Question 1

If the short-run Phillips curve has a very shallow (or flat)slope,

Accepted Answer

A)  the self-correcting mechanism cannot work. 
B)  the structural deficit will grow in a recession. 
C)  the structural deficit will fall in a recession. 
D)  the inflation costs of reducing unemployment are fairly low. 
A)  the self-correcting mechanism cannot work. 
B)  the structural deficit will grow in a recession. 
C)  the structural deficit will fall in a recession. 
D)  the inflation costs of reducing unemployment are fairly low.

Question 2

Critics of targeting a zero inflation rate believe that achieving zero inflation is almost
impossible and the costs are too high.

Accepted Answer

A) True 
 B)False

Question 3

If people have rational expectations and correctly estimate the effects of a change in government policy,when the economy is initially at full employment,any anticipated decrease in aggregate demand will result in:

Accepted Answer

A)  a decrease in both aggregate demand and short-run aggregate supply. 
B)  an increase in short-run aggregate supply that will maintain full employment. 
C)  higher prices that will reduce aggregate demand to its original level. 
D)  a decrease in short-run aggregate supply that will maintain full employment. 
A)  a decrease in both aggregate demand and short-run aggregate supply. 
B)  an increase in short-run aggregate supply that will maintain full employment. 
C)  higher prices that will reduce aggregate demand to its original level. 
D)  a decrease in short-run aggregate supply that will maintain full employment.

Question 4

Compare and contrast the shapes of the short-run and long-run Phillips curves.

Accepted Answer

The short-run Phillips curve is downward

Question 5

If a decrease in the growth rate of AD leads to a decrease in real GDP in the short run:

Accepted Answer

A)  the decrease in AD could have been correctly anticipated. 
B)  the decrease in AD could have been less than anticipated. 
C)  the decrease in AD could have been completely unanticipated. 
D)  the decrease in AD could have been any of the above. 
A)  the decrease in AD could have been correctly anticipated. 
B)  the decrease in AD could have been less than anticipated. 
C)  the decrease in AD could have been completely unanticipated. 
D)  the decrease in AD could have been any of the above.

Question 6

Although wage and price controls can potentially be effective in reducing inflation,economists generally oppose them because:

Accepted Answer

A)  the more effective they are in holding down prices, the more they cause shortages. 
B)  all economists are always opposed to any government intervention. 
C)  they shift the long-run Phillips curve to the right. 
D)  they shift the short-run Phillips curve down. 
A)  the more effective they are in holding down prices, the more they cause shortages. 
B)  all economists are always opposed to any government intervention. 
C)  they shift the long-run Phillips curve to the right. 
D)  they shift the short-run Phillips curve down.

Question 7

If people have rational expectations and correctly estimate the effects of a change in government policy,when the economy is initially at full employment,any anticipated increase in aggregate demand will result in:

Accepted Answer

A)  a decrease in both aggregate demand and short-run aggregate supply. 
B)  an increase in short-run aggregate supply that will maintain full employment. 
C)  higher prices that will reduce aggregate demand to its original level. 
D)  a decrease in short-run aggregate supply that will maintain full employment. 
A)  a decrease in both aggregate demand and short-run aggregate supply. 
B)  an increase in short-run aggregate supply that will maintain full employment. 
C)  higher prices that will reduce aggregate demand to its original level. 
D)  a decrease in short-run aggregate supply that will maintain full employment.

Question 8

Higher than expected inflation rate:

Accepted Answer

A)  shifts short-run Phillips curve to the right. 
B)  shifts long-run Phillips curve to the right. 
C)  shifts both short-run and long-run Phillips curve to the right. 
D)  shifts short-run Phillips curve to the left. 
A)  shifts short-run Phillips curve to the right. 
B)  shifts long-run Phillips curve to the right. 
C)  shifts both short-run and long-run Phillips curve to the right. 
D)  shifts short-run Phillips curve to the left.

Question 9

The short-run Phillips curve suggests that ____ rates of unemployment can be traded off for ____ rates of inflation.

Accepted Answer

A)  lower; higher 
B)  greater; relatively high 
C)  less; relatively low 
D)  less; relatively high 
A)  lower; higher 
B)  greater; relatively high 
C)  less; relatively low 
D)  less; relatively high

Question 10

The short-run Phillips curve could shift to the left as a result of either ____ or ____.

Accepted Answer

A)  rising oil prices; increasing inflation expectations 
B)  rising wages; falling prices 
C)  declining oil prices; falling inflation expectations 
D)  falling wages; rising prices 
A)  rising oil prices; increasing inflation expectations 
B)  rising wages; falling prices 
C)  declining oil prices; falling inflation expectations 
D)  falling wages; rising prices

Question 11

Exhibit 27-1   Refer to Exhibit 27-1.If an increase in aggregate demand AD0 to AD1 is fully anticipated,the economy will move from point A to point ____ in the short run.

Accepted Answer

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

Question 12

Which of the following is true?

Accepted Answer

A)  Inflation and unemployment rates can both increase in the short run in response to positive supply shocks. 
B)  Inflation and unemployment rates can both decrease in the short run in response to reduced aggregate demand. 
C)  Inflation and unemployment rates can both decrease in the short run in response to positive supply shocks. 
D)  The short-run Phillips curve relationship appears to be relatively stable over time. 
A)  Inflation and unemployment rates can both increase in the short run in response to positive supply shocks. 
B)  Inflation and unemployment rates can both decrease in the short run in response to reduced aggregate demand. 
C)  Inflation and unemployment rates can both decrease in the short run in response to positive supply shocks. 
D)  The short-run Phillips curve relationship appears to be relatively stable over time.

Question 13

The cost of maintaining unemployment below its natural rate with expansionary government policy is:

Accepted Answer

A)  increasing inflation. 
B)  decreasing inflation. 
C)  always a larger federal deficit. 
D)  always a smaller federal deficit. 
A)  increasing inflation. 
B)  decreasing inflation. 
C)  always a larger federal deficit. 
D)  always a smaller federal deficit.

Question 14

A decrease in the expected level of inflation will cause short-run aggregate supply to ____ and the short-run Phillips curve to ____.

Accepted Answer

A)  shift left; shift right 
B)  shift left; shift left 
C)  shift right; shift right 
D)  shift right; shift left 
A)  shift left; shift right 
B)  shift left; shift left 
C)  shift right; shift right 
D)  shift right; shift left

Question 15

When the economy is already at relatively high levels of employment,if policy makers try to further reduce the unemployment levels through expansionary policies,what will be the likely result?

Accepted Answer

Further stimulating fiscal or

Question 16

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Accepted Answer

A)  will increase real GDP in the short run. 
B)  will affect real GDP and inflation only in the long run. 
C)  may affect nominal GDP but not real GDP in the short run. 
D)  will do none of the above. 
A)  will increase real GDP in the short run. 
B)  will affect real GDP and inflation only in the long run. 
C)  may affect nominal GDP but not real GDP in the short run. 
D)  will do none of the above.

Question 17

Activists believe that monetary and fiscal policy will only work if it comes as a surprise to the public.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is false?

Accepted Answer

A)  Rational expectations theory suggests that government economic policies designed to alter aggregate demand to meet macroeconomic goals are of very limited effectiveness, because when policy targets become public, people will alter their own behavior from what it would otherwise have been, and in so doing, they largely negate the intended impact of policy changes. 
B)  If changes in inflation surprise people, they will have little effect on unemployment or real output in the short run. 
C)  An unanticipated increase in AD as a result of an expansionary monetary policy stimulates real output and employment in the short run, but an anticipated increase in AD does not. 
D)  Unanticipated increases in AD expands output and employment in the short run, but only increases the price level in the long run. 
A)  Rational expectations theory suggests that government economic policies designed to alter aggregate demand to meet macroeconomic goals are of very limited effectiveness, because when policy targets become public, people will alter their own behavior from what it would otherwise have been, and in so doing, they largely negate the intended impact of policy changes. 
B)  If changes in inflation surprise people, they will have little effect on unemployment or real output in the short run. 
C)  An unanticipated increase in AD as a result of an expansionary monetary policy stimulates real output and employment in the short run, but an anticipated increase in AD does not. 
D)  Unanticipated increases in AD expands output and employment in the short run, but only increases the price level in the long run.

Question 19

If people have rational expectations,but they are not always correct in their expectations,the expectation of a lower inflation rate will cause:

Accepted Answer

A)  the short-run Phillips curve to become vertical. 
B)  the short-run Phillips curve to shift leftward. 
C)  a movement down along a short-run Phillips curve. 
D)  the short-run Phillips curve to shift rightward. 
A)  the short-run Phillips curve to become vertical. 
B)  the short-run Phillips curve to shift leftward. 
C)  a movement down along a short-run Phillips curve. 
D)  the short-run Phillips curve to shift rightward.

Question 20

What does a vertical Phillips curve in the long run imply?

Accepted Answer

A)  In the long run, the rate of unemployment will converge toward zero. 
B)  Higher inflation does not permanently reduce the rate of unemployment. 
C)  Higher inflation increases the rate of unemployment. 
D)  Higher inflation lowers the rate of unemployment. 
A)  In the long run, the rate of unemployment will converge toward zero. 
B)  Higher inflation does not permanently reduce the rate of unemployment. 
C)  Higher inflation increases the rate of unemployment. 
D)  Higher inflation lowers the rate of unemployment.

Exam 27: Issues in Macroeconomic Theory and Policy

If the short-run Phillips curve has a very shallow (or flat)slope,

Critics of targeting a zero inflation rate believe that achieving zero inflation is almost impossible and the costs are too high.

If people have rational expectations and correctly estimate the effects of a change in government policy,when the economy is initially at full employment,any anticipated decrease in aggregate demand will result in:

Compare and contrast the shapes of the short-run and long-run Phillips curves.

If a decrease in the growth rate of AD leads to a decrease in real GDP in the short run:

Although wage and price controls can potentially be effective in reducing inflation,economists generally oppose them because:

If people have rational expectations and correctly estimate the effects of a change in government policy,when the economy is initially at full employment,any anticipated increase in aggregate demand will result in:

Higher than expected inflation rate:

The short-run Phillips curve suggests that ____ rates of unemployment can be traded off for ____ rates of inflation.

The short-run Phillips curve could shift to the left as a result of either ____ or ____.

Exhibit 27-1 Refer to Exhibit 27-1.If an increase in aggregate demand AD0 to AD1 is fully anticipated,the economy will move from point A to point ____ in the short run.

Which of the following is true?

The cost of maintaining unemployment below its natural rate with expansionary government policy is:

A decrease in the expected level of inflation will cause short-run aggregate supply to ____ and the short-run Phillips curve to ____.

When the economy is already at relatively high levels of employment,if policy makers try to further reduce the unemployment levels through expansionary policies,what will be the likely result?

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Activists believe that monetary and fiscal policy will only work if it comes as a surprise to the public.

Which of the following is false?

If people have rational expectations,but they are not always correct in their expectations,the expectation of a lower inflation rate will cause:

What does a vertical Phillips curve in the long run imply?

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

International Trade

International Finance

Filters

The short-run Phillips curve suggests that rates of unemployment can be traded off for rates of inflation.

The short-run Phillips curve could shift to the left as a result of either or .

Exhibit 27-1 Refer to Exhibit 27-1.If an increase in aggregate demand AD₀ to AD₁ is fully anticipated,the economy will move from point A to point ____ in the short run.

A decrease in the expected level of inflation will cause short-run aggregate supply to and the short-run Phillips curve to .