Question 1

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 2

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 3

A Keynesian economist would propose strong actions to prevent or reduce inflation.

Accepted Answer

A) True 
 B)False

Question 4

The supply-side shocks of the 1970s shifted the aggregate supply curve inward.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Empirical research suggests that the steepness of the aggregate supply curve depends on the

Accepted Answer

A) size of the multiplier. 
B) interest rate. 
C) level of wage rate. 
D) amount of excess capacity in the economy. 
A) size of the multiplier. 
B) interest rate. 
C) level of wage rate. 
D) amount of excess capacity in the economy.

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 the above are correct. 
A) an increase in government spending 
B) a decrease in taxes 
C) an increase in the money supply 
D) All of the above are correct.

Question 8

Figure 17-4
  
-Figure 17-4 shows four movements of the inflation rate and the unemployment rate.Which panel shows the movement associated with a "supply shock" like those of the 1970s?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 9

A vocal minority of economists, believers in the theory of rational expectations, insist that

Accepted Answer

A) the Phillips curve is downward sloping even in the short run. 
B) the Phillips curve is vertical even in the short run. 
C) a trade-off exists between inflation and unemployment even in the long run. 
D) expansionary fiscal and monetary policy can reduce unemployment without creating inflation. 
A) the Phillips curve is downward sloping even in the short run. 
B) the Phillips curve is vertical even in the short run. 
C) a trade-off exists between inflation and unemployment even in the long run. 
D) expansionary fiscal and monetary policy can reduce unemployment without creating inflation.

Question 10

Many economists think that, in the long run, the Phillips curve is

Accepted Answer

A) a horizontal line. 
B) a vertical line. 
C) the same as the short-run curve. 
D) a 45-degree line from the origin. 
A) a horizontal line. 
B) a vertical line. 
C) the same as the short-run curve. 
D) a 45-degree line from the origin.

Question 11

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 12

Figure 17-7
  
-In Figure 17-7, 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 13

Some economists argue that there is no such thing as a short-run Phillips curve.Who are these economists and what is their argument?

Accepted Answer

The theory of rational expectations disa

Question 14

Demand-side inflation is usually accompanied by increasing real GDP, while supply-side inflation is usually accompanied by falling real GDP.

Accepted Answer

A) True 
 B)False

Question 15

Describe three arguments of why some economists object to the predictions of the rational expectations theory and do not subscribe to the conclusions of this approach.

Accepted Answer

First, long-term contracts may be based

Question 16

When deciding on an appropriate course of action to counter a recessionary gap, which of the following do policy makers 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 the above 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 the above are correct.

Question 17

Which of the following observations concerning the Phillips curve is not true?

Accepted Answer

A) They are normally upward-sloping. 
B) They are more commonly constructed for price inflation. 
C) They depict the inverse relation between wage inflation and unemployment. 
D) They depict the rate of unemployment on the horizontal axis. 
A) They are normally upward-sloping. 
B) They are more commonly constructed for price inflation. 
C) They depict the inverse relation between wage inflation and unemployment. 
D) They depict the rate of unemployment on the horizontal axis.

Question 18

The cure for inflation can come only from changes on the demand side.

Accepted Answer

A) True 
 B)False

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

The rational expectations hypothesis is impeccably logical, but inconsistent with the facts.

Accepted Answer

A) True 
 B)False

Exam 34: The Trade-Off Between Inflation and Unemployment

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

The most extensive indexing in the United States is in

A Keynesian economist would propose strong actions to prevent or reduce inflation.

The supply-side shocks of the 1970s shifted the aggregate supply curve inward.

In the fall of 2007, most economists felt that the

Empirical research suggests that the steepness of the aggregate supply curve depends on the

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

Figure 17-4 -Figure 17-4 shows four movements of the inflation rate and the unemployment rate.Which panel shows the movement associated with a "supply shock" like those of the 1970s?

A vocal minority of economists, believers in the theory of rational expectations, insist that

Many economists think that, in the long run, the Phillips curve is

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

Figure 17-7 -In Figure 17-7, the only sustainable long-run equilibrium position is at point

Some economists argue that there is no such thing as a short-run Phillips curve.Who are these economists and what is their argument?

Demand-side inflation is usually accompanied by increasing real GDP, while supply-side inflation is usually accompanied by falling real GDP.

Describe three arguments of why some economists object to the predictions of the rational expectations theory and do not subscribe to the conclusions of this approach.

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

Which of the following observations concerning the Phillips curve is not true?

The cure for inflation can come only from changes on the demand side.

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?

The rational expectations hypothesis is impeccably logical, but inconsistent with the facts.

What Is Economics

The Economy: 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

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

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

He 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

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