Question 1

Debt deflation is the _____ in aggregate _____ caused by deflation.

Accepted Answer

A) increase; supply 
B) reduction; supply 
C) increase; demand 
D) reduction; demand 
A) increase; supply 
B) reduction; supply 
C) increase; demand 
D) reduction; demand

Question 2

If the public holds $300 billion in monetary purchasing power and the inflation rate is 5%, then the inflation tax that year is:

Accepted Answer

A) $5 billion. 
B) $15 billion. 
C) $60 billion. 
D) $1,500 billion. 
A) $5 billion. 
B) $15 billion. 
C) $60 billion. 
D) $1,500 billion.

Question 3

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 SRAS will:

Accepted Answer

A) not change, since in the classical model the SRAS and LRAS are both vertical at potential output. 
B) decrease from SRAS1 to SRAS2. 
C) increase from SRAS2 to SRAS1. 
D) increase from SRAS1 to SRAS2. 
A) not change, since in the classical model the SRAS and LRAS are both vertical at potential output. 
B) decrease from SRAS1 to SRAS2. 
C) increase from SRAS2 to SRAS1. 
D) increase from SRAS1 to SRAS2.

Question 4

Politicians may accept moderate inflation in an election year, since the _____ in aggregate _____ serves to _____.

Accepted Answer

A) increase; supply; decrease employment 
B) decrease; supply; increase employment 
C) decrease; demand; increase output 
D) increase; demand; increase employment 
A) increase; supply; decrease employment 
B) decrease; supply; increase employment 
C) decrease; demand; increase output 
D) increase; demand; increase employment

Question 5

Use the following to answer questions :
Figure: AD-AS Model and the Short-Run Phillips Curve  
-(Figure: AD-AS Model and the Short-Run Phillips Curve) Look at AD-AS Model and the Short-Run Phillips Curve. If the central bank decreases the money supply so that aggregate demand shifts from AD2 to AD1, then the unemployment rate will be:

Accepted Answer

A) zero. 
B) 2%. 
C) 4%. 
D) 6%. 
A) zero. 
B) 2%. 
C) 4%. 
D) 6%.

Question 6

According to current estimates of Okun's law, if the output gap is 3%, the natural rate of unemployment is 4%, and the expected rate of inflation is 5%, then the unemployment rate is:

Accepted Answer

A) 3.5%. 
B) 3%. 
C) 2.5%. 
D) 1.5%. 
A) 3.5%. 
B) 3%. 
C) 2.5%. 
D) 1.5%.

Question 7

Use the following to answer questions :
Figure: AD-AS  
-(Figure: AD-AS) Look at the figure AD-AS. Suppose the economy starts at E1 and moves to E2, where AD2 intersects SRAS1. SRAS1 will shift to SRAS2 because:

Accepted Answer

A) real wages rise in the long run. 
B) nominal wages rise in the long run. 
C) the real money supply rises in the long run. 
D) aggregate real output rises in the long run. 
A) real wages rise in the long run. 
B) nominal wages rise in the long run. 
C) the real money supply rises in the long run. 
D) aggregate real output rises in the long run.

Question 8

If a central bank pursues an expansionary monetary policy:

Accepted Answer

A) the aggregate price level and level of real GDP will increase in the short run. 
B) the level of real GDP will increase, but the aggregate price level will stay the same in the long run. 
C) nominal prices and nominal wages will be unaffected in the long run. 
D) the aggregate price level will increase and the level of real GDP will decrease in the short run. 
A) the aggregate price level and level of real GDP will increase in the short run. 
B) the level of real GDP will increase, but the aggregate price level will stay the same in the long run. 
C) nominal prices and nominal wages will be unaffected in the long run. 
D) the aggregate price level will increase and the level of real GDP will decrease in the short run.

Question 9

In the long run, any given percentage increase in the money supply:

Accepted Answer

A) decreases real GDP. 
B) leads to an equal percentage increase in the overall price level. 
C) increases real GDP. 
D) leads to an equal percentage decrease in the unemployment rate. 
A) decreases real GDP. 
B) leads to an equal percentage increase in the overall price level. 
C) increases real GDP. 
D) leads to an equal percentage decrease in the unemployment rate.

Question 10

According to Okun's law, unemployment must decrease by 1% for output to increase by 1%.

Accepted Answer

A) True 
 B)False

Question 11

Who loses when there is unexpected deflation?

Accepted Answer

A) nominal-asset holders 
B) borrowers 
C) lenders 
D) nominal-asset holders, borrowers, and lenders 
A) nominal-asset holders 
B) borrowers 
C) lenders 
D) nominal-asset holders, borrowers, and lenders

Question 12

Which of the following could lead to moderate inflation?

Accepted Answer

A) a negative supply shock 
B) a drop in consumer confidence 
C) a contractionary fiscal policy 
D) the pursuit of a balanced budget during an expansion 
A) a negative supply shock 
B) a drop in consumer confidence 
C) a contractionary fiscal policy 
D) the pursuit of a balanced budget during an expansion

Question 13

Suppose that the unemployment rate rises as the inflation rate declines. This situation is consistent with a movement along the _____ Phillips curve.

Accepted Answer

A) vertical 
B) horizontal 
C) positively sloped 
D) negatively sloped 
A) vertical 
B) horizontal 
C) positively sloped 
D) negatively sloped

Question 14

The classical model of the price level:

Accepted Answer

A) holds that the short run is distinct from the long run. 
B) holds that the economy is always producing at some point on the LRAS. 
C) works best when an economy has low levels of inflation. 
D) does not consider the effects of the real quantity of money. 
A) holds that the short run is distinct from the long run. 
B) holds that the economy is always producing at some point on the LRAS. 
C) works best when an economy has low levels of inflation. 
D) does not consider the effects of the real quantity of money.

Question 15

The relationship between the output gap and cyclical unemployment is expressed by:

Accepted Answer

A) the real business cycle theory. 
B) the Taylor rule. 
C) the natural rate hypothesis. 
D) Okun's law. 
A) the real business cycle theory. 
B) the Taylor rule. 
C) the natural rate hypothesis. 
D) Okun's law.

Question 16

The short-run Phillips curve is believed to be downward sloping with the inflation rate on the vertical axis and the unemployment rate on the horizontal axis. Can this curve extend below the horizontal axis? Can it extend to the left of the vertical axis? Explain.

Accepted Answer

Yes, the short-run Phillips curve can ex

Question 17

Which of the following is the BEST explanation for an upward-sloping short-run aggregate supply curve?

Accepted Answer

A) Prices are perfectly flexible. 
B) Wages are perfectly flexible. 
C) Wages and prices of some goods are sticky in the short run. 
D) Wages and prices of some goods are flexible in the short run but sticky in the long run. 
A) Prices are perfectly flexible. 
B) Wages are perfectly flexible. 
C) Wages and prices of some goods are sticky in the short run. 
D) Wages and prices of some goods are flexible in the short run but sticky in the long run.

Question 18

Disinflation is costly to the economy if _____ is forced on the economy, _____, and _____.

Accepted Answer

A) deflation; employment decreases; aggregate output falls 
B) increasing inflation; unemployment decreases; aggregate price level increases 
C) stagflation; unemployment increases; inflation increases 
D) a recession; unemployment increases; aggregate output falls 
A) deflation; employment decreases; aggregate output falls 
B) increasing inflation; unemployment decreases; aggregate price level increases 
C) stagflation; unemployment increases; inflation increases 
D) a recession; unemployment increases; aggregate output falls

Question 19

The inflation tax is the effect on the public of:

Accepted Answer

A) the higher tax paid by individuals whose incomes are indexed to inflation. 
B) the sales taxes paid during periods of inflation. 
C) the reduction in the value of money caused by inflation. 
D) the higher prices consumers pay due to inflation. 
A) the higher tax paid by individuals whose incomes are indexed to inflation. 
B) the sales taxes paid during periods of inflation. 
C) the reduction in the value of money caused by inflation. 
D) the higher prices consumers pay due to inflation.

Question 20

Suppose actual aggregate output is equal to the potential output; the actual unemployment rate is:

Accepted Answer

A) equal to the natural rate of unemployment. 
B) higher than the natural rate of unemployment. 
C) zero. 
D) equal to the cyclical rate of unemployment. 
A) equal to the natural rate of unemployment. 
B) higher than the natural rate of unemployment. 
C) zero. 
D) equal to the cyclical rate of unemployment.

Debt deflation is the _ in aggregate _ caused by deflation.

If the public holds $300 billion in monetary purchasing power and the inflation rate is 5%, then the inflation tax that year is:

Politicians may accept moderate inflation in an election year, since the ___ in aggregate _ serves to ___.

According to current estimates of Okun's law, if the output gap is 3%, the natural rate of unemployment is 4%, and the expected rate of inflation is 5%, then the unemployment rate is:

Use the following to answer questions : Figure: AD-AS -(Figure: AD-AS) Look at the figure AD-AS. Suppose the economy starts at E₁ and moves to E₂, where AD₂intersects SRAS_1. SRAS₁willshift to SRAS₂because:

If a central bank pursues an expansionary monetary policy:

In the long run, any given percentage increase in the money supply:

According to Okun's law, unemployment must decrease by 1% for output to increase by 1%.

Who loses when there is unexpected deflation?

Which of the following could lead to moderate inflation?

Suppose that the unemployment rate rises as the inflation rate declines. This situation is consistent with a movement along the _____ Phillips curve.

The classical model of the price level:

The relationship between the output gap and cyclical unemployment is expressed by:

The short-run Phillips curve is believed to be downward sloping with the inflation rate on the vertical axis and the unemployment rate on the horizontal axis. Can this curve extend below the horizontal axis? Can it extend to the left of the vertical axis? Explain.

Which of the following is the BEST explanation for an upward-sloping short-run aggregate supply curve?

Disinflation is costly to the economy if ___ is forced on the economy, _, and ___.

The inflation tax is the effect on the public of:

Suppose actual aggregate output is equal to the potential output; the actual unemployment rate is:

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

Debt deflation is the _____ in aggregate _____ caused by deflation.

If the public holds $300 billion in monetary purchasing power and the inflation rate is 5%, then the inflation tax that year is:

Politicians may accept moderate inflation in an election year, since the _____ in aggregate _____ serves to _____.

According to current estimates of Okun's law, if the output gap is 3%, the natural rate of unemployment is 4%, and the expected rate of inflation is 5%, then the unemployment rate is:

Use the following to answer questions : Figure: AD-AS -(Figure: AD-AS) Look at the figure AD-AS. Suppose the economy starts at E1 and moves to E2, where AD2 intersects SRAS1. SRAS1 will shift to SRAS2 because:

If a central bank pursues an expansionary monetary policy:

In the long run, any given percentage increase in the money supply:

According to Okun's law, unemployment must decrease by 1% for output to increase by 1%.

Who loses when there is unexpected deflation?

Which of the following could lead to moderate inflation?

Suppose that the unemployment rate rises as the inflation rate declines. This situation is consistent with a movement along the _____ Phillips curve.

The classical model of the price level:

The relationship between the output gap and cyclical unemployment is expressed by:

The short-run Phillips curve is believed to be downward sloping with the inflation rate on the vertical axis and the unemployment rate on the horizontal axis. Can this curve extend below the horizontal axis? Can it extend to the left of the vertical axis? Explain.

Which of the following is the BEST explanation for an upward-sloping short-run aggregate supply curve?

Disinflation is costly to the economy if _____ is forced on the economy, _____, and _____.

The inflation tax is the effect on the public of:

Suppose actual aggregate output is equal to the potential output; the actual unemployment rate is:

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

Debt deflation is the _ in aggregate _ caused by deflation.

Politicians may accept moderate inflation in an election year, since the ___ in aggregate _ serves to ___.

Use the following to answer questions : Figure: AD-AS -(Figure: AD-AS) Look at the figure AD-AS. Suppose the economy starts at E₁ and moves to E₂, where AD₂intersects SRAS_1. SRAS₁willshift to SRAS₂because:

Disinflation is costly to the economy if ___ is forced on the economy, _, and ___.