Question 1

The bulk of the decline in the natural rate of unemployment since 1980 is because of

Accepted Answer

A) a decline in the inflation rate. 
B) a decline in the share of young workers in the labor force. 
C) increased competition from foreign workers. 
D) the depreciation of the dollar relative to foreign currencies. 
A) a decline in the inflation rate. 
B) a decline in the share of young workers in the labor force. 
C) increased competition from foreign workers. 
D) the depreciation of the dollar relative to foreign currencies.

Question 2

Friedman and Phelps suggested that there should not be a stable relationship between inflation and unemployment,but there should be a stable relationship between

Accepted Answer

A) anticipated inflation and frictional unemployment. 
B) anticipated inflation and cyclical unemployment. 
C) unanticipated inflation and frictional unemployment. 
D) unanticipated inflation and cyclical unemployment. 
A) anticipated inflation and frictional unemployment. 
B) anticipated inflation and cyclical unemployment. 
C) unanticipated inflation and frictional unemployment. 
D) unanticipated inflation and cyclical unemployment.

Question 3

The Phillips curve is a negative empirical relationship between

Accepted Answer

A) bond prices and interest rates. 
B) unemployment and output. 
C) inflation and the real interest rate. 
D) unemployment and inflation. 
A) bond prices and interest rates. 
B) unemployment and output. 
C) inflation and the real interest rate. 
D) unemployment and inflation.

Question 4

The Phillips curve shifted during the 1970s primarily because of

Accepted Answer

A) the two large oil price shocks. 
B) the changing demographics of the population. 
C) tight monetary policy. 
D) easy fiscal policy. 
A) the two large oil price shocks. 
B) the changing demographics of the population. 
C) tight monetary policy. 
D) easy fiscal policy.

Question 5

The expectations-augmented Phillips curve is
? = ?e - 2(u - 0.06).
(a)Graph the long-run Phillips curve and the short-run Phillips curve for an expected inflation rate of 0.04.If the Fed chooses to keep the actual inflation rate at 0.04,what will be the unemployment rate? Label the equilibrium point "A".What is the numerical value of the natural rate of unemployment?
(b)An aggregate demand shock (resulting from increased exports of goods)raises the inflation rate to 0.06 (the natural rate of unemployment and the expected inflation rate are not affected).Show what happens on your graph.Label the equilibrium point "B".What is the numerical value of the unemployment rate?
(c)In response to the aggregate demand shock,suppose the Fed allows the inflation rate of 0.06 to persist.Show what happens on your graph,labeling the equilibrium point "C".In the long run,what is the numerical value of the unemployment rate?
(d)From the situation in part (c),suppose a supply shock raises the natural rate of unemployment by .01 from its original value.If both the inflation rate and the expected inflation rate do not change,show what happens in your graph,labeling the equilibrium point "D".What is the numerical value of the unemployment rate?

Accepted Answer

(a)Long run: vertical line at u = 0.06.S

Question 6

Ball's research on disinflation across different countries found that

Accepted Answer

A) costs of disinflation were smaller for rapid disinflation than for gradual disinflation. 
B) costs of disinflation were larger for rapid disinflation than for gradual disinflation. 
C) costs of disinflation were about the same for both rapid and gradual disinflation. 
D) costs of disinflation were smaller when the central bank had a strong inflation-fighting reputation. 
A) costs of disinflation were smaller for rapid disinflation than for gradual disinflation. 
B) costs of disinflation were larger for rapid disinflation than for gradual disinflation. 
C) costs of disinflation were about the same for both rapid and gradual disinflation. 
D) costs of disinflation were smaller when the central bank had a strong inflation-fighting reputation.

Question 7

Some economists argue that Okun's Law overstates the cost of cyclical unemployment because

Accepted Answer

A) the cost of retraining workers must be offset against the loss in output that occurs when workers are unemployed. 
B) if efficiency wages prevail,and workers are paid their real wage,already employed workers will reduce their effort,reducing output. 
C) it ignores the fact that leisure increases during a recession. 
D) it ignores the loss of government revenue and additional government expenditures that occur when unemployment rises. 
A) the cost of retraining workers must be offset against the loss in output that occurs when workers are unemployed. 
B) if efficiency wages prevail,and workers are paid their real wage,already employed workers will reduce their effort,reducing output. 
C) it ignores the fact that leisure increases during a recession. 
D) it ignores the loss of government revenue and additional government expenditures that occur when unemployment rises.

Question 8

How is the sacrifice ratio measured? How big is the sacrifice ratio in the United States? In other countries? What problems are there in measuring the sacrifice ratio?

Accepted Answer

The sacrifice ratio is measured as the p

Question 9

Based on the expectations-augmented Phillips curve,if the natural rate of unemployment is 0.06,and if the actual inflation rate exceeds the expected inflation rate,then the unemployment rate is

Accepted Answer

A) less than 0.06 
B) 0)06. 
C) more than 0.06. 
D) 0)06 plus 0.5 times the difference between actual and expected inflation. 
A) less than 0.06 
B) 0)06. 
C) more than 0.06. 
D) 0)06 plus 0.5 times the difference between actual and expected inflation.

Question 10

If the expected rate of inflation rose at the same time the natural rate of unemployment rose,the Phillips curve

Accepted Answer

A) would shift down. 
B) would shift up. 
C) would not move. 
D) might shift up or down or not move,depending on which effect was larger. 
A) would shift down. 
B) would shift up. 
C) would not move. 
D) might shift up or down or not move,depending on which effect was larger.

Question 11

The long-run Phillips 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 12

In the extended classical model,an anticipated decrease in the money supply would cause output to ________ and the price level to ________ in the short run.

Accepted Answer

A) increase; decrease 
B) increase; remain unchanged 
C) remain unchanged; increase 
D) remain unchanged; decrease 
A) increase; decrease 
B) increase; remain unchanged 
C) remain unchanged; increase 
D) remain unchanged; decrease

Question 13

The sacrifice ratio is

Accepted Answer

A) the amount of output lost when the inflation rate is reduced by one percentage point. 
B) the percentage reduction in inflation when output falls one percentage point below potential. 
C) the percentage change in employment when output declines by one percentage point. 
D) the number of percentage points that the unemployment rate rises when output declines by one percentage point. 
A) the amount of output lost when the inflation rate is reduced by one percentage point. 
B) the percentage reduction in inflation when output falls one percentage point below potential. 
C) the percentage change in employment when output declines by one percentage point. 
D) the number of percentage points that the unemployment rate rises when output declines by one percentage point.

Question 14

Both classicals and Keynesians agree that policymakers

Accepted Answer

A) can exploit the Phillips curve in the short run. 
B) cannot exploit the Phillips curve in the short run. 
C) can keep the unemployment rate permanently below the natural rate by permanently running a high rate of inflation. 
D) cannot keep the unemployment rate permanently below the natural rate by permanently running a high rate of inflation. 
A) can exploit the Phillips curve in the short run. 
B) cannot exploit the Phillips curve in the short run. 
C) can keep the unemployment rate permanently below the natural rate by permanently running a high rate of inflation. 
D) cannot keep the unemployment rate permanently below the natural rate by permanently running a high rate of inflation.

Question 15

The reduction of the inflation rate is called

Accepted Answer

A) deflation. 
B) disinflation. 
C) unflation. 
D) reflation. 
A) deflation. 
B) disinflation. 
C) unflation. 
D) reflation.

Question 16

Inflation expectations in the United States generally

Accepted Answer

A) fell from 1971 to 1976,rose from 1977 to 1985,then fell from 1985 to 1995,and have been stable since then. 
B) fell from 1971 to 1985,then rose from 1985 to 2000,and have been stable since then. 
C) rose from 1971 to 1987,then fell from 1987 to 2006. 
D) rose from 1971 to 1982,then fell from 1982 to 2000,and have been stable since then. 
A) fell from 1971 to 1976,rose from 1977 to 1985,then fell from 1985 to 1995,and have been stable since then. 
B) fell from 1971 to 1985,then rose from 1985 to 2000,and have been stable since then. 
C) rose from 1971 to 1987,then fell from 1987 to 2006. 
D) rose from 1971 to 1982,then fell from 1982 to 2000,and have been stable since then.

Question 17

The relationship between inflation and unemployment is given by
? = ?e - 4(u -   ).
(a)Draw a diagram showing a long-run Phillips curve and two short-run Phillips curves that contain the following points:
A: ? = .04,?e = .04
B: ? = .08,?e = .08
C: ? = .04,?e = .08
D: ? = .08,?e = .04
Label points A,B,C,and D in your diagram.
The unemployment rate at point A equals .05.
(b)What are the values of the natural rate of unemployment and the unemployment rates at points B,C,and D?

Accepted Answer

(a)Long run: vertical line at u @#IMG-DLM& = 0.05.

Question 18

Consider an economy in long-run equilibrium with an inflation rate (?)of 0.08 per year and a natural unemployment rate of 0.05.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 - 0.05).
Consider a two-year disinflation.In the first year,? = 0.06 and ?e = 0.08.In the second year,? = 0.04 and ?e = 0.05.
(a)In the first year,what is the value of the unemployment rate?
(b)In the first year,by what percentage does output fall short of full-employment output?
(c)In the second year,what is the value of the unemployment rate?
(d)In the second year,by what percentage does output fall short of full-employment output?
(e)What is the sacrifice ratio for this disinflation?

Accepted Answer

(a).06 = .08 - 2.5(u - .05),so u = .058.

Question 19

The origin of the idea of a trade-off between inflation and unemployment was a 1958 article by

Accepted Answer

A) 
A) W.Phillips. 
B) Edmund Phelps. 
C) Milton Friedman. 
D) Robert Gordon. 
A) 
A) W.Phillips. 
B) Edmund Phelps. 
C) Milton Friedman. 
D) Robert Gordon.

Question 20

Hyperinflation occurs when

Accepted Answer

A) the inflation rate rises. 
B) the inflation rate declines. 
C) the inflation rate is extremely high. 
D) the inflation rate is extremely low. 
A) the inflation rate rises. 
B) the inflation rate declines. 
C) the inflation rate is extremely high. 
D) the inflation rate is extremely low.

The bulk of the decline in the natural rate of unemployment since 1980 is because of

Friedman and Phelps suggested that there should not be a stable relationship between inflation and unemployment,but there should be a stable relationship between

The Phillips curve is a negative empirical relationship between

The Phillips curve shifted during the 1970s primarily because of

Ball's research on disinflation across different countries found that

Some economists argue that Okun's Law overstates the cost of cyclical unemployment because

How is the sacrifice ratio measured? How big is the sacrifice ratio in the United States? In other countries? What problems are there in measuring the sacrifice ratio?

Based on the expectations-augmented Phillips curve,if the natural rate of unemployment is 0.06,and if the actual inflation rate exceeds the expected inflation rate,then the unemployment rate is

If the expected rate of inflation rose at the same time the natural rate of unemployment rose,the Phillips curve

The long-run Phillips curve is

In the extended classical model,an anticipated decrease in the money supply would cause output to and the price level to in the short run.

The sacrifice ratio is

Both classicals and Keynesians agree that policymakers

The reduction of the inflation rate is called

Inflation expectations in the United States generally

The origin of the idea of a trade-off between inflation and unemployment was a 1958 article by

Hyperinflation occurs when

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

The bulk of the decline in the natural rate of unemployment since 1980 is because of

Friedman and Phelps suggested that there should not be a stable relationship between inflation and unemployment,but there should be a stable relationship between

The Phillips curve is a negative empirical relationship between

The Phillips curve shifted during the 1970s primarily because of

Ball's research on disinflation across different countries found that

Some economists argue that Okun's Law overstates the cost of cyclical unemployment because

How is the sacrifice ratio measured? How big is the sacrifice ratio in the United States? In other countries? What problems are there in measuring the sacrifice ratio?

Based on the expectations-augmented Phillips curve,if the natural rate of unemployment is 0.06,and if the actual inflation rate exceeds the expected inflation rate,then the unemployment rate is

If the expected rate of inflation rose at the same time the natural rate of unemployment rose,the Phillips curve

The long-run Phillips curve is

In the extended classical model,an anticipated decrease in the money supply would cause output to ________ and the price level to ________ in the short run.

The sacrifice ratio is

Both classicals and Keynesians agree that policymakers

The reduction of the inflation rate is called

Inflation expectations in the United States generally

The origin of the idea of a trade-off between inflation and unemployment was a 1958 article by

Hyperinflation occurs when

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

In the extended classical model,an anticipated decrease in the money supply would cause output to and the price level to in the short run.