Question 1

In the rational expectations model, only unexpected or unpredictable changes cause unemployment to deviate from its natural rate.

Accepted Answer

A) True 
 B)False  True

Question 2

In the United States, the most recent use of wage and price controls occurred during the:

Accepted Answer

A) Nixon administration. 
B) Carter administration. 
C) Reagan administration. 
D) Clinton administration. 
A) Nixon administration. 
B) Carter administration. 
C) Reagan administration. 
D) Clinton administration. A

Question 3

The belief that the government can do absolutely nothing in either the short run or the long run to reduce the unemployment rate, because people will anticipate the government's actions, is held by the:

Accepted Answer

A) rational expectations school. 
B) neo-Keynesian school. 
C) classical school. 
D) supply-side school. 
E) Keynesian school. 
A) rational expectations school. 
B) neo-Keynesian school. 
C) classical school. 
D) supply-side school. 
E) Keynesian school. A

Question 4

Incomes policies of the federal government include:

Accepted Answer

A) presidential jawboning. 
B) wage-price guidelines. 
C) wage-price controls. 
D) All of these. 
A) presidential jawboning. 
B) wage-price guidelines. 
C) wage-price controls. 
D) All of these.

Question 5

The Phillips curve traces a set of combinations of rates of:

Accepted Answer

A) interest and unemployment. 
B) real GDP and inflation. 
C) real GDP and interest. 
D) inflation and interest. 
E) unemployment and inflation. 
A) interest and unemployment. 
B) real GDP and inflation. 
C) real GDP and interest. 
D) inflation and interest. 
E) unemployment and inflation.

Question 6

Exhibit 17-1 Inflation and unemployment rates   In Exhibit 17-1, when the unemployment rate goes from 3 percent to 9 percent,

Accepted Answer

A) the level of inflation is unaffected. 
B) the inflation rate goes from 8 percent to 14 percent. 
C) the inflation rate goes from 8 percent to 3 percent. 
D) the inflation rate goes to 0 percent. 
E) deflation occurs. 
A) the level of inflation is unaffected. 
B) the inflation rate goes from 8 percent to 14 percent. 
C) the inflation rate goes from 8 percent to 3 percent. 
D) the inflation rate goes to 0 percent. 
E) deflation occurs.

Question 7

Most economists consider the case for jawboning to control inflation is strongest when this policy is used:

Accepted Answer

A) for a long period of time. 
B) to combat inflation that is out of control. 
C) to combat cost-push inflation. 
D) All of these are true. 
A) for a long period of time. 
B) to combat inflation that is out of control. 
C) to combat cost-push inflation. 
D) All of these are true.

Question 8

The long-run Phillips curve is a upward-sloping line at the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 9

Economists began to lose confidence in the Phillips curve during the:

Accepted Answer

A) 1930s. 
B) 1960s. 
C) 1970s. 
D) 1980s. 
E) 1990s. 
A) 1930s. 
B) 1960s. 
C) 1970s. 
D) 1980s. 
E) 1990s.

Question 10

Incomes policies are based on discretionary monetary and fiscal policies.

Accepted Answer

A) True 
 B)False

Question 11

A preannounced contractionary money policy is more likely to create unemployment when people have rational, rather than adaptive, expectations.

Accepted Answer

A) True 
 B)False

Question 12

During the 1960s, the inflation rate and the unemployment rate were inversely related.

Accepted Answer

A) True 
 B)False

Question 13

The inverse trade-off between inflation and unemployment is known as the:

Accepted Answer

A) Laffer curve. 
B) aggregate supply curve. 
C) Phillips curve. 
D) aggregate demand curve. 
E) Keynesian curve. 
A) Laffer curve. 
B) aggregate supply curve. 
C) Phillips curve. 
D) aggregate demand curve. 
E) Keynesian curve.

Question 14

According to adaptive expectations theory, which of the following would be the result of expansionary monetary and fiscal policies?

Accepted Answer

A) The economy self-corrects to the natural rate of unemployment. 
B) There is no long-run trade off between inflation and unemployment. 
C) The inflation rate rises. 
D) All of these. 
A) The economy self-corrects to the natural rate of unemployment. 
B) There is no long-run trade off between inflation and unemployment. 
C) The inflation rate rises. 
D) All of these.

Question 15

When people use recent information to gradually adjust their forecasts of inflation, they are said to have:

Accepted Answer

A) static expectations. 
B) adaptive expectations. 
C) rational expectations. 
D) spiraling expectations. 
A) static expectations. 
B) adaptive expectations. 
C) rational expectations. 
D) spiraling expectations.

Question 16

The Phillips curve represents an inverse relationship between the inflation rate and the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 17

Exhibit 17-4 Short-run and long-run Phillips curves   Suppose the economy in Exhibit 17-4 is at point E1, and the Fed increases the money supply. If people have rational expectations, then the economy will move:

Accepted Answer

A) to point A in the short run and point B in the long run. 
B) directly to point B. 
C) to point C in the short run and point D in the long run. 
D) directly to point D. 
A) to point A in the short run and point B in the long run. 
B) directly to point B. 
C) to point C in the short run and point D in the long run. 
D) directly to point D.

Question 18

Which of the following statements is true ?

Accepted Answer

A) A political business cycle is one created by the incentive for politicians to manipulate the economy to get re-elected. 
B) Adaptive expectations theory argues that the best indicator of the future is recent information. 
C) Incomes policies tend to be ineffective over time. 
D) Incomes policies include jawboning, wage-price guidelines, and wage-price controls. 
E) All of these. 
A) A political business cycle is one created by the incentive for politicians to manipulate the economy to get re-elected. 
B) Adaptive expectations theory argues that the best indicator of the future is recent information. 
C) Incomes policies tend to be ineffective over time. 
D) Incomes policies include jawboning, wage-price guidelines, and wage-price controls. 
E) All of these.

Question 19

The political business cycle refers to the possibility that:

Accepted Answer

A) incumbent politicians will be reelected regardless of the state of the economy. 
B) politicians will manipulate the economy to enhance their chances of being reelected. 
C) there are more recessions prior to elections. 
D) recessions coincide with election years. 
A) incumbent politicians will be reelected regardless of the state of the economy. 
B) politicians will manipulate the economy to enhance their chances of being reelected. 
C) there are more recessions prior to elections. 
D) recessions coincide with election years.

Question 20

On a Phillips curve diagram, a decrease in the rate of inflation, other things being equal, is represented by a(n):

Accepted Answer

A) upward shift of the Phillips curve. 
B) downward movement along Phillips curve. 
C) upward movement along the Phillips curve. 
D) downward shift of the Phillips curve. 
A) upward shift of the Phillips curve. 
B) downward movement along Phillips curve. 
C) upward movement along the Phillips curve. 
D) downward shift of the Phillips curve.

Exam 17: The Phillips Curve and Expectations Theory

In the rational expectations model, only unexpected or unpredictable changes cause unemployment to deviate from its natural rate.

In the United States, the most recent use of wage and price controls occurred during the:

The belief that the government can do absolutely nothing in either the short run or the long run to reduce the unemployment rate, because people will anticipate the government's actions, is held by the:

Incomes policies of the federal government include:

The Phillips curve traces a set of combinations of rates of:

Exhibit 17-1 Inflation and unemployment rates In Exhibit 17-1, when the unemployment rate goes from 3 percent to 9 percent,

Most economists consider the case for jawboning to control inflation is strongest when this policy is used:

The long-run Phillips curve is a upward-sloping line at the natural rate of unemployment.

Economists began to lose confidence in the Phillips curve during the:

Incomes policies are based on discretionary monetary and fiscal policies.

A preannounced contractionary money policy is more likely to create unemployment when people have rational, rather than adaptive, expectations.

During the 1960s, the inflation rate and the unemployment rate were inversely related.

The inverse trade-off between inflation and unemployment is known as the:

According to adaptive expectations theory, which of the following would be the result of expansionary monetary and fiscal policies?

When people use recent information to gradually adjust their forecasts of inflation, they are said to have:

The Phillips curve represents an inverse relationship between the inflation rate and the unemployment rate.

Exhibit 17-4 Short-run and long-run Phillips curves Suppose the economy in Exhibit 17-4 is at point E1, and the Fed increases the money supply. If people have rational expectations, then the economy will move:

Which of the following statements is true ?

The political business cycle refers to the possibility that:

On a Phillips curve diagram, a decrease in the rate of inflation, other things being equal, is represented by a(n):

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Filters

Exhibit 17-4 Short-run and long-run Phillips curves Suppose the economy in Exhibit 17-4 is at point E₁, and the Fed increases the money supply. If people have rational expectations, then the economy will move: