phelps analysis shows that a negative relationship between inflation and unemployment holds

Accepted Answer

A) even when expected inflation changes. 
B) even when the natural rate of unemployment changes. 
C) even if both the expected inflation rate and the natural rate of unemployment change. 
D) as long as the expected inflation rate and the natural rate of unemployment are approximately constant. 
A) even when expected inflation changes. 
B) even when the natural rate of unemployment changes. 
C) even if both the expected inflation rate and the natural rate of unemployment change. 
D) as long as the expected inflation rate and the natural rate of unemployment are approximately constant.

Question 5

Based on the expectations-augmented Phillips curve,if the natural rate of unemployment is 0.06,and if the actual inflation rate exceeds the expected inflation rate,then the unemployment rate is

Accepted Answer

A) less than 0.06. 
B) 0)06. 
C) more than 0.06. 
D) 0)06 plus 0.5 times the difference between actual and expected inflation. 
A) less than 0.06. 
B) 0)06. 
C) more than 0.06. 
D) 0)06 plus 0.5 times the difference between actual and expected inflation.

Question 6

In the expectations-augmented Phillips curve,π = πe - 3(u - $ \bar u $ ).If π = 0.09 when πe = 0.06 and u = 0.06,then $ \bar u $=

Accepted Answer

A) 0)02. 
B) 0)03. 
C) 0)04. 
D) 0)05. 
A) 0)02. 
B) 0)03. 
C) 0)04. 
D) 0)05.

Question 7

Ball's research showed that the sacrifice ratio

Accepted Answer

A) was the same for all countries. 
B) was nearly zero for most countries. 
C) was about 10 for all countries except the United States, where it was about 2. 
D) varied considerably across countries. 
A) was the same for all countries. 
B) was nearly zero for most countries. 
C) was about 10 for all countries except the United States, where it was about 2. 
D) varied considerably across countries.

Question 8

Keynesian macroeconomists argue that the short-run Phillips curve ________ represent a usable trade-off for policymakers because ________.

Accepted Answer

A) does; prices are sticky 
B) does; prices are not sticky 
C) does not; prices are not sticky 
D) does not; prices are sticky 
A) does; prices are sticky 
B) does; prices are not sticky 
C) does not; prices are not sticky 
D) does not; prices are sticky

Question 9

If the expected rate of inflation rose at the same time the natural rate of unemployment rose,the short-run Phillips curve

Accepted Answer

A) would shift down. 
B) would shift up. 
C) would not move. 
D) might shift up or down or not move, depending on which effect was larger. 
A) would shift down. 
B) would shift up. 
C) would not move. 
D) might shift up or down or not move, depending on which effect was larger.

Question 10

Can macroeconomic policy be used systematically to create unanticipated inflation?

Accepted Answer

A) No, according to Keynesian economists. 
B) Yes, according to classical economists. 
C) No, according to classical economists. 
D) Yes, according to Keynesian economists, if Ricardian equivalence holds. 
A) No, according to Keynesian economists. 
B) Yes, according to classical economists. 
C) No, according to classical economists. 
D) Yes, according to Keynesian economists, if Ricardian equivalence holds.

Question 11

Unanticipated deflation can create unemployment if

Accepted Answer

A) nominal wages are sticky, causing real wages to rise over time. 
B) nominal wages are flexible, causing people's real incomes to decline. 
C) banks refuse to make loans at low nominal interest rates. 
D) nominal interest rates remain positive. 
A) nominal wages are sticky, causing real wages to rise over time. 
B) nominal wages are flexible, causing people's real incomes to decline. 
C) banks refuse to make loans at low nominal interest rates. 
D) nominal interest rates remain positive.

Question 12

Examining data on cyclical unemployment plotted against unanticipated inflation shows

Accepted Answer

A) a positive relationship. 
B) a negative relationship. 
C) no significant relationship. 
D) a relationship only during the 1960s. 
A) a positive relationship. 
B) a negative relationship. 
C) no significant relationship. 
D) a relationship only during the 1960s.

Question 13

In the extended classical model,an unexpected decrease in aggregate demand would cause unanticipated inflation to be ________ and cyclical unemployment to be ________.

Accepted Answer

A) positive; negative 
B) positive; positive 
C) negative; negative 
D) negative; positive 
A) positive; negative 
B) positive; positive 
C) negative; negative 
D) negative; positive

Question 14

If the expected inflation rate is unchanged,a fall in the natural rate of unemployment would

Accepted Answer

A) shift the short-run Phillips curve to the right. 
B) not shift the short-run Phillips curve. 
C) shift the short-run Phillips curve to the left. 
D) shift the short-run Phillips curve to the left and shift the long-run Phillips curve to the right. 
A) shift the short-run Phillips curve to the right. 
B) not shift the short-run Phillips curve. 
C) shift the short-run Phillips curve to the left. 
D) shift the short-run Phillips curve to the left and shift the long-run Phillips curve to the right.

Question 15

Consider the following misperceptions model of the economy.
AD: Y = 600 + 10(M/P)
SRAS: Y =  $ \bar{\gamma} $ + P - Pe
  $ \bar{\gamma} $ 
Okun's Law: (Y -  $ \bar{\gamma} $ )/  $ \bar{\gamma} $ = -2(u - $ \bar u $ )
Let  $ \bar{\gamma} $ = 750,= 0.05,M = 600,and Pe = 40.
(a)What is the price level?
(b)Suppose there is an unanticipated increase in the nominal money supply to 800.What is the short-run equilibrium level of output,the unemployment rate,and the price level?
(c)When price expectations adjust fully,what is the price level?

Accepted Answer

(a)40
(b)Y

Question 16

The costs of disinflation would be low if

Accepted Answer

A) expected inflation falls as inflation falls. 
B) wage and price controls were used. 
C) the Phillips curve were nearly horizontal. 
D) the Phillips curve adjusted slowly to changes in inflation. 
A) expected inflation falls as inflation falls. 
B) wage and price controls were used. 
C) the Phillips curve were nearly horizontal. 
D) the Phillips curve adjusted slowly to changes in inflation.

Question 17

Countries in which wages adjust rapidly to changes in the supply and demand for labor are likely to have ________ sacrifice ratio.

Accepted Answer

A) an infinite 
B) a high 
C) a low 
D) a negative 
A) an infinite 
B) a high 
C) a low 
D) a negative

Question 18

One reason for the fall in the natural rate of unemployment from 1980 to 2000 is

Accepted Answer

A) changes in the demographic composition of the work force. 
B) the decline in inflation. 
C) increased competition from foreign workers. 
D) the depreciation of the dollar relative to foreign currencies. 
A) changes in the demographic composition of the work force. 
B) the decline in inflation. 
C) increased competition from foreign workers. 
D) the depreciation of the dollar relative to foreign currencies.

Question 19

What are the pros and cons of using cold turkey disinflation compared to a policy of gradualism?

Accepted Answer

Cold turkey disinflation reduces inflati

Question 20

The Phillips curve is a negative empirical relationship between

Accepted Answer

A) bond prices and interest rates. 
B) unemployment and output. 
C) inflation and the real interest rate. 
D) unemployment and inflation. 
A) bond prices and interest rates. 
B) unemployment and output. 
C) inflation and the real interest rate. 
D) unemployment and inflation.

Both classicals and Keynesians agree that policymakers

If nominal interest rates have a lower bound of zero and deflation occurs at 3% (i.e.,the inflation rate equals -3%,then the lowest real interest rate possible is

Many central banks around the world target an inflation rate of about ________,because of upward bias in measured inflation and to reduce the risk of deflation.

The Friedman-Phelps analysis shows that a negative relationship between inflation and unemployment holds

Based on the expectations-augmented Phillips curve,if the natural rate of unemployment is 0.06,and if the actual inflation rate exceeds the expected inflation rate,then the unemployment rate is

In the expectations-augmented Phillips curve,π = π^e - 3(u - $\bar u$ ).If π = 0.09 when π^e = 0.06 and u = 0.06,then $\bar u$ =

Ball's research showed that the sacrifice ratio

Keynesian macroeconomists argue that the short-run Phillips curve represent a usable trade-off for policymakers because .

If the expected rate of inflation rose at the same time the natural rate of unemployment rose,the short-run Phillips curve

Can macroeconomic policy be used systematically to create unanticipated inflation?

Unanticipated deflation can create unemployment if

Examining data on cyclical unemployment plotted against unanticipated inflation shows

In the extended classical model,an unexpected decrease in aggregate demand would cause unanticipated inflation to be and cyclical unemployment to be .

If the expected inflation rate is unchanged,a fall in the natural rate of unemployment would

The costs of disinflation would be low if

Countries in which wages adjust rapidly to changes in the supply and demand for labor are likely to have ________ sacrifice ratio.

One reason for the fall in the natural rate of unemployment from 1980 to 2000 is

What are the pros and cons of using cold turkey disinflation compared to a policy of gradualism?

The Phillips curve is a negative empirical relationship between

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 12: Unemployment and Inflation

Both classicals and Keynesians agree that policymakers

If nominal interest rates have a lower bound of zero and deflation occurs at 3% (i.e.,the inflation rate equals -3%,then the lowest real interest rate possible is

Many central banks around the world target an inflation rate of about ________,because of upward bias in measured inflation and to reduce the risk of deflation.

The Friedman-Phelps analysis shows that a negative relationship between inflation and unemployment holds

Based on the expectations-augmented Phillips curve,if the natural rate of unemployment is 0.06,and if the actual inflation rate exceeds the expected inflation rate,then the unemployment rate is

In the expectations-augmented Phillips curve,π = πe - 3(u - uˉ \bar u uˉ ).If π = 0.09 when πe = 0.06 and u = 0.06,then uˉ \bar u uˉ =

Ball's research showed that the sacrifice ratio

Keynesian macroeconomists argue that the short-run Phillips curve ________ represent a usable trade-off for policymakers because ________.

If the expected rate of inflation rose at the same time the natural rate of unemployment rose,the short-run Phillips curve

Can macroeconomic policy be used systematically to create unanticipated inflation?

Unanticipated deflation can create unemployment if

Examining data on cyclical unemployment plotted against unanticipated inflation shows

In the extended classical model,an unexpected decrease in aggregate demand would cause unanticipated inflation to be ________ and cyclical unemployment to be ________.

If the expected inflation rate is unchanged,a fall in the natural rate of unemployment would

The costs of disinflation would be low if

Countries in which wages adjust rapidly to changes in the supply and demand for labor are likely to have ________ sacrifice ratio.

One reason for the fall in the natural rate of unemployment from 1980 to 2000 is

What are the pros and cons of using cold turkey disinflation compared to a policy of gradualism?

The Phillips curve is a negative empirical relationship between

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

In the expectations-augmented Phillips curve,π = π^e - 3(u - $\bar u$ ).If π = 0.09 when π^e = 0.06 and u = 0.06,then $\bar u$ =

Keynesian macroeconomists argue that the short-run Phillips curve represent a usable trade-off for policymakers because .

In the extended classical model,an unexpected decrease in aggregate demand would cause unanticipated inflation to be and cyclical unemployment to be .