Question 1

According to the theory of rational expectations,errors in predicting inflation will

Accepted Answer

A)   be biased upward more often than not.
B)   be purely random.
C)   tend to be biased downward when inflation is rising, and tend to be biased upward when inflation is falling.
D)   tend to be biased upward when inflation is rising, and tend to be biased downward when inflation is falling.E) C) and D)
F) A) and C)

Question 2

If aggregate demand in the U.S.had grown more slowly than it actually did in 2010,the

Accepted Answer

A)   unemployment rate would have been even lower.
B)   inflation rate would have been even lower.
C)   unemployment rate would have been the same.
D)   economy would have grown faster.E) None of the above
F) B) and C)

Question 3

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) All of the above
F) C) and D)

Question 4

Expansionary fiscal and monetary policy from 2008 to 2010,took the risk of being inflationary for the sake of avoiding additional unemployment.

Accepted Answer

A) True 
 B)False

Question 5

If workers always see inflation coming,and if they demand wage increases in advance so that inflation does not erode real wages,then the economy's aggregate supply curve on the AD-AS diagram will

Accepted Answer

A)   be a vertical line corresponding to potential GDP.
B)   be a horizontal line corresponding to potential GDP.
C)   slope downward.
D)   slope upward.E) A) and B)
F) B) and C)

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

Question 7

The Phillips curve assumes that shocks to the economy come from the demand side.

Accepted Answer

A) True 
 B)False

Question 8

Figure 17-8
 
-In Figure 17-8,which of the following movements would you associate with a "negative supply shock"?

Accepted Answer

A)   A to B
B)   A to C
C)   C to E
D)   D to EE) B) and D)
F) A) and D)

Question 9

Adverse shocks such as the crop failures of 1972-1973 and the oil price increases of 1974 and 1979 pushed the economy's

Accepted Answer

A)   aggregate supply curve outward.
B)   Phillips curve inward toward the origin.
C)   aggregate supply curve inward.
D)   aggregate demand curve inward.E) A) and B)
F) All of the above

Question 10

The proposition that the Fed should concentrate on price stability rather than reducing unemployment is

Accepted Answer

A)   generally accepted by politicians, although few economists accept this proposal.
B)   largely accepted by most economists, although politicians do not agree.
C)   highly debatable, because many do not agree that price stability should be the most important goal.
D)   simply incorrect, and no one accepts this idea anymore.E) A) and C)
F) B) and C)

Question 11

If the fluctuations in the economy's real growth rate from year to year are caused primarily by variations in the rate at which aggregate supply increases,then data would show

Accepted Answer

A)   a cyclical relationship between inflation and unemployment.
B)   a direct relationship between inflation and unemployment.
C)   an inverse relationship between inflation and unemployment.
D)   no relationship between inflation and unemployment.E) A) and C)
F) None of the above

Question 12

If the aggregate supply curve shifts outward,then unemployment

Accepted Answer

A)   and inflation will both decrease.
B)   and inflation will both increase.
C)   will increase and inflation will decrease.
D)   will decrease and inflation will increase.E) C) and D)
F) None of the above

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Based on the evidence,most economists believe that the self-correcting mechanism operates

Accepted Answer

A)   slowly with prices, but quickly with wages.
B)   slowly with wages, but quickly with prices.
C)   very slowly with wages.
D)   efficiently, so that stabilization policy is not necessary.E) A) and D)
F) A) and C)

Question 15

In the fall of 2007,most economists felt that the

Accepted Answer

A)   unemployment was at the natural rate.
B)   unemployment rate was below the natural rate.
C)   inflation rate was above the natural rate.
D)   inflation rate was below the natural rate.E) A) and D)
F) A) and C)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

According to the theory of rational expectations,the government can influence output

Accepted Answer

A)   with appropriate fiscal and monetary policy.
B)   in the short run, but not in the long run.
C)   without affecting the price level.
D)   only by making unexpected changes in aggregate demand.E) A) and D)
F) A) and B)

Question 18

The Keynesian view of the world is that the

Accepted Answer

A)   self-correcting mechanism is unreliable.
B)   benefits of fighting unemployment are high and the costs are low.
C)   short-run Phillips curve is relatively flat.
D)   All of the above are correct.E) None of the above
F) A) and D)

Question 19

Figure 17-7
 
-In Figure 17-7,the case for restrictive monetary and fiscal policy is strongest at point

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.E) All of the above
F) A) and D)

Question 20

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

Exam 17: The Trade Off between Inflation and Unemployment

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

Correct AnswerverifiedShow Answer

The proposition that the Fed should concentrate on price stability rather than reducing unemployment is

Correct AnswerverifiedShow Answer

Figure 17-8 -In Figure 17-8,which of the following movements would you associate with a "negative supply shock"?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Adverse shocks such as the crop failures of 1972-1973 and the oil price increases of 1974 and 1979 pushed the economy's

Correct AnswerverifiedShow Answer

The Phillips curve assumes that shocks to the economy come from the demand side.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If workers always see inflation coming,and if they demand wage increases in advance so that inflation does not erode real wages,then the economy's aggregate supply curve on the AD-AS diagram will

Correct AnswerverifiedShow Answer

According to the theory of rational expectations,errors in predicting inflation will

Correct AnswerverifiedShow Answer

The Keynesian view of the world is that the

Correct AnswerverifiedShow Answer

If aggregate demand in the U.S.had grown more slowly than it actually did in 2010,the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the fluctuations in the economy's real growth rate from year to year are caused primarily by variations in the rate at which aggregate supply increases,then data would show

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 17-7 -In Figure 17-7,the case for restrictive monetary and fiscal policy is strongest at point

Correct AnswerverifiedShow Answer

Expansionary fiscal and monetary policy from 2008 to 2010,took the risk of being inflationary for the sake of avoiding additional unemployment.

Correct AnswerverifiedShow Answer

According to the theory of rational expectations,the government can influence output

Correct AnswerverifiedShow Answer

In the fall of 2007,most economists felt that the

Correct AnswerverifiedShow Answer

If the aggregate supply curve shifts outward,then unemployment

Correct AnswerverifiedShow Answer

Based on the evidence,most economists believe that the self-correcting mechanism operates

Correct AnswerverifiedShow Answer

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