Question 1

If policy makers expand aggregate demand, they can lower unemployment ____, but only by ____.

Accepted Answer

A) ​temporarily; decreasing inflation 
B) ​temporarily; increasing inflation 
C) ​permanently; decreasing inflation 
D) ​permanently; increasing inflation 
A) ​temporarily; decreasing inflation 
B) ​temporarily; increasing inflation 
C) ​permanently; decreasing inflation 
D) ​permanently; increasing inflation

Question 2

What does a vertical Phillips curve in the long run imply?

Accepted Answer

A) ​In the long run, the rate of unemployment will converge toward zero. 
B) ​Higher inflation does not permanently reduce the rate of unemployment. 
C) ​Higher inflation increases the rate of unemployment. 
D) ​Higher inflation lowers the rate of unemployment. 
A) ​In the long run, the rate of unemployment will converge toward zero. 
B) ​Higher inflation does not permanently reduce the rate of unemployment. 
C) ​Higher inflation increases the rate of unemployment. 
D) ​Higher inflation lowers the rate of unemployment.

Question 3

The Phillips Curve is steeper at higher rates of inflation and lower levels of unemployment.

Accepted Answer

A) True 
 B)False

Question 4

With rational expectations, a policy that would decrease AD would lead to:

Accepted Answer

A) ​lower inflation and lower unemployment in the short run if people underestimated the effect of the policy on inflation. 
B) ​lower inflation and higher unemployment in the short run if people underestimated the effect of the policy on inflation. 
C) ​lower inflation and an indeterminate effect on unemployment in the short run, if people's expectations were correct. 
D) ​both (b) and (c). 
A) ​lower inflation and lower unemployment in the short run if people underestimated the effect of the policy on inflation. 
B) ​lower inflation and higher unemployment in the short run if people underestimated the effect of the policy on inflation. 
C) ​lower inflation and an indeterminate effect on unemployment in the short run, if people's expectations were correct. 
D) ​both (b) and (c).

Question 5

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Accepted Answer

A) ​will increase RGDP in the long run. 
B) ​will affect RGDP and inflation only in the long run. 
C) ​may affect RGDP but not nominal GDP. 
D) ​will tend to be offset by the actions of input suppliers as they react to their inflation expectations. 
A) ​will increase RGDP in the long run. 
B) ​will affect RGDP and inflation only in the long run. 
C) ​may affect RGDP but not nominal GDP. 
D) ​will tend to be offset by the actions of input suppliers as they react to their inflation expectations.

Question 6

Activists believe that monetary and fiscal policy will only work if it comes as a surprise to the public.

Accepted Answer

A) True 
 B)False

Question 7

Rational expectations theory suggests that government or central bank policies designed to change aggregate demand will be effective.

Accepted Answer

A) True 
 B)False

Question 8

Throughout history many governments have financed government operations with the printing press, and paying government bills by increasing the money supply. The United States followed this path during the Civil War, approximately doubling the U.S. money supply between 1860 and 1865 using paper fiat money called Greenbacks. What do you think this rapid increase in the money supply did to inflation and inflationary expectations? Suppose the economy was in long-run equilibrium by the end of the war and the government began to remove Greenbacks and reduce the money supply. Use your understanding of the Phillips curve relationship to explain the effect on the economy.

Accepted Answer

Increases in the money supply that are m

Question 9

With rational expectations, a correctly anticipated policy that would increase AD would lead to:

Accepted Answer

A) ​higher inflation and lower unemployment in the short run. 
B) ​higher inflation and higher unemployment in the short run. 
C) ​higher inflation and no change in unemployment in the short run. 
D) ​lower inflation and lower unemployment in the short run. 
A) ​higher inflation and lower unemployment in the short run. 
B) ​higher inflation and higher unemployment in the short run. 
C) ​higher inflation and no change in unemployment in the short run. 
D) ​lower inflation and lower unemployment in the short run.

Question 10

At one time, policy makers interpreted the Phillips curve as offering a menu of inflation-unemployment choices. Today, the curve is no longer viewed this way. Why has the interpretation changed?

Accepted Answer

The original view stemmed from the effec

Question 11

Stagflation caused by a negative supply shock makes macroeconomic policy very difficult; trying to reduce the size of a recession caused by the shock leads to a higher price level.

Accepted Answer

A) True 
 B)False

Question 12

If the shifts in AD that will result from policy changes are fully and accurately anticipated, a decrease in government purchases or an increase in taxes would result in which of the following in the short run?

Accepted Answer

A) ​a higher level of real output and a higher price level 
B) ​a higher level of real output but no change in the price level 
C) ​a higher price level and a reduced level of real output 
D) ​none of the above. 
A) ​a higher level of real output and a higher price level 
B) ​a higher level of real output but no change in the price level 
C) ​a higher price level and a reduced level of real output 
D) ​none of the above.

Question 13

A conclusion of the theory of rational expectations is that, in the short run, the impact of discretionary fiscal policies designed to shift the AD curve will:

Accepted Answer

A) ​result in no net change in AD once people's expectations adjustments have been accounted for. 
B) ​shift AD in the opposite direction intended once people's expectations adjustments have been accounted for. 
C) ​be anticipated and compensated for, causing no significant effect on real or nominal GDP or employment. 
D) ​have to be a surprise to change real output in the intended direction. 
A) ​result in no net change in AD once people's expectations adjustments have been accounted for. 
B) ​shift AD in the opposite direction intended once people's expectations adjustments have been accounted for. 
C) ​be anticipated and compensated for, causing no significant effect on real or nominal GDP or employment. 
D) ​have to be a surprise to change real output in the intended direction.

Question 14

Compare and contrast the shapes of the short-run and long-run Phillips curves.

Accepted Answer

The short-run Phillips curve is downward

Question 15

Which of the following statements was probably made by an adherent of rational expectations?

Accepted Answer

A) ​It is rational to pursue any full employment policy because more employment is better than less. 
B) ​Unemployment is clearly a case of market failure. 
C) ​Programs designed to stimulate employment will only stimulate the price level with no employment gain. 
D) ​It is inhumane to have a single person unemployed whatever the inflation cost. 
A) ​It is rational to pursue any full employment policy because more employment is better than less. 
B) ​Unemployment is clearly a case of market failure. 
C) ​Programs designed to stimulate employment will only stimulate the price level with no employment gain. 
D) ​It is inhumane to have a single person unemployed whatever the inflation cost.

Question 16

According to rational expectations theory:

Accepted Answer

A) ​a large reduction in unemployment can be achieved with a relatively small increase in inflation. 
B) ​people are not easily fooled by changes in government fiscal policy. 
C) ​inflation rates that rise 3 percentage points each year will keep unemployment below its natural rate for a sustained period of time. 
D) ​the Phillips curve will slope downward to the right, if people correctly anticipate the inflation rate. 
A) ​a large reduction in unemployment can be achieved with a relatively small increase in inflation. 
B) ​people are not easily fooled by changes in government fiscal policy. 
C) ​inflation rates that rise 3 percentage points each year will keep unemployment below its natural rate for a sustained period of time. 
D) ​the Phillips curve will slope downward to the right, if people correctly anticipate the inflation rate.

Question 17

Most macroeconomists believe that both fiscal and monetary policy can shift aggregate demand and that such interventions can be counterproductive.

Accepted Answer

A) True 
 B)False

Question 18

Either supply shocks or adjusting inflation expectations can shift the short run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 19

If the short-run aggregate supply curve is shifting left:

Accepted Answer

A) ​the short-run Phillips curve is shifting left. 
B) ​the short-run Phillips curve is shifting right. 
C) ​the long-run Phillips curve is shifting right. 
D) ​the long-run Phillips curve is shifting left. 
A) ​the short-run Phillips curve is shifting left. 
B) ​the short-run Phillips curve is shifting right. 
C) ​the long-run Phillips curve is shifting right. 
D) ​the long-run Phillips curve is shifting left.

Question 20

If the short-run Phillips curve has a very shallow (or flat) slope,

Accepted Answer

A) ​the self-correcting mechanism cannot work. 
B) ​the structural deficit will grow in a recession. 
C) ​the structural deficit will fall in a recession. 
D) ​the inflation costs of reducing unemployment are fairly low. 
A) ​the self-correcting mechanism cannot work. 
B) ​the structural deficit will grow in a recession. 
C) ​the structural deficit will fall in a recession. 
D) ​the inflation costs of reducing unemployment are fairly low.

If policy makers expand aggregate demand, they can lower unemployment , but only by .

What does a vertical Phillips curve in the long run imply?

The Phillips Curve is steeper at higher rates of inflation and lower levels of unemployment.

With rational expectations, a policy that would decrease AD would lead to:

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Activists believe that monetary and fiscal policy will only work if it comes as a surprise to the public.

Rational expectations theory suggests that government or central bank policies designed to change aggregate demand will be effective.

With rational expectations, a correctly anticipated policy that would increase AD would lead to:

At one time, policy makers interpreted the Phillips curve as offering a menu of inflation-unemployment choices. Today, the curve is no longer viewed this way. Why has the interpretation changed?

Stagflation caused by a negative supply shock makes macroeconomic policy very difficult; trying to reduce the size of a recession caused by the shock leads to a higher price level.

If the shifts in AD that will result from policy changes are fully and accurately anticipated, a decrease in government purchases or an increase in taxes would result in which of the following in the short run?

A conclusion of the theory of rational expectations is that, in the short run, the impact of discretionary fiscal policies designed to shift the AD curve will:

Compare and contrast the shapes of the short-run and long-run Phillips curves.

Which of the following statements was probably made by an adherent of rational expectations?

According to rational expectations theory:

Most macroeconomists believe that both fiscal and monetary policy can shift aggregate demand and that such interventions can be counterproductive.

Either supply shocks or adjusting inflation expectations can shift the short run Phillips curve.

If the short-run aggregate supply curve is shifting left:

If the short-run Phillips curve has a very shallow (or flat) slope,

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Filters

Exam 19: Measuring Economic Performance

If policy makers expand aggregate demand, they can lower unemployment ____, but only by ____.

What does a vertical Phillips curve in the long run imply?

The Phillips Curve is steeper at higher rates of inflation and lower levels of unemployment.

With rational expectations, a policy that would decrease AD would lead to:

Rational expectation theory implies that accurately anticipated change in aggregate demand:

Activists believe that monetary and fiscal policy will only work if it comes as a surprise to the public.

Rational expectations theory suggests that government or central bank policies designed to change aggregate demand will be effective.

With rational expectations, a correctly anticipated policy that would increase AD would lead to:

At one time, policy makers interpreted the Phillips curve as offering a menu of inflation-unemployment choices. Today, the curve is no longer viewed this way. Why has the interpretation changed?

Stagflation caused by a negative supply shock makes macroeconomic policy very difficult; trying to reduce the size of a recession caused by the shock leads to a higher price level.

If the shifts in AD that will result from policy changes are fully and accurately anticipated, a decrease in government purchases or an increase in taxes would result in which of the following in the short run?

A conclusion of the theory of rational expectations is that, in the short run, the impact of discretionary fiscal policies designed to shift the AD curve will:

Compare and contrast the shapes of the short-run and long-run Phillips curves.

Which of the following statements was probably made by an adherent of rational expectations?

According to rational expectations theory:

Most macroeconomists believe that both fiscal and monetary policy can shift aggregate demand and that such interventions can be counterproductive.

Either supply shocks or adjusting inflation expectations can shift the short run Phillips curve.

If the short-run aggregate supply curve is shifting left:

If the short-run Phillips curve has a very shallow (or flat) slope,

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Filters

If policy makers expand aggregate demand, they can lower unemployment , but only by .