Question 1

In the long run, there is a negative relationship between the inflation rate and the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 2

To avoid falling into a liquidity trap, most central banks:

Accepted Answer

A) seek a positive but small inflation rate rather than zero inflation. 
B) target inflation rather than the money supply. 
C) conduct open-market operations to change the money supply instead of changing the discount rate. 
D) aim at a target of zero inflation so that inflation expectations are zero too. 
A) seek a positive but small inflation rate rather than zero inflation. 
B) target inflation rather than the money supply. 
C) conduct open-market operations to change the money supply instead of changing the discount rate. 
D) aim at a target of zero inflation so that inflation expectations are zero too.

Question 3

If the short-run Phillips curve has shifted upward, the _____ curve has shifted to the _____.

Accepted Answer

A) AD; right 
B) AD; left 
C) SRAS; right 
D) SRAS; left 
A) AD; right 
B) AD; left 
C) SRAS; right 
D) SRAS; left

Question 4

Use the following to answer questions :
Figure: Classical Model of the Price Level  
-(Figure: Classical Model of the Price Level) Look at the figure Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD1 to AD2, according to this classical model, the equilibrium point will:

Accepted Answer

A) not change. 
B) immediately move from E1 to E2. 
C) immediately move from E2 to E1. 
D) immediately move from E1 to E3. 
A) not change. 
B) immediately move from E1 to E2. 
C) immediately move from E2 to E1. 
D) immediately move from E1 to E3.

Question 5

If the natural rate of unemployment _____, the nonaccelerating inflation rate of unemployment _____, and the long-run Phillips curve shifts to the left.

Accepted Answer

A) falls; falls 
B) rises; rises 
C) falls; rises 
D) rises; falls 
A) falls; falls 
B) rises; rises 
C) falls; rises 
D) rises; falls

Question 6

During periods of low inflation, the short-run aggregate supply curve is:

Accepted Answer

A) vertical. 
B) horizontal. 
C) upward sloping. 
D) downward sloping. 
A) vertical. 
B) horizontal. 
C) upward sloping. 
D) downward sloping.

Question 7

Okun's law suggests that a _____ increase in a positive output gap _____ the unemployment rate by _____.

Accepted Answer

A) 1%; increases; 0.5% 
B) 1%; decreases; 0.5% 
C) 0.5% ; increases; 1% 
D) 0.5%; decreases; 1% 
A) 1%; increases; 0.5% 
B) 1%; decreases; 0.5% 
C) 0.5% ; increases; 1% 
D) 0.5%; decreases; 1%

Question 8

The idea that a 1% increase in the output gap will decrease the unemployment rate by 0.5% is known as _____ law.

Accepted Answer

A) Okun's 
B) Phillips's 
C) Greenspan's 
D) Keynes's 
A) Okun's 
B) Phillips's 
C) Greenspan's 
D) Keynes's

Question 9

Suppose an economy's aggregate price level increases and its aggregate level of real GDP decreases. This could arise from a _____ shock.

Accepted Answer

A) positive demand 
B) negative supply 
C) positive supply 
D) negative demand 
A) positive demand 
B) negative supply 
C) positive supply 
D) negative demand

Question 10

The inflation tax is likely to be high when:

Accepted Answer

A) there is a budget surplus. 
B) the government relies on seignorage to finance large portions of a budget deficit. 
C) the Fed decreases the money supply. 
D) corporate and personal income tax rates are increased. 
A) there is a budget surplus. 
B) the government relies on seignorage to finance large portions of a budget deficit. 
C) the Fed decreases the money supply. 
D) corporate and personal income tax rates are increased.

Question 11

The worst inflation in the United States in modern times occurred in the late 1970s, when prices were increasing at an annual rate of 13%.

Accepted Answer

A) True 
 B)False

Question 12

Use the following to answer questions :
Figure: AD-AS  
-(Figure: AD-AS) Refer to the figure AD-AS. If our economy is at equilibrium and the Fed uses expansionary monetary policy, _____ will shift to _____ and the economy will move from _____. Then nominal wages will _____ and _____ will shift to _____. The economy will move from _____.

Accepted Answer

A) AD2; AD1; E2 to E1; rise very quickly; SRAS1; SRAS2; E2 to E3 
B) SRAS1 ; SRAS2 ; E2 to E3; stay the same; AD2; AD1; E2 to E1 
C) SRAS2; SRAS1; E3 to E2; stay the same; AD2; AD1; E2 to E1 
D) AD1; AD2; E1 to E2; rise very quickly; SRAS1; SRAS2; from E2 to E3 
A) AD2; AD1; E2 to E1; rise very quickly; SRAS1; SRAS2; E2 to E3 
B) SRAS1 ; SRAS2 ; E2 to E3; stay the same; AD2; AD1; E2 to E1 
C) SRAS2; SRAS1; E3 to E2; stay the same; AD2; AD1; E2 to E1 
D) AD1; AD2; E1 to E2; rise very quickly; SRAS1; SRAS2; from E2 to E3

Question 13

If there is too much deflation:

Accepted Answer

A) people will switch from money to real assets. 
B) the nominal interest rate will be constrained by the zero interest rate bound. 
C) lenders will be harmed. 
D) aggregate demand will increase. 
A) people will switch from money to real assets. 
B) the nominal interest rate will be constrained by the zero interest rate bound. 
C) lenders will be harmed. 
D) aggregate demand will increase.

Question 14

Government debt is monetized when:

Accepted Answer

A) commercial banks buy newly issued Treasury bills. 
B) the Fed conducts open-market purchases. 
C) the Fed transfers part of its financial reserves to the Treasury, which in turn buys Treasury bills back. 
D) the Fed sells Treasury bills in the bond market. 
A) commercial banks buy newly issued Treasury bills. 
B) the Fed conducts open-market purchases. 
C) the Fed transfers part of its financial reserves to the Treasury, which in turn buys Treasury bills back. 
D) the Fed sells Treasury bills in the bond market.

Question 15

Use the following to answer questions :
Figure: Classical Model of the Price Level  
-(Figure: Classical Model of the Price Level) Look at the figure Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD1 to AD2, according to this classical model, real GDP will:

Accepted Answer

A) not change. 
B) increase from YE to Y1. 
C) increase from Y1 to YE. 
D) establish a new potential output. 
A) not change. 
B) increase from YE to Y1. 
C) increase from Y1 to YE. 
D) establish a new potential output.

Question 16

Use the following to answer questions :
Figure: Expected Inflation and the Short-Run Phillips Curve
SRPCS1U1B10S1U1B0 is the Phillips curve with an expected inflation rate of zero; SRPCS1U1B12S1U1B0 is the Phillips curve with an expected inflation rate of 2%.  
-(Figure: Expected Inflation and the Short-Run Phillips Curve) Look at the figure Expected Inflation and the Short-Run Phillips Curve. Suppose that this economy has an unemployment rate of 6%, no inflation, and no expectation of inflation. If the central bank decreases the money supply such that aggregate demand shifts to the left and unemployment rises to 8%, then inflation will:

Accepted Answer

A) fall to -2%. 
B) not change. 
C) rise to 2%. 
D) rise to 4%. 
A) fall to -2%. 
B) not change. 
C) rise to 2%. 
D) rise to 4%.

Question 17

A supply shock:

Accepted Answer

A) moves our economy along the short-run aggregate supply curve. 
B) moves us along the short-run Phillips curve. 
C) shifts the short-run Phillips curve. 
D) shifts the short-run aggregate supply curve but not the short-run Phillips curve. 
A) moves our economy along the short-run aggregate supply curve. 
B) moves us along the short-run Phillips curve. 
C) shifts the short-run Phillips curve. 
D) shifts the short-run aggregate supply curve but not the short-run Phillips curve.

Question 18

When an economy has debt deflation:

Accepted Answer

A) aggregate demand increases, since the real debt burden is reduced. 
B) aggregate demand is not affected, since real variables are not affected. 
C) aggregate demand decreases as borrowers' real debts increase, which leads to less spending. 
D) the economy moves quickly to its potential output. 
A) aggregate demand increases, since the real debt burden is reduced. 
B) aggregate demand is not affected, since real variables are not affected. 
C) aggregate demand decreases as borrowers' real debts increase, which leads to less spending. 
D) the economy moves quickly to its potential output.

Question 19

Core inflation EXCLUDES the price of:

Accepted Answer

A) new cars. 
B) luxury items, such as fur coats. 
C) houses. 
D) energy and food. 
A) new cars. 
B) luxury items, such as fur coats. 
C) houses. 
D) energy and food.

Question 20

When the output gap is _____, the unemployment rate is _____ the natural rate.

Accepted Answer

A) negative; below 
B) zero; zero 
C) inflationary; above 
D) positive; below 
A) negative; below 
B) zero; zero 
C) inflationary; above 
D) positive; below

In the long run, there is a negative relationship between the inflation rate and the unemployment rate.

To avoid falling into a liquidity trap, most central banks:

If the short-run Phillips curve has shifted upward, the _ curve has shifted to the _.

If the natural rate of unemployment _, the nonaccelerating inflation rate of unemployment _, and the long-run Phillips curve shifts to the left.

During periods of low inflation, the short-run aggregate supply curve is:

Okun's law suggests that a ___ increase in a positive output gap _ the unemployment rate by ___.

The idea that a 1% increase in the output gap will decrease the unemployment rate by 0.5% is known as _____ law.

Suppose an economy's aggregate price level increases and its aggregate level of real GDP decreases. This could arise from a _____ shock.

The inflation tax is likely to be high when:

The worst inflation in the United States in modern times occurred in the late 1970s, when prices were increasing at an annual rate of 13%.

If there is too much deflation:

Government debt is monetized when:

A supply shock:

When an economy has debt deflation:

Core inflation EXCLUDES the price of:

When the output gap is _, the unemployment rate is _ the natural rate.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Exam 16: Inflation, Disinflation, and Deflation

In the long run, there is a negative relationship between the inflation rate and the unemployment rate.

To avoid falling into a liquidity trap, most central banks:

If the short-run Phillips curve has shifted upward, the _____ curve has shifted to the _____.

If the natural rate of unemployment _____, the nonaccelerating inflation rate of unemployment _____, and the long-run Phillips curve shifts to the left.

During periods of low inflation, the short-run aggregate supply curve is:

Okun's law suggests that a _____ increase in a positive output gap _____ the unemployment rate by _____.

The idea that a 1% increase in the output gap will decrease the unemployment rate by 0.5% is known as _____ law.

Suppose an economy's aggregate price level increases and its aggregate level of real GDP decreases. This could arise from a _____ shock.

The inflation tax is likely to be high when:

The worst inflation in the United States in modern times occurred in the late 1970s, when prices were increasing at an annual rate of 13%.

If there is too much deflation:

Government debt is monetized when:

A supply shock:

When an economy has debt deflation:

Core inflation EXCLUDES the price of:

When the output gap is _____, the unemployment rate is _____ the natural rate.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

If the short-run Phillips curve has shifted upward, the _ curve has shifted to the _.

If the natural rate of unemployment _, the nonaccelerating inflation rate of unemployment _, and the long-run Phillips curve shifts to the left.

Okun's law suggests that a ___ increase in a positive output gap _ the unemployment rate by ___.

When the output gap is _, the unemployment rate is _ the natural rate.