Question 1

In the short run, if the economy is in the Phillips phase of the inflation-unemployment cycle, An increase in aggregate demand will generate

Accepted Answer

A) an increase in the price level and an increase in the unemployment rate. 
B) an increase in the price level and a decrease in the unemployment rate. 
C) an increase in the price level and no change in the unemployment rate. 
D) a decrease in the price level and an increase in the unemployment rate. 
A) an increase in the price level and an increase in the unemployment rate. 
B) an increase in the price level and a decrease in the unemployment rate. 
C) an increase in the price level and no change in the unemployment rate. 
D) a decrease in the price level and an increase in the unemployment rate.

Question 2

Efficiency wages cause unemployment because

Accepted Answer

A) firms pay wages that are below the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied. 
B) firms pay wages that are below the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied. 
C) firms pay wages that are above the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied. 
D) firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied. 
A) firms pay wages that are below the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied. 
B) firms pay wages that are below the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied. 
C) firms pay wages that are above the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied. 
D) firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied.

Question 3

Figure 16-8
  
-Refer to Figure 16-8.The recessionary gap at point 4 was created

Accepted Answer

A) during the Phillips phase that occurred when the economy moved from point 3 to point 4. 
B) when policymakers pursued expansionary policies to move the economy from point 3 to point 4. 
C) during the stagflation phase that occurred when the economy moved from point 3 to point 4. 
D) during the recovery phase when economic agents revised their price expectations in higher prices. 
A) during the Phillips phase that occurred when the economy moved from point 3 to point 4. 
B) when policymakers pursued expansionary policies to move the economy from point 3 to point 4. 
C) during the stagflation phase that occurred when the economy moved from point 3 to point 4. 
D) during the recovery phase when economic agents revised their price expectations in higher prices.

Question 4

Structural unemployment exists because

Accepted Answer

A) workers may not be willing to accept jobs at the going wage rate. 
B) of fluctuations in economic activity. 
C) technological changes make the skills of the workers incompatible with the skills used on the job. 
D) it takes time for people seeking jobs and employers seeking workers to find each other. 
A) workers may not be willing to accept jobs at the going wage rate. 
B) of fluctuations in economic activity. 
C) technological changes make the skills of the workers incompatible with the skills used on the job. 
D) it takes time for people seeking jobs and employers seeking workers to find each other.

Question 5

In the recovery phase of the inflation-unemployment cycle, a falling inflation rate means that the price level is rising by smaller and smaller percentages.

Accepted Answer

A) True 
 B)False

Question 6

In the Phillips phase of the inflation-unemployment cycle, the short-run aggregate supply curve shifts to the right.

Accepted Answer

A) True 
 B)False

Question 7

Figure 16-8
  
-Refer to Figure 16-8.The movement from point 4 to point 5 is consistent with which Segment in the diagram below?

Accepted Answer

A) segment A to D 
B) segment A to B 
C) segment B to C 
D) segment C to D 
A) segment A to D 
B) segment A to B 
C) segment B to C 
D) segment C to D

Question 8

The critical feature of the _______ phase is a change in _______.

Accepted Answer

A) Phillips; unemployment and inflation in the same direction 
B) recovery; inflation and unemployment in the opposite direction 
C) stagflation; nominal wages and expectations 
D) expansion; the rate of change of real wages and real GDP 
A) Phillips; unemployment and inflation in the same direction 
B) recovery; inflation and unemployment in the opposite direction 
C) stagflation; nominal wages and expectations 
D) expansion; the rate of change of real wages and real GDP

Question 9

Falling inflation means

Accepted Answer

A) that the price level is falling from one period to the next. 
B) that the price level is falling at a decreasing rate. 
C) that the price level is falling at an increasing rate. 
D) that the price level is increasing at a decreasing rate. 
A) that the price level is falling from one period to the next. 
B) that the price level is falling at a decreasing rate. 
C) that the price level is falling at an increasing rate. 
D) that the price level is increasing at a decreasing rate.

Question 10

Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (YP)in the long run?

Accepted Answer

A) If %∆M = %∆ YP , then %∆P = %∆M. B) If %∆M > %∆ YP , then %∆P > 0. C) If %∆M > %∆ YP , then %∆P > %∆M. D) If %∆M = %∆ YP , then %∆P < 0. A) If %∆M = %∆ YP , then %∆P = %∆M. B) If %∆M > %∆ YP , then %∆P > 0. C) If %∆M > %∆ YP , then %∆P > %∆M. D) If %∆M = %∆ YP , then %∆P < 0.

Question 11

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 4% rate.Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?

Accepted Answer

A) 7% 
B) 4% 
C) 1% 
D) -1% 
A) 7% 
B) 4% 
C) 1% 
D) -1%

Question 12

In the three phases of the inflation-unemployment cycle, during the recovery phase,

Accepted Answer

A) inflation and unemployment both increase. 
B) inflation and unemployment stay the same. 
C) inflation and unemployment both decrease. 
D) unemployment decreases and inflation increases. 
A) inflation and unemployment both increase. 
B) inflation and unemployment stay the same. 
C) inflation and unemployment both decrease. 
D) unemployment decreases and inflation increases.

Question 13

In the recovery phase of the inflation-unemployment cycle, a falling rate of inflation implies a falling price level.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is true?

Accepted Answer

A) The aggregate demand-aggregate supply model attempts to explain the equilibrium level of real GDP and the price level. 
B) The aggregate demand-aggregate supply model gives us inflation and the various levels of real GDP. 
C) The inflation-unemployment cycle attempts to explain the equilibrium level of real GDP. 
D) The inflation-unemployment cycle is based on movements up and down the Phillips curve. 
A) The aggregate demand-aggregate supply model attempts to explain the equilibrium level of real GDP and the price level. 
B) The aggregate demand-aggregate supply model gives us inflation and the various levels of real GDP. 
C) The inflation-unemployment cycle attempts to explain the equilibrium level of real GDP. 
D) The inflation-unemployment cycle is based on movements up and down the Phillips curve.

Question 15

Using the equation of exchange, the rate of money growth can be expressed as

Accepted Answer

A) %?M x %?V = (%?P x%?Y)÷ %?V 
B) %?M = (%?P + %?Y)÷ %?V 
C) %?M = %?P + %?Y -0 %?V 
D) Mx V = Px Y 
A) %?M x %?V = (%?P x%?Y)÷ %?V 
B) %?M = (%?P + %?Y)÷ %?V 
C) %?M = %?P + %?Y -0 %?V 
D) Mx V = Px Y

Question 16

Figure 16-7
  
-Refer to Figure 16-7.Suppose initially the economy was at point 1 and as a result of Stabilization policies, it is now at point 3.Consequently, here will be pressure for

Accepted Answer

A) workers to settle for lower nominal wages. 
B) firms to decrease prices. 
C) workers and firms to incorporate price increases into their expectations. 
D) the Fed to buy bonds in the open market. 
A) workers to settle for lower nominal wages. 
B) firms to decrease prices. 
C) workers and firms to incorporate price increases into their expectations. 
D) the Fed to buy bonds in the open market.

Question 17

Expectations of higher inflation rates cause a leftward shift in the short-run aggregate supply curve and usher in the stagflation phase of the inflation-unemployment cycle.

Accepted Answer

A) True 
 B)False

Question 18

From 1992 through 2000, the United States experienced

Accepted Answer

A) rising unemployment and rising inflation. 
B) falling unemployment and an inflation rate that was about 2% or less. 
C) falling unemployment and an inflation rate that increased moderately over the period. 
D) rising unemployment and a decreasing inflation rate. 
A) rising unemployment and rising inflation. 
B) falling unemployment and an inflation rate that was about 2% or less. 
C) falling unemployment and an inflation rate that increased moderately over the period. 
D) rising unemployment and a decreasing inflation rate.

Question 19

The theory that holds that firms may try to increase productivity by paying a wage in excess of the market-clearing wage is called the

Accepted Answer

A) efficiency-wage theory. 
B) reservation wage theory. 
C) excess wage theory. 
D) wage-inflation theory. 
A) efficiency-wage theory. 
B) reservation wage theory. 
C) excess wage theory. 
D) wage-inflation theory.

Question 20

In general, the duration of job search will be shorter if

Accepted Answer

A) less job-market information is available. 
B) it is more costly to obtain job-search information. 
C) there are fewer employment agencies. 
D) unemployment compensation benefits decrease. 
A) less job-market information is available. 
B) it is more costly to obtain job-search information. 
C) there are fewer employment agencies. 
D) unemployment compensation benefits decrease.

Exam 31: Macro Inflation and Unemployment

In the short run, if the economy is in the Phillips phase of the inflation-unemployment cycle, An increase in aggregate demand will generate

Efficiency wages cause unemployment because

Figure 16-8 -Refer to Figure 16-8.The recessionary gap at point 4 was created

Structural unemployment exists because

In the recovery phase of the inflation-unemployment cycle, a falling inflation rate means that the price level is rising by smaller and smaller percentages.

In the Phillips phase of the inflation-unemployment cycle, the short-run aggregate supply curve shifts to the right.

Figure 16-8 -Refer to Figure 16-8.The movement from point 4 to point 5 is consistent with which Segment in the diagram below?

The critical feature of the _______ phase is a change in _______.

Falling inflation means

Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (YP)in the long run?

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 4% rate.Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?

In the three phases of the inflation-unemployment cycle, during the recovery phase,

In the recovery phase of the inflation-unemployment cycle, a falling rate of inflation implies a falling price level.

Which of the following statements is true?

Using the equation of exchange, the rate of money growth can be expressed as

Figure 16-7 -Refer to Figure 16-7.Suppose initially the economy was at point 1 and as a result of Stabilization policies, it is now at point 3.Consequently, here will be pressure for

Expectations of higher inflation rates cause a leftward shift in the short-run aggregate supply curve and usher in the stagflation phase of the inflation-unemployment cycle.

From 1992 through 2000, the United States experienced

The theory that holds that firms may try to increase productivity by paying a wage in excess of the market-clearing wage is called the

In general, the duration of job search will be shorter if

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Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (Y_P)in the long run?