Question 1

Use the following to answer questions: 
-(Figure: Short-Run Phillips Curve) Refer to Figure: Short-Run Phillips Curve. SRPC1 is based on an expected inflation rate of:

Accepted Answer

A)  zero. 
B)  1%. 
C)  2%. 
D)  3%.

Question 2

Suppose the economy is in long-run equilibrium. The government has just decided to lower income taxes. The long-run impact of this policy will be _____ in the natural rate of unemployment and _____ in price level.

Accepted Answer

A)  a decrease; an increase 
B)  a decrease; no change 
C)  no change; an increase 
D)  no change; no change

Question 3

Politicians may accept moderate inflation in an election year, since the _____ in aggregate _____ serves to _____.

Accepted Answer

A)  increase; supply; decrease employment 
B)  decrease; supply; increase employment 
C)  decrease; demand; increase output 
D)  increase; demand; increase employment

Question 4

Disinflation is costly to the economy if _____ is forced on the economy, _____, and _____.

Accepted Answer

A)  deflation; employment decreases; aggregate output falls 
B)  increasing inflation; unemployment decreases; aggregate price level increases 
C)  stagflation; unemployment increases; inflation increases 
D)  a recession; unemployment increases; aggregate output falls

Question 5

Use the following to answer questions: 
-(Figure: Actual and Natural Rates of Unemployment) Refer to Figure: Actual and Natural Rates of Unemployment. In 2011, the amount of cyclical unemployment was approximately:

Accepted Answer

A)  2% 
B)  40.5% 
C)  9% 
D)  14%

Question 6

If the short-run Phillips curve has shifted downward, the _____ curve has shifted to the _____.

Accepted Answer

A)  SRAS; left 
B)  SRAS; right 
C)  AD; left 
D)  AD; right

Question 7

Economists call the revenue generated by the government's right to print money:

Accepted Answer

A)  seignorage. 
B)  monetary policy. 
C)  fiscal policy. 
D)  reserve policy.

Question 8

Use the following to answer questions: 
-(Figure: AD-AS Model and the Short-Run Phillips Curve) Refer to Figure: 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%.

Question 9

According to Okun's law, unemployment must decrease by 1% for output to increase by 1%.

Accepted Answer

A) True 
 B)False

Question 10

Government debt is monetized when:

Accepted Answer

A)  commercial banks buy newly issued Treasury bills. 
B)  the Fed conducts open-market purchases. 
C)  the Fed transfers part of its financial reserves to the Treasury, which in turn buys Treasury bills back. 
D)  the Fed sells Treasury bills in the bond market.

Question 11

The long-run Phillips curve is:

Accepted Answer

A)  vertical at an unemployment rate equal to the nonaccelerating inflation rate of unemployment (NAIRU). 
B)  horizontal at inflation rate equal to NAIRU. 
C)  upward sloping, showing that there is no trade-off between unemployment and inflation. 
D)  downward sloping, showing that there is a trade-off between unemployment and inflation.

Question 12

Seignorage is the:

Accepted Answer

A)  government's cost of printing and coining money. 
B)  revenue generated by the government's right to print money. 
C)  money financial institutions make selling government bonds to the Fed when the Fed creates money. 
D)  revenue the government generates in tax receipts.

Question 13

Which statement 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.

Question 14

Use the following to answer questions: 
-(Figure: Short-Run Phillips Curve) Refer to Figure: Short-Run Phillips Curve. The NAIRU is _____%.

Accepted Answer

A)  3 
B)  5 
C)  7 
D)  8

Question 15

Historical evidence has led economists to conclude that during periods of high inflation, the _____ model of the price level is a good approximation of reality because nominal wages and prices adjust more _____ than during periods of low inflation.

Accepted Answer

A)  classical; quickly 
B)  modern; slowly 
C)  classical; slowly 
D)  modern; quickly

Question 16

The difference between real GDP and potential GDP is known as the:

Accepted Answer

A)  price gap. 
B)  unemployment gap. 
C)  output gap. 
D)  budget deficit.

Question 17

The long-run Phillips curve is:

Accepted Answer

A)  the same as the short-run Phillips curve. 
B)  negatively sloped, showing an inverse relationship between unemployment and inflation. 
C)  vertical at the nonaccelerating inflation rate of unemployment (NAIRU). 
D)  unrelated to the NAIRU.

Question 18

Workers in country A have wage contracts for cost-of-living adjustments (COLAs), which adjust wages to offset the effect of inflation, and workers in country B do not. When the central banks of countries A and B increase the money supply:

Accepted Answer

A)  prices in country A increase faster than prices in country B. 
B)  prices in country B increase faster than prices in country A. 
C)  prices in countries A and B will change at the same rate. 
D)  COLAs have no effect on the speed of price changes.

Question 19

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

Question 20

The natural rate of unemployment is 4%, and the economy is producing 95% of its potential output. Okun's law predicts an unemployment rate of _____%.

Accepted Answer

A)  4 
B)  5 
C)  6.5 
D)  9

Exam 16: Inflation, Disinflation, and Deflation

Use the following to answer questions: -(Figure: Short-Run Phillips Curve) Refer to Figure: Short-Run Phillips Curve. SRPC₁ is based on an expected inflation rate of:

Suppose the economy is in long-run equilibrium. The government has just decided to lower income taxes. The long-run impact of this policy will be _ in the natural rate of unemployment and _ in price level.

Politicians may accept moderate inflation in an election year, since the ___ in aggregate _ serves to ___.

Disinflation is costly to the economy if ___ is forced on the economy, _, and ___.

Use the following to answer questions: -(Figure: Actual and Natural Rates of Unemployment) Refer to Figure: Actual and Natural Rates of Unemployment. In 2011, the amount of cyclical unemployment was approximately:

If the short-run Phillips curve has shifted downward, the _ curve has shifted to the _.

Economists call the revenue generated by the government's right to print money:

Use the following to answer questions: -(Figure: AD-AS Model and the Short-Run Phillips Curve) Refer to Figure: 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:

According to Okun's law, unemployment must decrease by 1% for output to increase by 1%.

Government debt is monetized when:

The long-run Phillips curve is:

Seignorage is the:

Which statement is likely to be TRUE if actual output is equal to potential output?

Use the following to answer questions: -(Figure: Short-Run Phillips Curve) Refer to Figure: Short-Run Phillips Curve. The NAIRU is _____%.

Historical evidence has led economists to conclude that during periods of high inflation, the _ model of the price level is a good approximation of reality because nominal wages and prices adjust more _ than during periods of low inflation.

The difference between real GDP and potential GDP is known as the:

The long-run Phillips curve is:

Workers in country A have wage contracts for cost-of-living adjustments (COLAs) , which adjust wages to offset the effect of inflation, and workers in country B do not. When the central banks of countries A and B increase the money supply:

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?

The natural rate of unemployment is 4%, and the economy is producing 95% of its potential output. Okun's law predicts an unemployment rate of _____%.

Exam 16: Inflation, Disinflation, and Deflation

Use the following to answer questions: -(Figure: Short-Run Phillips Curve) Refer to Figure: Short-Run Phillips Curve. SRPC1 is based on an expected inflation rate of:

Suppose the economy is in long-run equilibrium. The government has just decided to lower income taxes. The long-run impact of this policy will be _____ in the natural rate of unemployment and _____ in price level.

Politicians may accept moderate inflation in an election year, since the _____ in aggregate _____ serves to _____.

Disinflation is costly to the economy if _____ is forced on the economy, _____, and _____.

Use the following to answer questions: -(Figure: Actual and Natural Rates of Unemployment) Refer to Figure: Actual and Natural Rates of Unemployment. In 2011, the amount of cyclical unemployment was approximately:

If the short-run Phillips curve has shifted downward, the _____ curve has shifted to the _____.

Economists call the revenue generated by the government's right to print money:

Use the following to answer questions: -(Figure: AD-AS Model and the Short-Run Phillips Curve) Refer to Figure: 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:

According to Okun's law, unemployment must decrease by 1% for output to increase by 1%.

Government debt is monetized when:

The long-run Phillips curve is:

Seignorage is the:

Which statement is likely to be TRUE if actual output is equal to potential output?

Use the following to answer questions: -(Figure: Short-Run Phillips Curve) Refer to Figure: Short-Run Phillips Curve. The NAIRU is _____%.

Historical evidence has led economists to conclude that during periods of high inflation, the _____ model of the price level is a good approximation of reality because nominal wages and prices adjust more _____ than during periods of low inflation.

The difference between real GDP and potential GDP is known as the:

The long-run Phillips curve is:

Workers in country A have wage contracts for cost-of-living adjustments (COLAs) , which adjust wages to offset the effect of inflation, and workers in country B do not. When the central banks of countries A and B increase the money supply:

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?

The natural rate of unemployment is 4%, and the economy is producing 95% of its potential output. Okun's law predicts an unemployment rate of _____%.

Use the following to answer questions: -(Figure: Short-Run Phillips Curve) Refer to Figure: Short-Run Phillips Curve. SRPC₁ is based on an expected inflation rate of:

Suppose the economy is in long-run equilibrium. The government has just decided to lower income taxes. The long-run impact of this policy will be _ in the natural rate of unemployment and _ in price level.

Politicians may accept moderate inflation in an election year, since the ___ in aggregate _ serves to ___.

Disinflation is costly to the economy if ___ is forced on the economy, _, and ___.

If the short-run Phillips curve has shifted downward, the _ curve has shifted to the _.

Use the following to answer questions: -(Figure: AD-AS Model and the Short-Run Phillips Curve) Refer to Figure: 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:

Historical evidence has led economists to conclude that during periods of high inflation, the _ model of the price level is a good approximation of reality because nominal wages and prices adjust more _ than during periods of low inflation.