Question 1

The inflation-expectations-augmented Phillips curve implies that

Accepted Answer

A) unemployment is at its natural rate when expected inflation is equal to actual inflation 
B) stagflation occurs when expected inflation is below actual inflation 
C) stagflation occurs when the short-run Phillips curve shifts left 
D) the inflation rate is equal to the real output growth rate plus the monetary growth rate 
E) the expected inflation rate is always equal to the monetary growth rate 
A) unemployment is at its natural rate when expected inflation is equal to actual inflation 
B) stagflation occurs when expected inflation is below actual inflation 
C) stagflation occurs when the short-run Phillips curve shifts left 
D) the inflation rate is equal to the real output growth rate plus the monetary growth rate 
E) the expected inflation rate is always equal to the monetary growth rate A

Question 2

In the long run, monetary expansion should have the following result:

Accepted Answer

A) nominal wages change in proportion to nominal money supply 
B) real interest rates remain constant 
C) real wages remain constant 
D) nominal wages and prices change in proportion to nominal money supply 
E) all of the above 
A) nominal wages change in proportion to nominal money supply 
B) real interest rates remain constant 
C) real wages remain constant 
D) nominal wages and prices change in proportion to nominal money supply 
E) all of the above E

Question 3

For many government decision makers, the original Phillips curve implied

Accepted Answer

A) a trade-off between lowering unemployment at the cost of higher inflation or lowering inflation at the cost of higher unemployment 
B) that active stabilization policy will always work if applied correctly 
C) that severe recessions were a thing of the past, as unemployment could easily adjust to its natural rate 
D) that the natural rate of unemployment can be lowered by expansionary monetary policy 
E) all of the above 
A) a trade-off between lowering unemployment at the cost of higher inflation or lowering inflation at the cost of higher unemployment 
B) that active stabilization policy will always work if applied correctly 
C) that severe recessions were a thing of the past, as unemployment could easily adjust to its natural rate 
D) that the natural rate of unemployment can be lowered by expansionary monetary policy 
E) all of the above A

Question 4

In the medium run, a price increase combined with a decrease in the unemployment rate is most likely the result of

Accepted Answer

A) an adverse supply shock 
B) an adverse supply shock followed by restrictive monetary policy 
C) a favorable supply shock 
D) a decrease in money supply 
E) expansionary fiscal or monetary policy 
A) an adverse supply shock 
B) an adverse supply shock followed by restrictive monetary policy 
C) a favorable supply shock 
D) a decrease in money supply 
E) expansionary fiscal or monetary policy

Question 5

Stagflation, that is, high unemployment combined with high inflation

Accepted Answer

A) cannot persist, since the economy eventually will return to full employment 
B) can only occur if expansionary monetary policy is combined with restrictive fiscal policy 
C) is inconsistent with the inflation-expectations-augmented Phillips curve 
D) cannot occur as long as the expected inflation rate is above the actual inflation rate 
E) none of the above 
A) cannot persist, since the economy eventually will return to full employment 
B) can only occur if expansionary monetary policy is combined with restrictive fiscal policy 
C) is inconsistent with the inflation-expectations-augmented Phillips curve 
D) cannot occur as long as the expected inflation rate is above the actual inflation rate 
E) none of the above

Question 6

The insider-outsider model refers to

Accepted Answer

A) policy making in White House 
B) the fact that the unemployed do not take part in collective bargaining 
C) the fact that wages do not respond significantly to changes in the unemployment rate 
D) slow price adjustments in an imperfectly competitive business environment 
E) both B and C 
A) policy making in White House 
B) the fact that the unemployed do not take part in collective bargaining 
C) the fact that wages do not respond significantly to changes in the unemployment rate 
D) slow price adjustments in an imperfectly competitive business environment 
E) both B and C

Question 7

If we look at the annual U.S.unemployment rates over the last five decades, we see

Accepted Answer

A) peaks in 1982, 1992, 2002, and 2008, with each peak higher than the last 
B) fairly small variations around the natural rate of 5.2% 
C) fairly large variations but with the rate quickly returning to about 4% after each peak 
D) that the unemployment rate exceeded 10% at least once 
E) that the unemployment rate never exceeded 9% 
A) peaks in 1982, 1992, 2002, and 2008, with each peak higher than the last 
B) fairly small variations around the natural rate of 5.2% 
C) fairly large variations but with the rate quickly returning to about 4% after each peak 
D) that the unemployment rate exceeded 10% at least once 
E) that the unemployment rate never exceeded 9%

Question 8

Assume output is at its full-employment level and the Fed restricts money supply.What is the most likely outcome?

Accepted Answer

A) an immediate decrease in prices, with no impact on output 
B) no change in nominal wages in the short run, but a decline in output and prices in the medium run 
C) no change in real wages, but a decline in output and prices in the medium run 
D) a decrease in nominal wages and prices in proportion to money supply, but no change in output and real interest rates in the long run 
E) both B and D 
A) an immediate decrease in prices, with no impact on output 
B) no change in nominal wages in the short run, but a decline in output and prices in the medium run 
C) no change in real wages, but a decline in output and prices in the medium run 
D) a decrease in nominal wages and prices in proportion to money supply, but no change in output and real interest rates in the long run 
E) both B and D

Question 9

The theory of aggregate supply is one of the most controversial in macroeconomics because

Accepted Answer

A) modern models, while similar in their starting points, reach widely different results in explaining the AS-curve 
B) economists cannot agree whether the Keynesian or the classical AS-curve is a better reflection of reality 
C) economists cannot agree whether wages are completely flexible or rigid in the long run 
D) economists cannot agree whether wages are completely flexible or rigid in the very short run 
E) economists do not completely agree on the reasons for the slow adjustment of wages and prices after demand-side disturbances 
A) modern models, while similar in their starting points, reach widely different results in explaining the AS-curve 
B) economists cannot agree whether the Keynesian or the classical AS-curve is a better reflection of reality 
C) economists cannot agree whether wages are completely flexible or rigid in the long run 
D) economists cannot agree whether wages are completely flexible or rigid in the very short run 
E) economists do not completely agree on the reasons for the slow adjustment of wages and prices after demand-side disturbances

Question 10

Friedman and Phelps argued that the Phillips curve is not stable over time because

Accepted Answer

A) any kind of stabilization policy immediately affects nominal wages 
B) any shift in aggregate demand will immediately also shift the Phillips curve 
C) workers' expectations about price changes are only wrong temporarily 
D) firms change wage rates for workers as soon as product prices change, so profits will not suffer 
E) firms always immediately change their product prices in response to a change in money supply 
A) any kind of stabilization policy immediately affects nominal wages 
B) any shift in aggregate demand will immediately also shift the Phillips curve 
C) workers' expectations about price changes are only wrong temporarily 
D) firms change wage rates for workers as soon as product prices change, so profits will not suffer 
E) firms always immediately change their product prices in response to a change in money supply

Question 11

Wages are considered to be sticky rather than flexible since

Accepted Answer

A) firms encounter menu costs when changing wages but not when changing prices 
B) labor contracts contain cost-of-living adjustments 
C) firms tend to look at labor as an expendable resource 
D) firms are unsure about their competitors' behavior and only reluctantly change prices and wages following a change in aggregate demand 
E) all of the above 
A) firms encounter menu costs when changing wages but not when changing prices 
B) labor contracts contain cost-of-living adjustments 
C) firms tend to look at labor as an expendable resource 
D) firms are unsure about their competitors' behavior and only reluctantly change prices and wages following a change in aggregate demand 
E) all of the above

Question 12

Which of the following event(s) most likely will leave prices relatively unchanged while increasing output?

Accepted Answer

A) an increase in money supply combined with an income tax increase 
B) expansionary monetary policy in response to an adverse supply shock 
C) expansionary fiscal policy employed after a favorable supply shock 
D) restrictive monetary policy in response to an oil price decrease 
E) none of these 
A) an increase in money supply combined with an income tax increase 
B) expansionary monetary policy in response to an adverse supply shock 
C) expansionary fiscal policy employed after a favorable supply shock 
D) restrictive monetary policy in response to an oil price decrease 
E) none of these

Question 13

According to the Phillips curve relationship, if unemployment is at the natural rate, then

Accepted Answer

A) the rate of inflation is zero 
B) nominal wages will always be equal to real wages 
C) the labor supply will be totally price elastic 
D) prices will always immediately adjust to changes in money supply 
E) none of the above 
A) the rate of inflation is zero 
B) nominal wages will always be equal to real wages 
C) the labor supply will be totally price elastic 
D) prices will always immediately adjust to changes in money supply 
E) none of the above

Question 14

The unemployment gap

Accepted Answer

A) always grows twice as fast as the output gap 
B) always is negative 
C) always increases as the rate of inflation increases 
D) always stays at its natural level 
E) none of the above 
A) always grows twice as fast as the output gap 
B) always is negative 
C) always increases as the rate of inflation increases 
D) always stays at its natural level 
E) none of the above

Question 15

The upward-sloping AS-curve will shift eventually to the left if

Accepted Answer

A) labor productivity increases 
B) actual output is lower than the full-employment level 
C) actual output is higher than the full-employment level 
D) the markup over labor cost falls 
E) the level of potential output increases 
A) labor productivity increases 
B) actual output is lower than the full-employment level 
C) actual output is higher than the full-employment level 
D) the markup over labor cost falls 
E) the level of potential output increases

Question 16

If we look at the sacrifice ratios across countries, we find that

Accepted Answer

A) all industrial nations have approximately the same ratio 
B) Japan has a smaller ratio than Germany, France, or the U.S. 
C) Germany has a higher ratio than Italy, Australia, or the U.S. 
D) no country has a ratio below 1 
E) no country has a ratio above 1 
A) all industrial nations have approximately the same ratio 
B) Japan has a smaller ratio than Germany, France, or the U.S. 
C) Germany has a higher ratio than Italy, Australia, or the U.S. 
D) no country has a ratio below 1 
E) no country has a ratio above 1

Question 17

The misery index is constructed by

Accepted Answer

A) adding the inflation rate and the unemployment rate 
B) multiplying the inflation rate with the unemployment rate 
C) dividing the inflation rate by the unemployment rate 
D) adding the sacrifice ratio and the replacement rate 
E) combining the sacrifice ratio with Okun's law 
A) adding the inflation rate and the unemployment rate 
B) multiplying the inflation rate with the unemployment rate 
C) dividing the inflation rate by the unemployment rate 
D) adding the sacrifice ratio and the replacement rate 
E) combining the sacrifice ratio with Okun's law

Question 18

Which of the following is NOT true for the expectations-augmented Phillips curve?

Accepted Answer

A) the short-run curve shifts with changes in inflationary expectations 
B) the position of the curve depends on the expected rate of inflation 
C) if actual inflation is equal to expected inflation, we are at full-employment 
D) if unemployment is below its natural rate, the curve will shift to the right 
E) if wages and prices don't respond to changes in unemployment, the curve is vertical 
A) the short-run curve shifts with changes in inflationary expectations 
B) the position of the curve depends on the expected rate of inflation 
C) if actual inflation is equal to expected inflation, we are at full-employment 
D) if unemployment is below its natural rate, the curve will shift to the right 
E) if wages and prices don't respond to changes in unemployment, the curve is vertical

Question 19

In the AD-AS model with an upward-sloping AS-curve, a decrease in oil prices will

Accepted Answer

A) increase prices and output 
B) decrease prices and increase output 
C) increase prices and decrease output 
D) decrease prices and output 
E) decrease prices but have no effect on output 
A) increase prices and output 
B) decrease prices and increase output 
C) increase prices and decrease output 
D) decrease prices and output 
E) decrease prices but have no effect on output

Question 20

The efficiency wage theory of aggregate supply implies that

Accepted Answer

A) the AS-curve is vertical 
B) paying employees higher wages won't induce them to work harder 
C) even unanticipated changes in monetary or fiscal policy have no effect on the level of output 
D) since the cost of changing wages and prices is low, wages can easily be adjusted in proportion to price changes to maintain full employment 
E) none of the above 
A) the AS-curve is vertical 
B) paying employees higher wages won't induce them to work harder 
C) even unanticipated changes in monetary or fiscal policy have no effect on the level of output 
D) since the cost of changing wages and prices is low, wages can easily be adjusted in proportion to price changes to maintain full employment 
E) none of the above

Exam 6: Aggregate supply and the phillips curve

The inflation-expectations-augmented Phillips curve implies that

In the long run, monetary expansion should have the following result:

For many government decision makers, the original Phillips curve implied

In the medium run, a price increase combined with a decrease in the unemployment rate is most likely the result of

Stagflation, that is, high unemployment combined with high inflation

The insider-outsider model refers to

If we look at the annual U.S.unemployment rates over the last five decades, we see

Assume output is at its full-employment level and the Fed restricts money supply.What is the most likely outcome?

The theory of aggregate supply is one of the most controversial in macroeconomics because

Friedman and Phelps argued that the Phillips curve is not stable over time because

Wages are considered to be sticky rather than flexible since

Which of the following event(s) most likely will leave prices relatively unchanged while increasing output?

According to the Phillips curve relationship, if unemployment is at the natural rate, then

The unemployment gap

The upward-sloping AS-curve will shift eventually to the left if

If we look at the sacrifice ratios across countries, we find that

The misery index is constructed by

Which of the following is NOT true for the expectations-augmented Phillips curve?

In the AD-AS model with an upward-sloping AS-curve, a decrease in oil prices will

The efficiency wage theory of aggregate supply implies that

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Unemployment

Inflation

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Money, interest, and income

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