Question 1

If the natural unemployment rate rises

Accepted Answer

A) the long-run Phillips curve shifts rightward and the short-run Phillips curve does not change. 
B) the long-run Phillips curve shifts leftward and the short-run Phillips curve does not change. 
C) the short-run Phillips curve shifts rightward and the long-run Phillips curve does not change. 
D) the short-run and long-run Phillips curves both shift leftward. 
E) the short-run and long-run Phillips curves both shift rightward. 
A) the long-run Phillips curve shifts rightward and the short-run Phillips curve does not change. 
B) the long-run Phillips curve shifts leftward and the short-run Phillips curve does not change. 
C) the short-run Phillips curve shifts rightward and the long-run Phillips curve does not change. 
D) the short-run and long-run Phillips curves both shift leftward. 
E) the short-run and long-run Phillips curves both shift rightward.

Question 2

An economy is in long-run equilibrium when aggregate supply unexpectedly decreases. Then real GDP (ceteris paribus)will be

Accepted Answer

A) above potential GDP. 
B) below potential GDP. 
C) equal to potential GDP. 
D) either above, below, or equal to potential GDP depending on the position of the aggregate demand curve. 
E) either above or equal to potential GDP depending on the position of the aggregate demand curve. 
A) above potential GDP. 
B) below potential GDP. 
C) equal to potential GDP. 
D) either above, below, or equal to potential GDP depending on the position of the aggregate demand curve. 
E) either above or equal to potential GDP depending on the position of the aggregate demand curve.

Question 3

In real business cycle theory, the supply of labour

Accepted Answer

A) increases if the nominal interest rate rises. 
B) is independent of the real interest rate. 
C) decreases if the real interest rate rises. 
D) decreases if the real interest rate falls. 
E) decreases if the real wage rate decreases. 
A) increases if the nominal interest rate rises. 
B) is independent of the real interest rate. 
C) decreases if the real interest rate rises. 
D) decreases if the real interest rate falls. 
E) decreases if the real wage rate decreases.

Question 4

If the inflation rate is lower than the expected inflation rate,

Accepted Answer

A) unemployment is above the natural rate. 
B) the natural unemployment rate will increase. 
C) the expected inflation rate will increase. 
D) unemployment is below the natural rate. 
E) the economy is not operating on the short-run Phillips curve. 
A) unemployment is above the natural rate. 
B) the natural unemployment rate will increase. 
C) the expected inflation rate will increase. 
D) unemployment is below the natural rate. 
E) the economy is not operating on the short-run Phillips curve.

Question 5

The short-run Phillips curve shows the relationship between ________, holding constant the expected inflation rate and the natural unemployment rate.

Accepted Answer

A) the inflation rate and the economic growth rate 
B) unemployment and the economic growth rate 
C) the inflation rate and the unemployment rate 
D) growth and potential GDP. 
E) the inflation rate and the growth of the money wage rate. 
A) the inflation rate and the economic growth rate 
B) unemployment and the economic growth rate 
C) the inflation rate and the unemployment rate 
D) growth and potential GDP. 
E) the inflation rate and the growth of the money wage rate.

Question 6

An unanticipated deflation does all of the following except

Accepted Answer

A) redistributes income. 
B) redistributes wealth. 
C) lowers real GDP. 
D) lowers employment. 
E) decreases the real wages of workers with long-term wage contracts. 
A) redistributes income. 
B) redistributes wealth. 
C) lowers real GDP. 
D) lowers employment. 
E) decreases the real wages of workers with long-term wage contracts.

Question 7

At full employment, an increase in the quantity of money (ceteris paribus)can start

Accepted Answer

A) demand-pull inflation, as can an increase in government expenditure. 
B) demand-pull inflation, but an increase in government expenditure cannot. 
C) cost-push inflation, as can an increase in government expenditure. 
D) cost-push inflation, but an increase in government expenditure cannot. 
E) demand-pull and a cost-push inflation, as can an increase in government expenditure. 
A) demand-pull inflation, as can an increase in government expenditure. 
B) demand-pull inflation, but an increase in government expenditure cannot. 
C) cost-push inflation, as can an increase in government expenditure. 
D) cost-push inflation, but an increase in government expenditure cannot. 
E) demand-pull and a cost-push inflation, as can an increase in government expenditure.

Question 8

Which of the following would cause the aggregate demand curve to keep shifting rightward year after year?

Accepted Answer

A) a one-time tax cut 
B) a one-time increase in government expenditures on goods and services 
C) inflation 
D) excess wage demands 
E) a persistent increase in the quantity of money 
A) a one-time tax cut 
B) a one-time increase in government expenditures on goods and services 
C) inflation 
D) excess wage demands 
E) a persistent increase in the quantity of money

Question 9

If the natural unemployment rate increases, the long-run Phillips curve ________, the short-run Phillips curve ________, and the expected inflation rate ________.

Accepted Answer

A) does not shift; does not shift; does not change 
B) shifts rightward; shifts rightward; does not change 
C) does not shift; shifts rightward; rises 
D) shifts rightward; curve does not shift; falls 
E) shifts rightward; shifts rightward; falls 
A) does not shift; does not shift; does not change 
B) shifts rightward; shifts rightward; does not change 
C) does not shift; shifts rightward; rises 
D) shifts rightward; curve does not shift; falls 
E) shifts rightward; shifts rightward; falls

Question 10

Along the short-run Phillips curve, everything remaining the same, the higher the

Accepted Answer

A) unemployment rate, the lower the inflation rate. 
B) price level, the lower the inflation rate. 
C) money wage rate, the lower is the unemployment rate. 
D) quantity of money, the lower the unemployment rate. 
E) growth rate of the quantity of money, the higher the inflation rate. 
A) unemployment rate, the lower the inflation rate. 
B) price level, the lower the inflation rate. 
C) money wage rate, the lower is the unemployment rate. 
D) quantity of money, the lower the unemployment rate. 
E) growth rate of the quantity of money, the higher the inflation rate.

Question 11

Which business cycle theory emphasizes that, because of previously negotiated wage agreements, both expected and unexpected fluctuations in aggregate demand can change real GDP?

Accepted Answer

A) the new classical cycle theory 
B) the new Keynesian cycle theory 
C) the monetarist cycle theory 
D) the Keynesian cycle theory 
E) the real business cycle theory 
A) the new classical cycle theory 
B) the new Keynesian cycle theory 
C) the monetarist cycle theory 
D) the Keynesian cycle theory 
E) the real business cycle theory

Question 12

The ________ cycle theory states that only unexpected fluctuations in aggregate demand bring fluctuations in real GDP around potential GDP.

Accepted Answer

A) new Keynesian 
B) new classical 
C) Keynesian 
D) monetarist 
E) real business 
A) new Keynesian 
B) new classical 
C) Keynesian 
D) monetarist 
E) real business

Question 13

Use the information below to answer the following questions.
Fact 28.4.2
The Reserve Bank of New Zealand signed an agreement with the New Zealand government in which the Bank agreed to maintain inflation inside a low target range. Failure to achieve the target would result in the governor of the Bank losing his job.
-Consider Fact 28.4.2. Choose the correct statement.

Accepted Answer

A) The long-run Phillips curve does not change because a change in the expected inflation rate does not shift the long-run Phillips curve. 
B) The long-run Phillips curve shifts rightward. 
C) The long-run Phillips curve shifts leftward. 
D) The long-run Phillips curve was abolished and New Zealand now has only a short-run Phillips curve. 
E) The slope of the long-run Phillips curve changes when the expected inflation rate falls. 
A) The long-run Phillips curve does not change because a change in the expected inflation rate does not shift the long-run Phillips curve. 
B) The long-run Phillips curve shifts rightward. 
C) The long-run Phillips curve shifts leftward. 
D) The long-run Phillips curve was abolished and New Zealand now has only a short-run Phillips curve. 
E) The slope of the long-run Phillips curve changes when the expected inflation rate falls.

Question 14

Stagflation can result from

Accepted Answer

A) a leftward shift of the demand curve. 
B) a rightward shift of the demand curve. 
C) a leftward shift of the short-run aggregate supply curve. 
D) a rightward shift of the short-run aggregate supply curve. 
E) a rightward shift of the long-run aggregate supply curve. 
A) a leftward shift of the demand curve. 
B) a rightward shift of the demand curve. 
C) a leftward shift of the short-run aggregate supply curve. 
D) a rightward shift of the short-run aggregate supply curve. 
E) a rightward shift of the long-run aggregate supply curve.

Question 15

A correctly anticipated increase in the quantity of money

Accepted Answer

A) increases the price level with no change in real GDP. 
B) does not change the price level or real GDP. 
C) does not change the price level but increases real GDP. 
D) increases the price level and increases real GDP. 
E) does not change the price level but decreases real GDP. 
A) increases the price level with no change in real GDP. 
B) does not change the price level or real GDP. 
C) does not change the price level but increases real GDP. 
D) increases the price level and increases real GDP. 
E) does not change the price level but decreases real GDP.

Question 16

The economy starts out at a full-employment equilibrium. Some events then occur that generate a cost-push inflation. Which of the following events might start a cost-push inflation?

Accepted Answer

A) a decrease in exports 
B) an increase in the quantity of money 
C) a decrease in government expenditure 
D) an increase in the money wage rate or an increase in the money prices of raw materials 
E) an increase in taxes 
A) a decrease in exports 
B) an increase in the quantity of money 
C) a decrease in government expenditure 
D) an increase in the money wage rate or an increase in the money prices of raw materials 
E) an increase in taxes

Question 17

If the natural unemployment rate falls

Accepted Answer

A) the long-run Phillips curve shifts rightward and the short-run Phillips curve does not change. 
B) the long-run Phillips curve shifts leftward and the short-run Phillips curve does not change. 
C) the short-run Phillips curve shifts rightward. 
D) the short-run and long-run Phillips curves both shift leftward. 
E) the short-run and long-run Phillips curves both shift rightward. 
A) the long-run Phillips curve shifts rightward and the short-run Phillips curve does not change. 
B) the long-run Phillips curve shifts leftward and the short-run Phillips curve does not change. 
C) the short-run Phillips curve shifts rightward. 
D) the short-run and long-run Phillips curves both shift leftward. 
E) the short-run and long-run Phillips curves both shift rightward.

Question 18

Use the figure below to answer the following question.
   
Figure 28.2.4
-Refer to Figure 28.2.4. The figure illustrates an economy initially in equilibrium at point A. If the quantity of money is expected to increase by 50 percent, what is the rational expectation of the price level?

Accepted Answer

A) 100 
B) 120 
C) 130 
D) 150 
E) We cannot tell without more information on wage negotiations. 
A) 100 
B) 120 
C) 130 
D) 150 
E) We cannot tell without more information on wage negotiations.

Question 19

A cost-price inflation spiral results if the policy response to stagflation is to keep

Accepted Answer

A) decreasing aggregate demand. 
B) decreasing short-run aggregate supply. 
C) increasing aggregate demand. 
D) increasing short-run aggregate supply. 
E) doing nothing. 
A) decreasing aggregate demand. 
B) decreasing short-run aggregate supply. 
C) increasing aggregate demand. 
D) increasing short-run aggregate supply. 
E) doing nothing.

Question 20

New Keynesian economists believe that ________ is influenced by ________.

Accepted Answer

A) yesterday's money wage rate; today's rational expectations of the money wage 
B) today's money wage rate; yesterday's rational expectations of the price level 
C) yesterday's rational expectations of the price level; today's money wage rate 
D) today's money wage rate; today's rational expectations of the price level 
E) today's money wage rate; animal spirits 
A) yesterday's money wage rate; today's rational expectations of the money wage 
B) today's money wage rate; yesterday's rational expectations of the price level 
C) yesterday's rational expectations of the price level; today's money wage rate 
D) today's money wage rate; today's rational expectations of the price level 
E) today's money wage rate; animal spirits

Exam 28: The Business Cycle, Inflation, and Deflation

If the natural unemployment rate rises

An economy is in long-run equilibrium when aggregate supply unexpectedly decreases. Then real GDP (ceteris paribus)will be

In real business cycle theory, the supply of labour

If the inflation rate is lower than the expected inflation rate,

The short-run Phillips curve shows the relationship between ________, holding constant the expected inflation rate and the natural unemployment rate.

An unanticipated deflation does all of the following except

At full employment, an increase in the quantity of money (ceteris paribus)can start

Which of the following would cause the aggregate demand curve to keep shifting rightward year after year?

If the natural unemployment rate increases, the long-run Phillips curve ________, the short-run Phillips curve ________, and the expected inflation rate ________.

Along the short-run Phillips curve, everything remaining the same, the higher the

Which business cycle theory emphasizes that, because of previously negotiated wage agreements, both expected and unexpected fluctuations in aggregate demand can change real GDP?

The ________ cycle theory states that only unexpected fluctuations in aggregate demand bring fluctuations in real GDP around potential GDP.

Stagflation can result from

A correctly anticipated increase in the quantity of money

The economy starts out at a full-employment equilibrium. Some events then occur that generate a cost-push inflation. Which of the following events might start a cost-push inflation?

If the natural unemployment rate falls

Use the figure below to answer the following question. Figure 28.2.4 -Refer to Figure 28.2.4. The figure illustrates an economy initially in equilibrium at point A. If the quantity of money is expected to increase by 50 percent, what is the rational expectation of the price level?

A cost-price inflation spiral results if the policy response to stagflation is to keep

New Keynesian economists believe that ________ is influenced by ________.

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

Fiscal Policy

Monetary Policy

Macro Only: International Trade Policy

Filters

If the natural unemployment rate increases, the long-run Phillips curve , the short-run Phillips curve , and the expected inflation rate .

New Keynesian economists believe that is influenced by .