Question 1

The cost of disinflation is the:

Accepted Answer

A) leftward shift in aggregate supply. 
B) decrease in prices. 
C) loss of real GDP in the process. 
D) loss of international markets when prices change. 
A) leftward shift in aggregate supply. 
B) decrease in prices. 
C) loss of real GDP in the process. 
D) loss of international markets when prices change.

Question 2

Who gains when there is unexpected deflation?

Accepted Answer

A) real-asset owners 
B) borrowers 
C) lenders 
D) real-asset owners, borrowers, and lenders 
A) real-asset owners 
B) borrowers 
C) lenders 
D) real-asset owners, borrowers, and lenders

Question 3

The problem of debt deflation deepens during an economic slump because:

Accepted Answer

A) borrowers have to reduce spending to pay off debts. 
B) the Fisher effect raises the nominal interest rate during deflation. 
C) lenders have to reduce spending to accommodate higher returns from loans. 
D) the zero bound on the nominal interest rate is broken. 
A) borrowers have to reduce spending to pay off debts. 
B) the Fisher effect raises the nominal interest rate during deflation. 
C) lenders have to reduce spending to accommodate higher returns from loans. 
D) the zero bound on the nominal interest rate is broken.

Question 4

The difference between the growth rate of actual and potential GDP is the output gap.

Accepted Answer

A) True 
 B)False

Question 5

In June 2008 Zimbabwe had the world's highest unemployment rate.

Accepted Answer

A) True 
 B)False

Question 6

In debt deflation, deflation raises the cost of existing debt by increasing the value of money needed to pay it off, leading to a(n) _____ in aggregate _____.

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 7

In 1958, _____ came up with a theory regarding the trade-off between unemployment and inflation.

Accepted Answer

A) A. W. H. Phillips 
B) John Maynard Keynes 
C) Joseph Schumpeter 
D) Milton Friedman 
A) A. W. H. Phillips 
B) John Maynard Keynes 
C) Joseph Schumpeter 
D) Milton Friedman

Question 8

Which of the following accurately portrays the shape of the long-run Phillips curve?

Accepted Answer

A) a horizontal curve 
B) a vertical curve 
C) an upward-sloping curve 
D) a downward-sloping curve 
A) a horizontal curve 
B) a vertical curve 
C) an upward-sloping curve 
D) a downward-sloping curve

Question 9

If the economy is in a liquidity trap, monetary policy is _____ and fiscal policy is _____.

Accepted Answer

A) effective; effective 
B) ineffective; ineffective 
C) effective; ineffective 
D) ineffective; effective 
A) effective; effective 
B) ineffective; ineffective 
C) effective; ineffective 
D) ineffective; effective

Question 10

When real output growth is above potential output growth, the output gap is positive and the unemployment rate is below the natural rate.

Accepted Answer

A) True 
 B)False

Question 11

According to the classical model of the price level, an increase in the money supply will cause _____ and _____ increase in real GDP.

Accepted Answer

A) inflation; no long-run 
B) inflation; a long-run 
C) no inflation; a long-run 
D) deflation; no long-run 
A) inflation; no long-run 
B) inflation; a long-run 
C) no inflation; a long-run 
D) deflation; no long-run

Question 12

When Fed officials worried about the possibility of "Japanification" in the United States, it meant that they were worried that the U.S. economy would:

Accepted Answer

A) grow faster than the economy of Japan after World War II. 
B) accumulate large trade surpluses, like Japan. 
C) fall into a period of hyperinflation. 
D) fall into a deflationary trap. 
A) grow faster than the economy of Japan after World War II. 
B) accumulate large trade surpluses, like Japan. 
C) fall into a period of hyperinflation. 
D) fall into a deflationary trap.

Question 13

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 price level will:

Accepted Answer

A) not change. 
B) increase from P1 to P2. 
C) increase from P1 to P3. 
D) decrease from P1 to P2. 
A) not change. 
B) increase from P1 to P2. 
C) increase from P1 to P3. 
D) decrease from P1 to P2.

Question 14

The classical model of the price level is associated with:

Accepted Answer

A) John Maynard Keynes. 
B) economists who followed Keynes's work. 
C) economists who came before Adam Smith. 
D) economists who came after Adam Smith but before Keynes. 
A) John Maynard Keynes. 
B) economists who followed Keynes's work. 
C) economists who came before Adam Smith. 
D) economists who came after Adam Smith but before Keynes.

Question 15

If an economy finds itself in a liquidity trap:

Accepted Answer

A) consumers are trapped by an abundance of liquidity and are spending abundantly. 
B) the economy is trapped by the inability of monetary policy to reduce nominal interest rates further. 
C) money markets are trapped in a state of continuous disequilibrium. 
D) monetary authorities cannot stop nominal interest rates from rising. 
A) consumers are trapped by an abundance of liquidity and are spending abundantly. 
B) the economy is trapped by the inability of monetary policy to reduce nominal interest rates further. 
C) money markets are trapped in a state of continuous disequilibrium. 
D) monetary authorities cannot stop nominal interest rates from rising.

Question 16

Disinflation means a decrease in:

Accepted Answer

A) prices. 
B) the rate of inflation. 
C) aggregate supply. 
D) the money supply. 
A) prices. 
B) the rate of inflation. 
C) aggregate supply. 
D) the money supply.

Question 17

In a liquidity trap:

Accepted Answer

A) using expansionary monetary policy is not effective because the real interest rate is negative. 
B) aggregate demand falls because consumers do not have enough liquidity to consume. 
C) using expansionary monetary policy is not effective because the nominal interest rate is irreducible. 
D) lenders are trapped by large loans with declining rates of return. 
A) using expansionary monetary policy is not effective because the real interest rate is negative. 
B) aggregate demand falls because consumers do not have enough liquidity to consume. 
C) using expansionary monetary policy is not effective because the nominal interest rate is irreducible. 
D) lenders are trapped by large loans with declining rates of return.

Question 18

Which of the following is likely to be TRUE if actual output is equal to potential output?

Accepted Answer

A) The actual unemployment rate is equal to the natural rate of unemployment. 
B) The actual unemployment rate is above the natural rate of unemployment. 
C) There will be zero unemployment. 
D) The natural rate of unemployment will be above the actual unemployment rate. 
A) The actual unemployment rate is equal to the natural rate of unemployment. 
B) The actual unemployment rate is above the natural rate of unemployment. 
C) There will be zero unemployment. 
D) The natural rate of unemployment will be above the actual unemployment rate.

Question 19

Okun's law finds that output gaps and unemployment rates are _____ related in a _____ ratio.

Accepted Answer

A) positively; one-to-one 
B) negatively; less than one-to-one 
C) positively; less than one-to-one 
D) negatively; one-to-one 
A) positively; one-to-one 
B) negatively; less than one-to-one 
C) positively; less than one-to-one 
D) negatively; one-to-one

Question 20

The long-run Phillips curve is vertical at the nonaccelerating inflation rate of unemployment (NAIRU) because an unemployment rate _____ the NAIRU will lead to _____ inflation.

Accepted Answer

A) below; ever-accelerating 
B) equal to; zero 
C) above; ever-accelerating 
D) below; ever-decelerating 
A) below; ever-accelerating 
B) equal to; zero 
C) above; ever-accelerating 
D) below; ever-decelerating

The cost of disinflation is the:

Who gains when there is unexpected deflation?

The problem of debt deflation deepens during an economic slump because:

The difference between the growth rate of actual and potential GDP is the output gap.

In June 2008 Zimbabwe had the world's highest unemployment rate.

In debt deflation, deflation raises the cost of existing debt by increasing the value of money needed to pay it off, leading to a(n) _ in aggregate _.

In 1958, _____ came up with a theory regarding the trade-off between unemployment and inflation.

Which of the following accurately portrays the shape of the long-run Phillips curve?

If the economy is in a liquidity trap, monetary policy is _ and fiscal policy is _.

When real output growth is above potential output growth, the output gap is positive and the unemployment rate is below the natural rate.

According to the classical model of the price level, an increase in the money supply will cause _ and _ increase in real GDP.

When Fed officials worried about the possibility of "Japanification" in the United States, it meant that they were worried that the U.S. economy would:

The classical model of the price level is associated with:

If an economy finds itself in a liquidity trap:

Disinflation means a decrease in:

In a liquidity trap:

Which of the following is likely to be TRUE if actual output is equal to potential output?

Okun's law finds that output gaps and unemployment rates are _ related in a _ ratio.

The long-run Phillips curve is vertical at the nonaccelerating inflation rate of unemployment (NAIRU) because an unemployment rate _ the NAIRU will lead to _ inflation.

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

The cost of disinflation is the:

Who gains when there is unexpected deflation?

The problem of debt deflation deepens during an economic slump because:

The difference between the growth rate of actual and potential GDP is the output gap.

In June 2008 Zimbabwe had the world's highest unemployment rate.

In debt deflation, deflation raises the cost of existing debt by increasing the value of money needed to pay it off, leading to a(n) _____ in aggregate _____.

In 1958, _____ came up with a theory regarding the trade-off between unemployment and inflation.

Which of the following accurately portrays the shape of the long-run Phillips curve?

If the economy is in a liquidity trap, monetary policy is _____ and fiscal policy is _____.

When real output growth is above potential output growth, the output gap is positive and the unemployment rate is below the natural rate.

According to the classical model of the price level, an increase in the money supply will cause _____ and _____ increase in real GDP.

When Fed officials worried about the possibility of "Japanification" in the United States, it meant that they were worried that the U.S. economy would:

The classical model of the price level is associated with:

If an economy finds itself in a liquidity trap:

Disinflation means a decrease in:

In a liquidity trap:

Which of the following is likely to be TRUE if actual output is equal to potential output?

Okun's law finds that output gaps and unemployment rates are _____ related in a _____ ratio.

The long-run Phillips curve is vertical at the nonaccelerating inflation rate of unemployment (NAIRU) because an unemployment rate _____ the NAIRU will lead to _____ inflation.

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

In debt deflation, deflation raises the cost of existing debt by increasing the value of money needed to pay it off, leading to a(n) _ in aggregate _.

If the economy is in a liquidity trap, monetary policy is _ and fiscal policy is _.

According to the classical model of the price level, an increase in the money supply will cause _ and _ increase in real GDP.

Okun's law finds that output gaps and unemployment rates are _ related in a _ ratio.

The long-run Phillips curve is vertical at the nonaccelerating inflation rate of unemployment (NAIRU) because an unemployment rate _ the NAIRU will lead to _ inflation.