Question 1

One of the reasons why the Phillips curve is no longer viewed as a "menu" of possible choices available to policy makers is that

Accepted Answer

A)   in the 1970s and 1980s there was no inflation at all.
B)   analysis indicates there was no such "menu" in the 1960s.
C)   in the 1970s and 1980s much inflation came from the supply side.
D)   economic theory is unable to explain the curve and, therefore, it has been rejected.E) B) and D)
F) None of the above

Question 2

The rational expectations theory claims that workers and firms will not make systematic errors when they forecast inflation.

Accepted Answer

A) True 
 B)False

Question 3

In the rational expectations model, government control over aggregate demand

Accepted Answer

A)   can affect real output only if policies are unexpected.
B)   has potential to change real output as long as aggregate supply is vertical.
C)   gives it the ability to change real output and employment.
D)   does not influence the economic behavior of individuals.E) A) and B)
F) None of the above

Question 4

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.E) A) and B)
F) A) and C)

Question 5

Describe three arguments of why some economists object to the predictions of the rational expectations theory and do not subscribe to the conclusions of this approach.

Accepted Answer

First, long-term contracts may be based ...

Question 6

If the short-run Phillips curve is fairly horizontal, attempts to fight inflation will generate considerable unemployment.

Accepted Answer

A) True 
 B)False

Question 7

Figure 17-7
 
-In Figure 17-7, the only sustainable long-run equilibrium position is at point

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.E) None of the above
F) A) and B)

Question 8

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.E) A) and B)
F) A) and C)

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

A scatter diagram of the position of the U.S.economy from 1972 through 2007 with the price level on the vertical axis and real GDP on the horizontal axis would show a movement generally toward the

Accepted Answer

A)   northwest.
B)   northeast.
C)   southwest.
D)   southeast.E) A) and D)
F) A) and B)

Question 11

During the 1960s and early 1970s, economists believed that the Phillips curve indicated

Accepted Answer

A)   that higher inflation was the price for more unemployment.
B)   that higher levels of employment could be achieved with lower inflation.
C)   a menu of choices for policy makers.
D)   All of the above are correct.E) A) and D)
F) B) and D)

Question 12

What reasons would economists give for an increase in the natural rate of unemployment that could have occurred from 2007 to 2011? What argument would suggest that the natural rate of unemployment may not have risen?

Accepted Answer

Some economists claimed that certain job...

Question 13

In the short run, fiscal and monetary policy cause unemployment and inflation to move in opposite directions because

Accepted Answer

A)   the Fed and Congress rarely agree on policy.
B)   one controls aggregate demand, the other controls aggregate supply.
C)   both policies control only aggregate supply.
D)   both policies control only aggregate demand.E) C) and D)
F) None of the above

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The Phillips curve shows the relationship between

Accepted Answer

A)   the rate of inflation and the rate of unemployment.
B)   the rate of growth of real GDP and the rate of unemployment.
C)   real prices and real GDP.
D)   the rate of inflation and the rate of growth of real GDP.E) A) and D)
F) None of the above

Question 16

In the face of the 2007-2009 recession, the President, Congress, and the Fed

Accepted Answer

A)   decided to rely on the self-correcting mechanism of the economy to eliminate inflation.
B)   decided to rely on the self-correcting mechanism of the economy to reduce unemployment.
C)   pursued an active policy to balance the budget and fight inflation.
D)   pursued an active policy to expand aggregate demand.E) A) and B)
F) B) and D)

Question 17

The main process by which a recessionary gap is eliminated is a(n)

Accepted Answer

A)   increase in wages that shifts the aggregate supply curve inward.
B)   drop in wages that shifts the aggregate demand curve inward.
C)   increase in wages that shifts the aggregate demand curve outward.
D)   drop in wages that shifts the aggregate supply curve outward.E) B) and C)
F) A) and B)

Question 18

One reason that the Phillips curve "broke down" is that it

Accepted Answer

A)   is unable to explain short-run movements in inflation and unemployment, but does a better job of explaining long-run movements.
B)   assumes a quick-acting self-correcting mechanism, and the economy has a very slow self-correcting mechanism.
C)   is a statistical relationship, and some of the points are not sustainable in the long run.
D)   cannot explain demand-side inflation, and it collapsed when demand-side inflation was predominant in the 1970s.E) None of the above
F) A) and B)

Question 19

If unemployment and inflation always move in the same direction, then we can infer that business fluctuations are

Accepted Answer

A)   from the demand side.
B)   from the supply side.
C)   from both the demand and supply side.
D)   purely random events.E) C) and D)
F) A) and B)

Question 20

Rational expectations are forecasts

Accepted Answer

A)   that, while not necessarily correct, are the best that can be made given the available data.
B)   that are technically correct.
C)   that accurately predict the short-term trade-off between inflation and unemployment.
D)   made by economists using the most sophisticated econometric models.E) A) and B)
F) All of the above

Exam 34: The Trade-Off between Inflation and Unemployment

The Phillips curve shows the relationship between

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Rational expectations are forecasts

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A scatter diagram of the position of the U.S.economy from 1972 through 2007 with the price level on the vertical axis and real GDP on the horizontal axis would show a movement generally toward the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The rational expectations theory claims that workers and firms will not make systematic errors when they forecast inflation.

Correct AnswerverifiedShow Answer

During the 1960s and early 1970s, economists believed that the Phillips curve indicated

Correct AnswerverifiedShow Answer

In the short run, fiscal and monetary policy cause unemployment and inflation to move in opposite directions because

Correct AnswerverifiedShow Answer

In the face of the 2007-2009 recession, the President, Congress, and the Fed

Correct AnswerverifiedShow Answer

One of the reasons why the Phillips curve is no longer viewed as a "menu" of possible choices available to policy makers is that

Correct AnswerverifiedShow Answer

What reasons would economists give for an increase in the natural rate of unemployment that could have occurred from 2007 to 2011? What argument would suggest that the natural rate of unemployment may not have risen?

Correct AnswerverifiedSome economists claimed that certain job...View AnswerShow Answer

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

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The main process by which a recessionary gap is eliminated is a(n)

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In the rational expectations model, government control over aggregate demand

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

Correct AnswerverifiedShow Answer

If the short-run Phillips curve is fairly horizontal, attempts to fight inflation will generate considerable unemployment.

Correct AnswerverifiedShow Answer

Describe three arguments of why some economists object to the predictions of the rational expectations theory and do not subscribe to the conclusions of this approach.

Correct AnswerverifiedFirst, long-term contracts may be based ...View AnswerShow Answer

If unemployment and inflation always move in the same direction, then we can infer that business fluctuations are

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One reason that the Phillips curve "broke down" is that it

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Figure 17-7 -In Figure 17-7, the only sustainable long-run equilibrium position is at point

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Some economists claimed that certain job...
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First, long-term contracts may be based ...
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