Question 1

A change in the misery index

Accepted Answer

A) may indicate a change in the chances of an incumbent to get re-elected 
B) may arise from a change in the inflation rate even if unemployment remains constant 
C) is likely to occur if the economy experiences a positive supply shock 
D) all of the above 
E) none of the above 
A) may indicate a change in the chances of an incumbent to get re-elected 
B) may arise from a change in the inflation rate even if unemployment remains constant 
C) is likely to occur if the economy experiences a positive supply shock 
D) all of the above 
E) none of the above

Question 2

What sort of event could lead to a simultaneous decrease in the rates of inflation and unemployment?

Accepted Answer

A) a decrease in money supply 
B) an increase in money supply 
C) an adverse supply shock 
D) a decrease in material prices 
E) restrictive monetary policy following an adverse supply shock 
A) a decrease in money supply 
B) an increase in money supply 
C) an adverse supply shock 
D) a decrease in material prices 
E) restrictive monetary policy following an adverse supply shock

Question 3

If nominal wage rates were completely flexible, then

Accepted Answer

A) fiscal policy would affect real money balances but not output 
B) there would be a clear trade-off between unemployment and inflation 
C) periods of unemployment would be much more frequent 
D) frictional unemployment would not exist 
E) monetary policy would be ineffective in changing the price level 
A) fiscal policy would affect real money balances but not output 
B) there would be a clear trade-off between unemployment and inflation 
C) periods of unemployment would be much more frequent 
D) frictional unemployment would not exist 
E) monetary policy would be ineffective in changing the price level

Question 4

Which of the following is NOT used in deriving the AS-curve in Chapter 6?

Accepted Answer

A) the link between output and employment 
B) the price-cost relation 
C) the Phillips curve 
D) the quantity theory of money 
E) all of the above are used 
A) the link between output and employment 
B) the price-cost relation 
C) the Phillips curve 
D) the quantity theory of money 
E) all of the above are used

Question 5

If policy makers want to get the price level quickly back to its original level following an adverse supply shock, they need to

Accepted Answer

A) implement restrictive monetary policy 
B) decrease taxes 
C) increase government transfer payments 
D) combine a tax increase with an increase in government spending of equal magnitude 
E) levy a tariff on imported oil 
A) implement restrictive monetary policy 
B) decrease taxes 
C) increase government transfer payments 
D) combine a tax increase with an increase in government spending of equal magnitude 
E) levy a tariff on imported oil

Question 6

In an AD-AS model with an upward-sloping AS-curve, the most likely effects of fiscal expansion would be

Accepted Answer

A) an increase in prices and interest rates, but a decrease in real money balances 
B) an increase in output, prices, and real money balances 
C) an increase in consumption and a decrease in investment with no change in output 
D) a decrease in unemployment but an increase in interest rates and real money balances 
E) a decrease in consumption, but an increase in net exports and investment 
A) an increase in prices and interest rates, but a decrease in real money balances 
B) an increase in output, prices, and real money balances 
C) an increase in consumption and a decrease in investment with no change in output 
D) a decrease in unemployment but an increase in interest rates and real money balances 
E) a decrease in consumption, but an increase in net exports and investment

Question 7

Assume the economy is at full employment.Which is the most likely effect of a decrease in government spending?

Accepted Answer

A) output, prices, and interest rates will all increase in the medium run 
B) output, prices, and interest rates will all decrease in the long run 
C) prices and interest rates will decrease in the medium and long run while output will be negatively affected in the medium run but not in the long run 
D) output and prices will remain the same in the long run, but interest rates will increase both in the medium and long run 
E) output, prices and interest rates will all decline in the medium run but only output will be negatively affected in the long run 
A) output, prices, and interest rates will all increase in the medium run 
B) output, prices, and interest rates will all decrease in the long run 
C) prices and interest rates will decrease in the medium and long run while output will be negatively affected in the medium run but not in the long run 
D) output and prices will remain the same in the long run, but interest rates will increase both in the medium and long run 
E) output, prices and interest rates will all decline in the medium run but only output will be negatively affected in the long run

Question 8

The most likely long-run result of a tax cut would be

Accepted Answer

A) lower unemployment but higher prices and interest rates 
B) lower interest rates but no change in unemployment 
C) higher levels of consumption, investment, and employment 
D) more consumption and less investment, with output remaining unchanged 
E) higher prices and interest rates, resulting in a less consumption and investment 
A) lower unemployment but higher prices and interest rates 
B) lower interest rates but no change in unemployment 
C) higher levels of consumption, investment, and employment 
D) more consumption and less investment, with output remaining unchanged 
E) higher prices and interest rates, resulting in a less consumption and investment

Question 9

In an AD-AS model with an upward sloping AS-curve, what would happen if oil prices increased and the Fed responded by restricting money supply?

Accepted Answer

A) real output would increase and the price level would remain the same 
B) real output would remain the same but the price level would decrease 
C)  real output would decrease and the price level would increase sharply 
D) real output would decrease and the price level would decrease sharply 
E) real output would decrease but we can't tell what would happen to the price level 
A) real output would increase and the price level would remain the same 
B) real output would remain the same but the price level would decrease 
C)  real output would decrease and the price level would increase sharply 
D) real output would decrease and the price level would decrease sharply 
E) real output would decrease but we can't tell what would happen to the price level

Question 10

Okun's law states that one extra percentage point in unemployment causes

Accepted Answer

A) a 2 percent fall in GDP 
B) a 0.5 percent fall in GDP 
C) a 2 percent fall in the rate of inflation 
D) a 0.5 percent fall in the rate of inflation 
E) a 2 percent increase in the sacrifice ratio 
A) a 2 percent fall in GDP 
B) a 0.5 percent fall in GDP 
C) a 2 percent fall in the rate of inflation 
D) a 0.5 percent fall in the rate of inflation 
E) a 2 percent increase in the sacrifice ratio

Question 11

Political business cycles consist of fluctuations caused by

Accepted Answer

A) misguided foreign policies designed to increase political pressure over our trade partners 
B) economic policies designed to help win elections 
C) the Fed trying to support every policy proposed by the president 
D) our trade partners trying to react to changes in U.S. policies 
E) the inability of politicians to agree on the right policy mix 
A) misguided foreign policies designed to increase political pressure over our trade partners 
B) economic policies designed to help win elections 
C) the Fed trying to support every policy proposed by the president 
D) our trade partners trying to react to changes in U.S. policies 
E) the inability of politicians to agree on the right policy mix

Question 12

In the long run, what event(s) can lead to an increase in inflation without changing the unemployment rate above its natural level?

Accepted Answer

A) a tax decrease combined with a government spending decrease 
B) an increase in government spending combined with restrictive monetary policy 
C) an adverse supply shock 
D) an adverse supply shock accommodated by expansionary monetary policy 
E) a favorable supply shock 
A) a tax decrease combined with a government spending decrease 
B) an increase in government spending combined with restrictive monetary policy 
C) an adverse supply shock 
D) an adverse supply shock accommodated by expansionary monetary policy 
E) a favorable supply shock

Question 13

The sacrifice ratio is defined as

Accepted Answer

A) the percentage of output lost for every 1 percent increase in the unemployment rate 
B) the percentage increase in the unemployment rate for every 1 percent reduction in GDP 
C) the percentage of output lost for each 1 percent reduction in the rate of inflation 
D) the inflation rate plus the unemployment rate 
E) the inflation rate divided by the unemployment rate 
A) the percentage of output lost for every 1 percent increase in the unemployment rate 
B) the percentage increase in the unemployment rate for every 1 percent reduction in GDP 
C) the percentage of output lost for each 1 percent reduction in the rate of inflation 
D) the inflation rate plus the unemployment rate 
E) the inflation rate divided by the unemployment rate

Question 14

If the government stimulates aggregate demand in response to an adverse supply shock,

Accepted Answer

A) the inflation rate will increase but frictional unemployment will decrease 
B) the unemployment rate will increase but the inflation rate will decline 
C) an increase in unemployment can be avoided but only at the cost of increased inflation 
D) high inflation can be avoided but the rate of unemployment will increase 
E) the inflation and unemployment rates will be reduced simultaneously 
A) the inflation rate will increase but frictional unemployment will decrease 
B) the unemployment rate will increase but the inflation rate will decline 
C) an increase in unemployment can be avoided but only at the cost of increased inflation 
D) high inflation can be avoided but the rate of unemployment will increase 
E) the inflation and unemployment rates will be reduced simultaneously

Question 15

Assume the Fed implements restrictive monetary policy.Which of the following is the most likely result in an AD-AS framework with an upward sloping AS-curve?

Accepted Answer

A) the interest rate will increase but output, prices, and real money balances will fall 
B)  the interest rate, output, and prices will all decline 
C) prices and output will fall, but real money balances will increase 
D) real money balances will remain unchanged, since money supply and prices will decrease proportionally 
E) real money balances and prices will fall proportionally 
A) the interest rate will increase but output, prices, and real money balances will fall 
B)  the interest rate, output, and prices will all decline 
C) prices and output will fall, but real money balances will increase 
D) real money balances will remain unchanged, since money supply and prices will decrease proportionally 
E) real money balances and prices will fall proportionally

Question 16

Which of the following is the most likely medium-run outcome of an adverse supply shock?

Accepted Answer

A) an increase in consumer prices and a higher level of real GDP 
B) a decrease in real GDP 
C) an increase in real wage rates 
D) an increase in frictional unemployment 
E) an increase in nominal GDP with real GDP remaining the same 
A) an increase in consumer prices and a higher level of real GDP 
B) a decrease in real GDP 
C) an increase in real wage rates 
D) an increase in frictional unemployment 
E) an increase in nominal GDP with real GDP remaining the same

Question 17

The inverse relationship between inflation and unemployment is called

Accepted Answer

A) Okun's law 
B) the Lucas curve 
C) the Phillips curve 
D) the replacement ratio 
E) the sacrifice ratio 
A) Okun's law 
B) the Lucas curve 
C) the Phillips curve 
D) the replacement ratio 
E) the sacrifice ratio

Question 18

The newer view of the Phillips curve implies that

Accepted Answer

A) the natural rate of unemployment can be reduced by expansionary monetary policy 
B) in the long run unemployment does not move towards a natural rate if there is frictional unemployment 
C) an increase in monetary growth affects unemployment and inflation in the short run, but only affects inflation in the long run 
D) there is a clear inverse relationship between unemployment and output 
E) stagflation can best be addressed by implementing expansionary fiscal policies 
A) the natural rate of unemployment can be reduced by expansionary monetary policy 
B) in the long run unemployment does not move towards a natural rate if there is frictional unemployment 
C) an increase in monetary growth affects unemployment and inflation in the short run, but only affects inflation in the long run 
D) there is a clear inverse relationship between unemployment and output 
E) stagflation can best be addressed by implementing expansionary fiscal policies

Question 19

The fact that nominal wages are fixed by a contract at the beginning of a period while prices of goods may change within that period, implies that

Accepted Answer

A) unanticipated changes in the money supply do not affect the level of output 
B) there is no trade-off between unemployment and inflation 
C) firms want to supply more output when prices increase since the real wage rate is lower 
D) anticipated monetary policy changes will not affect the level of inflation 
E) money supply changes affect prices but not unemployment in the short run 
A) unanticipated changes in the money supply do not affect the level of output 
B) there is no trade-off between unemployment and inflation 
C) firms want to supply more output when prices increase since the real wage rate is lower 
D) anticipated monetary policy changes will not affect the level of inflation 
E) money supply changes affect prices but not unemployment in the short run

Question 20

The misery index for the United States

Accepted Answer

A) increased steadily from 1950 to 1990, but has since declined 
B) is closely but inversely related to the successes of the incumbent party 
C) is closely and positively related to the successes of the incumbent party 
D) is only loosely and inversely related to the successes of the incumbent party 
E) none of the above 
A) increased steadily from 1950 to 1990, but has since declined 
B) is closely but inversely related to the successes of the incumbent party 
C) is closely and positively related to the successes of the incumbent party 
D) is only loosely and inversely related to the successes of the incumbent party 
E) none of the above

Exam 6: Aggregate supply and the phillips curve

A change in the misery index

What sort of event could lead to a simultaneous decrease in the rates of inflation and unemployment?

If nominal wage rates were completely flexible, then

Which of the following is NOT used in deriving the AS-curve in Chapter 6?

If policy makers want to get the price level quickly back to its original level following an adverse supply shock, they need to

In an AD-AS model with an upward-sloping AS-curve, the most likely effects of fiscal expansion would be

Assume the economy is at full employment.Which is the most likely effect of a decrease in government spending?

The most likely long-run result of a tax cut would be

In an AD-AS model with an upward sloping AS-curve, what would happen if oil prices increased and the Fed responded by restricting money supply?

Okun's law states that one extra percentage point in unemployment causes

Political business cycles consist of fluctuations caused by

In the long run, what event(s) can lead to an increase in inflation without changing the unemployment rate above its natural level?

The sacrifice ratio is defined as

If the government stimulates aggregate demand in response to an adverse supply shock,

Assume the Fed implements restrictive monetary policy.Which of the following is the most likely result in an AD-AS framework with an upward sloping AS-curve?

Which of the following is the most likely medium-run outcome of an adverse supply shock?

The inverse relationship between inflation and unemployment is called

The newer view of the Phillips curve implies that

The fact that nominal wages are fixed by a contract at the beginning of a period while prices of goods may change within that period, implies that

The misery index for the United States

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Consumption and saving

Investment spending

The demand for money

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Advanced topics

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