Question 1

When inflation comes from the supply side, inflation and unemployment are positively correlated.Does this mean that monetary and fiscal policy makers can escape the trade-off between inflation and unemployment?

Accepted Answer

The answer of When inflation comes from the supply side,...

Question 2

If nominal wages increase at the same rate as inflation, then the aggregate supply curve will be a horizontal line.

Accepted Answer

A) True 
 B)False

Question 3

If policy makers do nothing in response to an inflationary gap, what will happen?

Accepted Answer

A) a rapid movement toward lower unemployment and higher inflation 
B) a rapid movement toward lower unemployment and lower inflation 
C) a slow movement toward higher unemployment and higher inflation 
D) a slow movement toward lower unemployment and lower inflation

Question 4

An increase in AD will trigger less inflation under which of the following conditions?

Accepted Answer

A) AD is relatively steep. 
B) AD is relatively flat. 
C) AS is relatively steep. 
D) AS is relatively flat.

Question 5

What is the effect of supply-side inflation on the short-run Phillips curve?

Accepted Answer

The answer of What is the effect of supply-side inflation...

Question 6

A non-policy reason for the reduction in the natural rate of unemployment is the

Accepted Answer

A) expansionary nature of monetary policy. 
B) aging of the U.S.labor force. 
C) decline in interest rates. 
D) growing federal budget surplus.

Question 7

An economy eliminates a recessionary gap by reducing wages and prices.

Accepted Answer

A) True 
 B)False

Question 8

One reason why the Phillips curve "broke down" is

Accepted Answer

A) most of the inflation of the 1970s was from the demand side. 
B) most of the inflation of the 1970s was from the supply side. 
C) the inflation of the 1970s was foreseen, unlike the inflation of the 1980s. 
D) the inflation of the 1970s was purely random and could not be explained with economic theory.

Question 9

The economy's self-correcting mechanism ensures that neither recessionary nor inflationary gaps will be eliminated eventually.

Accepted Answer

A) True 
 B)False

Question 10

The government can fight inflation by manipulating both aggregate demand and aggregate supply.

Accepted Answer

A) True 
 B)False

Question 11

If aggregate demand grows faster than aggregate supply, the equilibrium price level will rise.

Accepted Answer

A) True 
 B)False

Question 12

Figure 17-8
 
-In Figure 17-8, which of the following points cannot be observed in the long run?

Accepted Answer

A) A 
B) B 
C) C 
D) E

Question 13

If expectations are rational, the difference between the actual rate of inflation and the expected rate of inflation will be zero.

Accepted Answer

A) True 
 B)False

Question 14

Figure 17-6
 
-Figure 17-6 (b) illustrates that

Accepted Answer

A) in the short run, it is possible to "ride the Phillips curve" down toward lower rates of inflation. 
B) in the short run, it is possible to "ride the Phillips curve" up toward lower unemployment by stimulating aggregate demand. 
C) the Phillips curve connecting points g, e, and r is not a menu of policy choices. 
D) All of the above are correct.

Question 15

The aggregate supply curve slopes upward when the real wage falls initially as the price level rises.

Accepted Answer

A) True 
 B)False

Question 16

The main reason why the economy's aggregate supply curve slopes upward is that

Accepted Answer

A) as the price level rises, businesses incur additional costs. 
B) businesses typically purchase labor and other inputs under long-term contracts that fix the cost of the input in money terms. 
C) as the price level rises, workers have higher real wages to spend for additional consumer goods. 
D) All of the above are correct.

Question 17

Which of the factors below contributed to the collapse of the Phillips curve in the 1970s?

Accepted Answer

A) Economic research proved there was no relationship between inflation and unemployment rates. 
B) The U.S.government was running triple-digit deficits in the 1970s, compounding the normal shifts in aggregate demand. 
C) The 1970s were full of adverse supply shocks such as the oil price increases of 1973-1974. 
D) The aggregate demand curve shifted to the left at the end of the Vietnam War.

Question 18

Fighting inflation by slowing the growth of aggregate demand is

Accepted Answer

A) endorsed by most politicians. 
B) a convenient way to reduce inflation. 
C) unpopular with politicians. 
D) always easily accepted by firms and workers.

Question 19

In December of 2007, with an unemployment rate of 5.0 percent, most economists believed this was above the natural rate.

Accepted Answer

A) True 
 B)False

Question 20

Define the following terms and explain their importance to the study of macroeconomics:
a.Phillips curve
b.rational expectations
c.indexing
d.stagflation

Accepted Answer

The answer of Define the following terms and explain their...

Exam 34: The Trade-Off Between Inflation and Unemployment

When inflation comes from the supply side, inflation and unemployment are positively correlated.Does this mean that monetary and fiscal policy makers can escape the trade-off between inflation and unemployment?

If nominal wages increase at the same rate as inflation, then the aggregate supply curve will be a horizontal line.

If policy makers do nothing in response to an inflationary gap, what will happen?

An increase in AD will trigger less inflation under which of the following conditions?

What is the effect of supply-side inflation on the short-run Phillips curve?

A non-policy reason for the reduction in the natural rate of unemployment is the

An economy eliminates a recessionary gap by reducing wages and prices.

One reason why the Phillips curve "broke down" is

The economy's self-correcting mechanism ensures that neither recessionary nor inflationary gaps will be eliminated eventually.

The government can fight inflation by manipulating both aggregate demand and aggregate supply.

If aggregate demand grows faster than aggregate supply, the equilibrium price level will rise.

Figure 17-8 -In Figure 17-8, which of the following points cannot be observed in the long run?

If expectations are rational, the difference between the actual rate of inflation and the expected rate of inflation will be zero.

Figure 17-6 -Figure 17-6 (b) illustrates that

The aggregate supply curve slopes upward when the real wage falls initially as the price level rises.

The main reason why the economy's aggregate supply curve slopes upward is that

Which of the factors below contributed to the collapse of the Phillips curve in the 1970s?

Fighting inflation by slowing the growth of aggregate demand is

In December of 2007, with an unemployment rate of 5.0 percent, most economists believed this was above the natural rate.

Define the following terms and explain their importance to the study of macroeconomics: a.Phillips curve b.rational expectations c.indexing d.stagflation