Question 1

The long-run Phillips curve shows that:

Accepted Answer

A) there is a trade-off between unemployment and inflation. 
B) an expansionary policy could lead to lower unemployment temporarily. 
C) the natural rate of unemployment occurs when the actual inflation rate equals the expected inflation rate. 
D) lower unemployment can be sustained indefinitely with continuous expansionary policies. 
A) there is a trade-off between unemployment and inflation. 
B) an expansionary policy could lead to lower unemployment temporarily. 
C) the natural rate of unemployment occurs when the actual inflation rate equals the expected inflation rate. 
D) lower unemployment can be sustained indefinitely with continuous expansionary policies.

Question 2

Use the following to answer question :  
-(Table: Combinations of Unemployment and Inflation) Look at the table Combinations of Unemployment and Inflation. Which of the following combinations could lie on the same long-run Phillips curve?

Accepted Answer

A) W and Z 
B) W and Y 
C) X and Z 
D) X and Y 
A) W and Z 
B) W and Y 
C) X and Z 
D) X and Y

Question 3

During a liquidity trap:

Accepted Answer

A) monetary policy is ineffective, since nominal interest rates cannot fall below zero. 
B) the money market is in disequilibrium. 
C) the only tool that the Federal Reserve finds effective is expansionary monetary policy. 
D) nominal interest rates will rise regardless of what policy the Federal Reserve pursues. 
A) monetary policy is ineffective, since nominal interest rates cannot fall below zero. 
B) the money market is in disequilibrium. 
C) the only tool that the Federal Reserve finds effective is expansionary monetary policy. 
D) nominal interest rates will rise regardless of what policy the Federal Reserve pursues.

Question 4

In the classical model of the price level, there is NO distinction between the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 5

Hyperinflation is often a result of a government trying to pay for its spending by using the inflation tax.

Accepted Answer

A) True 
 B)False

Question 6

A long-run Phillips curve has a(n) _____ slope because _____.

Accepted Answer

A) negative; there is a positive relationship between the output gap and the nonaccelerating inflation rate of unemployment (NAIRU) 
B) infinite; any unemployment rate below the NAIRU leads to ever-accelerating inflation 
C) zero; there is a positive relationship between expected inflation and unemployment 
D) positive; any unemployment rate above the NAIRU leads to ever-accelerating inflation 
A) negative; there is a positive relationship between the output gap and the nonaccelerating inflation rate of unemployment (NAIRU) 
B) infinite; any unemployment rate below the NAIRU leads to ever-accelerating inflation 
C) zero; there is a positive relationship between expected inflation and unemployment 
D) positive; any unemployment rate above the NAIRU leads to ever-accelerating inflation

Question 7

Assume that workers and businesses are sensitized to inflation and are quick to raise wages and prices in response to changes in the money supply. This implies that inflation is _____ and there are _____ adjustments of wages and prices of intermediate goods.

Accepted Answer

A) high; quick 
B) low; quick 
C) high; slow 
D) low; slow 
A) high; quick 
B) low; quick 
C) high; slow 
D) low; slow

Question 8

When inflation is high:

Accepted Answer

A) people will increase their level of real-money holdings. 
B) people will save more. 
C) lenders gain at the expense of borrowers. 
D) people will decrease their level of real-money holdings. 
A) people will increase their level of real-money holdings. 
B) people will save more. 
C) lenders gain at the expense of borrowers. 
D) people will decrease their level of real-money holdings.

Question 9

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 increases the money supply so that aggregate demand shifts from AD1 to AD2, then the inflation rate will be:

Accepted Answer

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

Question 10

Use the following to answer questions :
Figure: Actual and Natural Rates of Unemployment  
-(Figure: Actual and Natural Rates of Unemployment) Look at the figure Actual and Natural Rates of Unemployment. In 2000 the output gap was:

Accepted Answer

A) positive. 
B) negative. 
C) zero. 
D) impossible to determine without more information. 
A) positive. 
B) negative. 
C) zero. 
D) impossible to determine without more information.

Question 11

Fiat money is:

Accepted Answer

A) money backed by gold. 
B) money that only the government will accept to pay taxes. 
C) paper money with no intrinsic value. 
D) used only in the United States as a medium of exchange. 
A) money backed by gold. 
B) money that only the government will accept to pay taxes. 
C) paper money with no intrinsic value. 
D) used only in the United States as a medium of exchange.

Question 12

Suppose that the natural rate of unemployment is 5% and that the economy is operating at 97.5% of potential output. Use Okun's law to determine the unemployment rate.

Accepted Answer

Okun's law says that if the output gap r

Question 13

Which of the following happen(s) when real GDP grows more slowly than potential GDP?

Accepted Answer

A) The output gap becomes more positive. 
B) The output gap and the unemployment rate both increase. 
C) The output gap and the unemployment rate both decrease. 
D) The unemployment rate rises. 
A) The output gap becomes more positive. 
B) The output gap and the unemployment rate both increase. 
C) The output gap and the unemployment rate both decrease. 
D) The unemployment rate rises.

Question 14

Government's right to print money to finance deficits is referred to as:

Accepted Answer

A) open-market sales. 
B) seignorage. 
C) fiat money implementation. 
D) crowding out. 
A) open-market sales. 
B) seignorage. 
C) fiat money implementation. 
D) crowding out.

Question 15

In the short run in periods of low inflation, an increase in aggregate demand from a position of full employment leads to:

Accepted Answer

A) higher prices and higher unemployment. 
B) higher prices and higher output. 
C) lower prices and higher output. 
D) lower prices and higher unemployment. 
A) higher prices and higher unemployment. 
B) higher prices and higher output. 
C) lower prices and higher output. 
D) lower prices and higher unemployment.

Question 16

Policies that reduce inflation are popular with voters because they lead to higher output and lower unemployment.

Accepted Answer

A) True 
 B)False

Question 17

Assume that the economy is contracting and unemployment is rising. Which of the following would be a logical explanation for a sudden fall in the unemployment rate even while the economy continues to contract?

Accepted Answer

A) a reduction in the number of discouraged workers 
B) an increase in the number of discouraged workers 
C) an increase in the level of employment 
D) a decrease in the level of employment 
A) a reduction in the number of discouraged workers 
B) an increase in the number of discouraged workers 
C) an increase in the level of employment 
D) a decrease in the level of employment

Question 18

If government decides to print money to finance a deficit:

Accepted Answer

A) people who hold money will be penalized as inflation increases. 
B) borrowers will be penalized because they will owe more as inflation increases. 
C) real GDP will decrease in the long run. 
D) the Fed must sell bonds in the open market. 
A) people who hold money will be penalized as inflation increases. 
B) borrowers will be penalized because they will owe more as inflation increases. 
C) real GDP will decrease in the long run. 
D) the Fed must sell bonds in the open market.

Question 19

If workers expect a lower rate of inflation, the short-run Phillips curve will:

Accepted Answer

A) remain constant, but there will be a movement down the curve. 
B) be unaffected. 
C) shift up. 
D) shift down. 
A) remain constant, but there will be a movement down the curve. 
B) be unaffected. 
C) shift up. 
D) shift down.

Question 20

The short-run Phillips curve:

Accepted Answer

A) is upward sloping because inflation and unemployment rates have a positive relationship in the short run. 
B) is vertical because there is no trade-off between inflation and unemployment rates in the short run. 
C) is downward sloping because there is a trade-off between inflation and unemployment rates in the short run. 
D) is horizontal because there is no trade-off between inflation and unemployment rates in the short run. 
A) is upward sloping because inflation and unemployment rates have a positive relationship in the short run. 
B) is vertical because there is no trade-off between inflation and unemployment rates in the short run. 
C) is downward sloping because there is a trade-off between inflation and unemployment rates in the short run. 
D) is horizontal because there is no trade-off between inflation and unemployment rates in the short run.

The long-run Phillips curve shows that:

Use the following to answer question : -(Table: Combinations of Unemployment and Inflation) Look at the table Combinations of Unemployment and Inflation. Which of the following combinations could lie on the same long-run Phillips curve?

During a liquidity trap:

In the classical model of the price level, there is NO distinction between the short run and the long run.

Hyperinflation is often a result of a government trying to pay for its spending by using the inflation tax.

A long-run Phillips curve has a(n) _ slope because _.

Assume that workers and businesses are sensitized to inflation and are quick to raise wages and prices in response to changes in the money supply. This implies that inflation is _ and there are _ adjustments of wages and prices of intermediate goods.

When inflation is high:

Use the following to answer questions : Figure: Actual and Natural Rates of Unemployment -(Figure: Actual and Natural Rates of Unemployment) Look at the figure Actual and Natural Rates of Unemployment. In 2000 the output gap was:

Fiat money is:

Suppose that the natural rate of unemployment is 5% and that the economy is operating at 97.5% of potential output. Use Okun's law to determine the unemployment rate.

Which of the following happen(s) when real GDP grows more slowly than potential GDP?

Government's right to print money to finance deficits is referred to as:

In the short run in periods of low inflation, an increase in aggregate demand from a position of full employment leads to:

Policies that reduce inflation are popular with voters because they lead to higher output and lower unemployment.

Assume that the economy is contracting and unemployment is rising. Which of the following would be a logical explanation for a sudden fall in the unemployment rate even while the economy continues to contract?

If government decides to print money to finance a deficit:

If workers expect a lower rate of inflation, the short-run Phillips curve will:

The short-run Phillips curve:

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 long-run Phillips curve shows that:

Use the following to answer question : -(Table: Combinations of Unemployment and Inflation) Look at the table Combinations of Unemployment and Inflation. Which of the following combinations could lie on the same long-run Phillips curve?

During a liquidity trap:

In the classical model of the price level, there is NO distinction between the short run and the long run.

Hyperinflation is often a result of a government trying to pay for its spending by using the inflation tax.

A long-run Phillips curve has a(n) _____ slope because _____.

Assume that workers and businesses are sensitized to inflation and are quick to raise wages and prices in response to changes in the money supply. This implies that inflation is _____ and there are _____ adjustments of wages and prices of intermediate goods.

When inflation is high:

Use the following to answer questions : Figure: Actual and Natural Rates of Unemployment -(Figure: Actual and Natural Rates of Unemployment) Look at the figure Actual and Natural Rates of Unemployment. In 2000 the output gap was:

Fiat money is:

Suppose that the natural rate of unemployment is 5% and that the economy is operating at 97.5% of potential output. Use Okun's law to determine the unemployment rate.

Which of the following happen(s) when real GDP grows more slowly than potential GDP?

Government's right to print money to finance deficits is referred to as:

In the short run in periods of low inflation, an increase in aggregate demand from a position of full employment leads to:

Policies that reduce inflation are popular with voters because they lead to higher output and lower unemployment.

Assume that the economy is contracting and unemployment is rising. Which of the following would be a logical explanation for a sudden fall in the unemployment rate even while the economy continues to contract?

If government decides to print money to finance a deficit:

If workers expect a lower rate of inflation, the short-run Phillips curve will:

The short-run Phillips curve:

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

A long-run Phillips curve has a(n) _ slope because _.

Assume that workers and businesses are sensitized to inflation and are quick to raise wages and prices in response to changes in the money supply. This implies that inflation is _ and there are _ adjustments of wages and prices of intermediate goods.