Question 1

One explanation for the higher natural rate of unemployment in Europe than in Australia is that:

Accepted Answer

A)  the average worker enjoys higher employment protection in Europe. 
B)  the labour force is defined differently in Europe. 
C)  the average worker lives with several family members in Europe. 
D)  the average worker is much older in Europe. 
E)  unemployment is defined differently in Europe. 
A)  the average worker enjoys higher employment protection in Europe. 
B)  the labour force is defined differently in Europe. 
C)  the average worker lives with several family members in Europe. 
D)  the average worker is much older in Europe. 
E)  unemployment is defined differently in Europe.

Question 2

During the Great Depression, the actual unemployment rate in Australia , and the natural rate apparently .

Accepted Answer

A)  increased; increased 
B)  increased; decreased 
C)  increased; remained unchanged 
D)  decreased; increased 
E)  decreased; remained unchanged 
A)  increased; increased 
B)  increased; decreased 
C)  increased; remained unchanged 
D)  decreased; increased 
E)  decreased; remained unchanged

Question 3

Use the following Phillips curve equation to answer this question: nt - nt- 1 = (m + z) - aut. Which of the following will cause a decrease in the natural rate of unemployment?

Accepted Answer

A)  A decrease in m. 
B)  A decrease in expected inflation. 
C)  An increase in z. 
D)  A decrease in actual inflation. 
E)  A decrease in a. 
A)  A decrease in m. 
B)  A decrease in expected inflation. 
C)  An increase in z. 
D)  A decrease in actual inflation. 
E)  A decrease in a.

Question 4

Assume that the expected rate of inflation is a function of past inflation and that the unemployment rate has been equal to the natural rate of unemployment for some time. Given this information, we know that:

Accepted Answer

A)  the rate of inflation will approximately be zero. 
B)  the rate of inflation should be approximately equal to the natural rate of unemployment. 
C)  the rate of inflation should steadily increase over time. 
D)  the rate of inflation should steadily decrease over time. 
E)  the rate of inflation should neither increase nor decrease. 
A)  the rate of inflation will approximately be zero. 
B)  the rate of inflation should be approximately equal to the natural rate of unemployment. 
C)  the rate of inflation should steadily increase over time. 
D)  the rate of inflation should steadily decrease over time. 
E)  the rate of inflation should neither increase nor decrease.

Question 5

Which of the following will increase the inflation rate in the medium run?

Accepted Answer

A)  A permanent increase in the price of oil. 
B)  A permanent increase in the minimum wage. 
C)  A permanent increase in target inflation. 
D)  A large budget deficit. 
E)  A permanent fall in nominal money growth. 
A)  A permanent increase in the price of oil. 
B)  A permanent increase in the minimum wage. 
C)  A permanent increase in target inflation. 
D)  A large budget deficit. 
E)  A permanent fall in nominal money growth.

Question 6

During which decade did the original Phillips curve for Australia break down? Also, briefly explain why the original Phillips curve broke down during this period?

Accepted Answer

The original Phillips curve for Australi

Question 7

One implication of the Lucas critique is that:

Accepted Answer

A)  it takes a long time for a reduction in money growth to reduce the inflation rate. 
B)  policy changes should be more effective in changing output than econometric studies suggest. 
C)  unemployment is always at its natural rate in the short run. 
D)  using a recession to reduce inflation will have disproportionate effects on the poor and disadvantaged. 
E)  the decrease in inflation might not require any increase in unemployment. 
A)  it takes a long time for a reduction in money growth to reduce the inflation rate. 
B)  policy changes should be more effective in changing output than econometric studies suggest. 
C)  unemployment is always at its natural rate in the short run. 
D)  using a recession to reduce inflation will have disproportionate effects on the poor and disadvantaged. 
E)  the decrease in inflation might not require any increase in unemployment.

Question 8

In which of the following periods was the relationship between the Australian unemployment rate and the Australian inflation rate unstable?

Accepted Answer

A)  1911 to 1919. 
B)  1901 to 1909. 
C)  1941 to 1949. 
D)  1931 to 1939. 
E)  1921 to 1929. 
A)  1911 to 1919. 
B)  1901 to 1909. 
C)  1941 to 1949. 
D)  1931 to 1939. 
E)  1921 to 1929.

Question 9

Explain how the unexpectedly high rate of productivity growth at the end of the 1990s affected inflation and unemployment during this period.

Accepted Answer

The unexpectedly high rate of growth of

Question 10

Which of the following will tend to occur when a high proportion of a country's workers have indexed wages?

Accepted Answer

A)  The unemployment rate will be relatively high. 
B)  The unemployment rate will be relatively low. 
C)  The inflation rate will be relatively low. 
D)  A given change in the unemployment rate will cause a larger change in the inflation rate. 
E)  A given change in the unemployment rate will cause a smaller change in the inflation rate. 
A)  The unemployment rate will be relatively high. 
B)  The unemployment rate will be relatively low. 
C)  The inflation rate will be relatively low. 
D)  A given change in the unemployment rate will cause a larger change in the inflation rate. 
E)  A given change in the unemployment rate will cause a smaller change in the inflation rate.

Question 11

Since 1980, the average unemployment rate in Europe has been significantly higher than the average unemployment in Australia. Explain why this has occurred.

Accepted Answer

The most common argument is the labour m

Question 12

Based on your understanding of the Phillips curve, is it possible for the unemployment rate to increase while inflation increases? Explain.

Accepted Answer

This can occur when negative supply shoc

Question 13

Analysis of the Australian experience in reducing the inflation rate in the late 1980s suggests which of the following?

Accepted Answer

A)  Inflation can be reduced without a recession. 
B)  Credibility plays no role in the macroeconomic effects of a disinflation policy. 
C)  The disinflation process was consistent with the Phillips curve prediction. 
D)  All of the above. 
E)  None of the above. 
A)  Inflation can be reduced without a recession. 
B)  Credibility plays no role in the macroeconomic effects of a disinflation policy. 
C)  The disinflation process was consistent with the Phillips curve prediction. 
D)  All of the above. 
E)  None of the above.

Question 14

Based on the "early incarnation" of the Phillips curve, explain what effect a decrease in the unemployment rate will have on the inflation rate.

Accepted Answer

A decrease in unemployment will cause an

Question 15

Which of the following statements will likely be correct when inflation has been persistent?

Accepted Answer

A)  Higher unemployment rates will be associated with lower inflation rates. 
B)  Workers and firms ignore past inflation. 
C)  The current inflation rate will not depend heavily on past inflation. 
D)  Lower unemployment rates will be associated with higher inflation rates. 
E)  The expected inflation rate for a given year will equal the previous year's actual inflation rate. 
A)  Higher unemployment rates will be associated with lower inflation rates. 
B)  Workers and firms ignore past inflation. 
C)  The current inflation rate will not depend heavily on past inflation. 
D)  Lower unemployment rates will be associated with higher inflation rates. 
E)  The expected inflation rate for a given year will equal the previous year's actual inflation rate.

Question 16

Suppose policymakers underestimate the natural rate of unemployment. In a situation like this, policymakers might implement a policy that:

Accepted Answer

A)  results in deflation. 
B)  attempts to maintain output below the natural level of output. 
C)  results in steadily decreasing inflation. 
D)  attempts to maintain output at the natural level of output. 
E)  results in steadily increasing inflation. 
A)  results in deflation. 
B)  attempts to maintain output below the natural level of output. 
C)  results in steadily decreasing inflation. 
D)  attempts to maintain output at the natural level of output. 
E)  results in steadily increasing inflation.

Question 17

Explain what is meant by the Lucas critique and discuss how it can be used to explain the effects of a monetary policy action that attempts to reduce unemployment below the natural rate of unemployment.

Accepted Answer

The Lucas critique is based on the obser

Question 18

When inflation has been persistent, high unemployment rates will likely be associated with:

Accepted Answer

A)  low but stable rates of inflation. 
B)  high but stable rates of inflation. 
C)  low natural rates of unemployment. 
D)  decreases in the inflation rate. 
E)  high natural rates of unemployment. 
A)  low but stable rates of inflation. 
B)  high but stable rates of inflation. 
C)  low natural rates of unemployment. 
D)  decreases in the inflation rate. 
E)  high natural rates of unemployment.

Question 19

In the Phillips curve equation, which of the following will not cause an increase in the current inflation rate?

Accepted Answer

A)  An increase in the markup. 
B)  An increase in the expected inflation rate. 
C)  A decrease in the minimum wage. 
D)  A decrease in the unemployment rate. 
E)  An increase in unemployment benefits. 
A)  An increase in the markup. 
B)  An increase in the expected inflation rate. 
C)  A decrease in the minimum wage. 
D)  A decrease in the unemployment rate. 
E)  An increase in unemployment benefits.

Question 20

Explain what is meant by the "wage- price" spiral.

Accepted Answer

The wage- price spiral refers to the eff

Exam 8: The Phillips Curve, the Natural Rate of Unemployment and Inflation

One explanation for the higher natural rate of unemployment in Europe than in Australia is that:

During the Great Depression, the actual unemployment rate in Australia , and the natural rate apparently .

Use the following Phillips curve equation to answer this question: nt - nt- 1 = (m + z) - aut. Which of the following will cause a decrease in the natural rate of unemployment?

Assume that the expected rate of inflation is a function of past inflation and that the unemployment rate has been equal to the natural rate of unemployment for some time. Given this information, we know that:

Which of the following will increase the inflation rate in the medium run?

During which decade did the original Phillips curve for Australia break down? Also, briefly explain why the original Phillips curve broke down during this period?

One implication of the Lucas critique is that:

In which of the following periods was the relationship between the Australian unemployment rate and the Australian inflation rate unstable?

Explain how the unexpectedly high rate of productivity growth at the end of the 1990s affected inflation and unemployment during this period.

Which of the following will tend to occur when a high proportion of a country's workers have indexed wages?

Since 1980, the average unemployment rate in Europe has been significantly higher than the average unemployment in Australia. Explain why this has occurred.

Based on your understanding of the Phillips curve, is it possible for the unemployment rate to increase while inflation increases? Explain.

Analysis of the Australian experience in reducing the inflation rate in the late 1980s suggests which of the following?

Based on the "early incarnation" of the Phillips curve, explain what effect a decrease in the unemployment rate will have on the inflation rate.

Which of the following statements will likely be correct when inflation has been persistent?

Suppose policymakers underestimate the natural rate of unemployment. In a situation like this, policymakers might implement a policy that:

Explain what is meant by the Lucas critique and discuss how it can be used to explain the effects of a monetary policy action that attempts to reduce unemployment below the natural rate of unemployment.

When inflation has been persistent, high unemployment rates will likely be associated with:

In the Phillips curve equation, which of the following will not cause an increase in the current inflation rate?

Explain what is meant by the "wage- price" spiral.

A Tour of the World

A Tour of the Book

The Goods Market

Financial Markets

Goods and Financial Markets: the Islm Model

The Labour Market

Putting All Markets Together: the Asad Model

The Crisis

The Facts of Growth

Saving, Capital Accumulation and Output

Technological Progress and Growth

Technological Progress: the Short, the Medium and the Long Run

Expectations: the Basic Tools

Financial Markets and Expectations

Expectations, Consumption and Investment

Expectations, Output and Policy

Openness in Goods and Financial Markets

The Goods Market

Output, the Interest Rate and the Exchange Rate

Exchange Rate Regimes

Should Policy-Makers Be Restrained

Fiscal Policy: a Summing up

Monetary Policy: a Summing up

Epilogue: the Story of Macroeconomics

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