Question 1

Describe the major costs of inflation,being sure to distinguish between anticipated and unanticipated inflation.

Accepted Answer

Costs of anticipated inflation include a

Question 2

Keynesians prefer a disinflation policy of

Accepted Answer

A) cold turkey. 
B) stabilization. 
C) gradualism. 
D) aggregate demand management. 
A) cold turkey. 
B) stabilization. 
C) gradualism. 
D) aggregate demand management.

Question 3

Suppose expected inflation in the economy is 5%.Banks set nominal interest rates so they'll earn a 2% expected real return.Employers set nominal wages based on a 2% expected real wage increase.Suppose the nominal interest rate and nominal wages are determined this way,but actual inflation turns out to differ from the expected inflation rate.Calculate the actual real interest rate and the percent increase in the real wage for each of the following actual inflation rates: a)2%; b)5%; c)10%.

Accepted Answer

The real interest rate (r)= the nominal

Question 4

A rapid and decisive reduction in the rate of growth of the money supply for the purpose of disinflation is called

Accepted Answer

A) a salt water policy. 
B) a cold shower policy. 
C) gradualism. 
D) a cold turkey policy. 
A) a salt water policy. 
B) a cold shower policy. 
C) gradualism. 
D) a cold turkey policy.

Question 5

Milton Friedman and Edmund Phelps questioned

Accepted Answer

A) the use of expectations in the Phillips curve. 
B) the stability of the relationship between inflation and unemployment. 
C) the existence of a natural rate of unemployment. 
D) the existence of a full-employment level of output. 
A) the use of expectations in the Phillips curve. 
B) the stability of the relationship between inflation and unemployment. 
C) the existence of a natural rate of unemployment. 
D) the existence of a full-employment level of output.

Question 6

The costs of disinflation would be low if

Accepted Answer

A) expected inflation falls as inflation falls. 
B) wage and price controls were used. 
C) the Phillips curve were nearly horizontal. 
D) the Phillips curve adjusted slowly to changes in inflation. 
A) expected inflation falls as inflation falls. 
B) wage and price controls were used. 
C) the Phillips curve were nearly horizontal. 
D) the Phillips curve adjusted slowly to changes in inflation.

Question 7

The costs in time and effort incurred by people and firms who are trying to minimize their holdings of cash because of inflation are called

Accepted Answer

A) menu costs. 
B) shoe leather costs. 
C) transactions costs. 
D) imperfect competition costs. 
A) menu costs. 
B) shoe leather costs. 
C) transactions costs. 
D) imperfect competition costs.

Question 8

The natural rate of unemployment in the United States generally ________ from 1960 to 1980 and ________ from 1980 to 1995.

Accepted Answer

A) fell; rose 
B) fell; fell 
C) rose; fell 
D) rose; rose 
A) fell; rose 
B) fell; fell 
C) rose; fell 
D) rose; rose

Question 9

Starting on a Phillips curve with expected inflation equal to 5% and unemployment at its natural rate,show what happens to unemployment if the Fed tries to reduce inflation,but has no credibility.As time passes and people realize that the inflation rate is now lower,what happens to the short-run Phillips curve?

Accepted Answer

The unemployment rate rises as the econo

Question 10

The idea that new policies change the economic rules and affect economic behavior,so that no one can safely assume that historical relationships between variables will hold when policies change,is known as

Accepted Answer

A) Okun's Law. 
B) Say's Law. 
C) the equation of exchange. 
D) the Lucas critique. 
A) Okun's Law. 
B) Say's Law. 
C) the equation of exchange. 
D) the Lucas critique.

Question 11

Classicals argue that an adverse supply shock would

Accepted Answer

A) raise neither the natural rate of unemployment nor the actual rate of unemployment. 
B) raise the actual rate of unemployment,but not the natural rate of unemployment. 
C) raise the natural rate of unemployment,but not the actual rate of unemployment. 
D) raise both the natural rate of unemployment and the actual rate of unemployment. 
A) raise neither the natural rate of unemployment nor the actual rate of unemployment. 
B) raise the actual rate of unemployment,but not the natural rate of unemployment. 
C) raise the natural rate of unemployment,but not the actual rate of unemployment. 
D) raise both the natural rate of unemployment and the actual rate of unemployment.

Question 12

The fact that the long-run Phillips curve is vertical implies that

Accepted Answer

A) monetary policy can't affect unemployment. 
B) money is neutral in the long run. 
C) there is a natural rate of inflation. 
D) money can't affect inflation in the long run. 
A) monetary policy can't affect unemployment. 
B) money is neutral in the long run. 
C) there is a natural rate of inflation. 
D) money can't affect inflation in the long run.

Question 13

In the extended classical model,an unexpected decrease in aggregate demand would cause unanticipated inflation to be ________ and cyclical unemployment to be ________.

Accepted Answer

A) positive; negative 
B) positive; positive 
C) negative; negative 
D) negative; positive 
A) positive; negative 
B) positive; positive 
C) negative; negative 
D) negative; positive

Question 14

In the expectations-augmented Phillips curve,? = ?e - 3(u - 0.06).When ? = 0.06 and ?e = 0.03,the unemployment rate is

Accepted Answer

A) 0)04. 
B) 0)05. 
C) 0)06. 
D) 0)07. 
A) 0)04. 
B) 0)05. 
C) 0)06. 
D) 0)07.

Question 15

What is the relation between the unemployment rate and the proportion of unemployed workers who have been unemployed for 15 weeks or longer?

Accepted Answer

A) Both rise in recessions. 
B) Both rise in expansions. 
C) The unemployment rises in recessions but the proportion of unemployed workers who have been unemployed for 15 weeks or longer declines in recessions. 
D) The unemployment falls in recessions but the proportion of unemployed workers who have been unemployed for 15 weeks or longer rises in recessions. 
A) Both rise in recessions. 
B) Both rise in expansions. 
C) The unemployment rises in recessions but the proportion of unemployed workers who have been unemployed for 15 weeks or longer declines in recessions. 
D) The unemployment falls in recessions but the proportion of unemployed workers who have been unemployed for 15 weeks or longer rises in recessions.

Question 16

Suppose Okun's law holds and a one percentage point increase in the unemployment rate reduces real output by 2% of full-employment output.The expectations-augmented Phillips curve is given by
? = ?e - 2.5 (u - 0.04).
Suppose ? = 0.08 and ?e = 0.03.
(a)What is the natural rate of unemployment?
(b)What is the actual rate of unemployment?
(c)How much is actual GDP compared with full-employment GDP?

Accepted Answer

(a)0.04
(b

Question 17

The relationship between inflation and unemployment is given by
? = ?e - 3(u - 0.06).
(a)Graph the long-run Phillips curve and three short-run Phillips curves.
(b)What is the value of the natural rate of unemployment?
(c)If actual inflation is 0.02 and expected inflation is 0.05,what is the unemployment rate?
(d)If actual inflation is 0.08 and expected inflation is 0.05,what is the unemployment rate?

Accepted Answer

(a)Long run: vertical line at

Question 18

Examining data on cyclical unemployment plotted against unanticipated inflation shows

Accepted Answer

A) a positive relationship. 
B) a negative relationship. 
C) no significant relationship. 
D) a relationship only during the 1960s. 
A) a positive relationship. 
B) a negative relationship. 
C) no significant relationship. 
D) a relationship only during the 1960s.

Question 19

Countries in which the government does not regulate the labor market are likely to have ________ sacrifice ratio.

Accepted Answer

A) an infinite 
B) a high 
C) a low 
D) a negative 
A) an infinite 
B) a high 
C) a low 
D) a negative

Question 20

Consider the following misperceptions model of the economy.
AD: Y = 600 + 10(M/P)
SRAS: Y =   + P - Pe   
Okun's Law: (Y -   )   / = -2(u -   )
Let = 750,= 0.05,M = 600,and Pe = 40.
(a)What is the price level?
(b)Suppose there is an unanticipated increase in the nominal money supply to 800.What is the short-run equilibrium level of output,the unemployment rate,and the price level?
(c)When price expectations adjust fully,what is the price level?

Accepted Answer

(a)40
(b)Y

Describe the major costs of inflation,being sure to distinguish between anticipated and unanticipated inflation.

Keynesians prefer a disinflation policy of

A rapid and decisive reduction in the rate of growth of the money supply for the purpose of disinflation is called

Milton Friedman and Edmund Phelps questioned

The costs of disinflation would be low if

The costs in time and effort incurred by people and firms who are trying to minimize their holdings of cash because of inflation are called

The natural rate of unemployment in the United States generally from 1960 to 1980 and from 1980 to 1995.

The idea that new policies change the economic rules and affect economic behavior,so that no one can safely assume that historical relationships between variables will hold when policies change,is known as

Classicals argue that an adverse supply shock would

The fact that the long-run Phillips curve is vertical implies that

In the extended classical model,an unexpected decrease in aggregate demand would cause unanticipated inflation to be and cyclical unemployment to be .

In the expectations-augmented Phillips curve,? = ?e - 3(u - 0.06).When ? = 0.06 and ?e = 0.03,the unemployment rate is

What is the relation between the unemployment rate and the proportion of unemployed workers who have been unemployed for 15 weeks or longer?

Examining data on cyclical unemployment plotted against unanticipated inflation shows

Countries in which the government does not regulate the labor market are likely to have ________ sacrifice ratio.

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 12: Unemployment and Inflation

Describe the major costs of inflation,being sure to distinguish between anticipated and unanticipated inflation.

Keynesians prefer a disinflation policy of

A rapid and decisive reduction in the rate of growth of the money supply for the purpose of disinflation is called

Milton Friedman and Edmund Phelps questioned

The costs of disinflation would be low if

The costs in time and effort incurred by people and firms who are trying to minimize their holdings of cash because of inflation are called

The natural rate of unemployment in the United States generally ________ from 1960 to 1980 and ________ from 1980 to 1995.

The idea that new policies change the economic rules and affect economic behavior,so that no one can safely assume that historical relationships between variables will hold when policies change,is known as

Classicals argue that an adverse supply shock would

The fact that the long-run Phillips curve is vertical implies that

In the extended classical model,an unexpected decrease in aggregate demand would cause unanticipated inflation to be ________ and cyclical unemployment to be ________.

In the expectations-augmented Phillips curve,? = ?e - 3(u - 0.06).When ? = 0.06 and ?e = 0.03,the unemployment rate is

What is the relation between the unemployment rate and the proportion of unemployed workers who have been unemployed for 15 weeks or longer?

Examining data on cyclical unemployment plotted against unanticipated inflation shows

Countries in which the government does not regulate the labor market are likely to have ________ sacrifice ratio.

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

The natural rate of unemployment in the United States generally from 1960 to 1980 and from 1980 to 1995.

In the extended classical model,an unexpected decrease in aggregate demand would cause unanticipated inflation to be and cyclical unemployment to be .