Question 1

Compliance with wage and price controls by unions and businesses is strictly voluntary.

Accepted Answer

A) True 
 B)False

Question 2

Under adaptive expectations theory, people expect the rate of inflation this year to be:

Accepted Answer

A) zero, regardless of the rate last year. 
B) the same as last year. 
C) the rate based on predictable and fiscal policies. 
D) All of these. 
A) zero, regardless of the rate last year. 
B) the same as last year. 
C) the rate based on predictable and fiscal policies. 
D) All of these.

Question 3

The adaptive expectations hypothesis implies that people:

Accepted Answer

A) adjust their expectations quickly to policy changes. 
B) expect the next period to be pretty much like the recent past. 
C) will always be correct in their forecast for the next period. 
D) change their expectations about the future if policy changes. 
A) adjust their expectations quickly to policy changes. 
B) expect the next period to be pretty much like the recent past. 
C) will always be correct in their forecast for the next period. 
D) change their expectations about the future if policy changes.

Question 4

Incorporation of expectations into economic decision making indicates that in the long run:

Accepted Answer

A) inflation relates directly to unemployment. 
B) inflation is inversely related to unemployment. 
C) the Phillips curve is vertical at the natural rate of unemployment. 
D) high unemployment is a primary cause of inflation. 
A) inflation relates directly to unemployment. 
B) inflation is inversely related to unemployment. 
C) the Phillips curve is vertical at the natural rate of unemployment. 
D) high unemployment is a primary cause of inflation.

Question 5

During the 1970s, the inflation rate and the unemployment rate were inversely related.

Accepted Answer

A) True 
 B)False

Question 6

Exhibit 17-2 Aggregate demand and aggregate supply curves   As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the price level to move:

Accepted Answer

A) directly from 100 to 105 and then remain at 105. 
B) directly from 100 to 110 and then remain at 110. 
C) from 100 to 105 initially and then eventually move back to 100. 
D) from 100 to 105 initially and then eventually move to 110. 
A) directly from 100 to 105 and then remain at 105. 
B) directly from 100 to 110 and then remain at 110. 
C) from 100 to 105 initially and then eventually move back to 100. 
D) from 100 to 105 initially and then eventually move to 110.

Question 7

The Phillips curve shows a negative relationship between the:

Accepted Answer

A) consumption rate and the unemployment rate. 
B) savings rate and the inflation rate. 
C) interest rate and the savings rate. 
D) inflation rate and the unemployment 
A) consumption rate and the unemployment rate. 
B) savings rate and the inflation rate. 
C) interest rate and the savings rate. 
D) inflation rate and the unemployment

Question 8

The view that individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy)is called:

Accepted Answer

A) the adaptive expectations hypothesis. 
B) the permanent income hypothesis. 
C) the rational expectations hypothesis. 
D) the Phillips curve. 
A) the adaptive expectations hypothesis. 
B) the permanent income hypothesis. 
C) the rational expectations hypothesis. 
D) the Phillips curve.

Question 9

Explain why rational expectations theorists do not support government intervention to alleviate unemployment. Explain their views on the effectiveness of fiscal policy and monetary policy.

Accepted Answer

Rational expectations theorists believe

Question 10

According to the natural rate hypothesis, the unemployment rate should equal 0 percent in the long run.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 17-2 Aggregate demand and aggregate supply curves   As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the price level to move:

Accepted Answer

A) directly from 100 to 110 and then remain at 110. 
B) directly from 100 to 105 and then remain at 105. 
C) from 100 to 105 initially and then eventually move back to 100. 
D) from 100 to 105 initially and then eventually move to 110. 
A) directly from 100 to 110 and then remain at 110. 
B) directly from 100 to 105 and then remain at 105. 
C) from 100 to 105 initially and then eventually move back to 100. 
D) from 100 to 105 initially and then eventually move to 110.

Question 12

What is the difference between the Keynesian and rational expectations theories concerning the success of stabilization policy?

Accepted Answer

The Keynesians believe that government c

Question 13

Which of the following is not an example of an incomes policy?

Accepted Answer

A) Presidential jawboning. 
B) Unemployment insurance. 
C) Wage and price guidelines. 
D) Wage and price controls. 
A) Presidential jawboning. 
B) Unemployment insurance. 
C) Wage and price guidelines. 
D) Wage and price controls.

Question 14

The long-run Phillips curve:

Accepted Answer

A) is horizontal. 
B) is the same as the short-run Phillips curve. 
C) displays a positive relationship rather than an inverse relationship. 
D) is exponential. 
E) is vertical. 
A) is horizontal. 
B) is the same as the short-run Phillips curve. 
C) displays a positive relationship rather than an inverse relationship. 
D) is exponential. 
E) is vertical.

Question 15

A Phillips curve shows the relationship between the inflation rate and the:

Accepted Answer

A) wage rate. 
B) unemployment rate. 
C) real GDP growth rate. 
D) population growth rate. 
A) wage rate. 
B) unemployment rate. 
C) real GDP growth rate. 
D) population growth rate.

Question 16

The rational expectations hypothesis indicates that people:

Accepted Answer

A) pay little attention to policy when forming their expectations about the future. 
B) expect the next period to be pretty much like the recent past, regardless of policy changes. 
C) will always be able to forecast the future accurately. 
D) change their expectations about the future if policy changes. 
A) pay little attention to policy when forming their expectations about the future. 
B) expect the next period to be pretty much like the recent past, regardless of policy changes. 
C) will always be able to forecast the future accurately. 
D) change their expectations about the future if policy changes.

Question 17

Experience with the Phillips curve since the 1970s has shown that the:

Accepted Answer

A) curve can be used as a reliable model to guide public policy. 
B) relationship between the inflation rate and the unemployment rate moves in a clockwise direction. 
C) curve is not stable. 
D) inflation rate and the unemployment rate are equal. 
A) curve can be used as a reliable model to guide public policy. 
B) relationship between the inflation rate and the unemployment rate moves in a clockwise direction. 
C) curve is not stable. 
D) inflation rate and the unemployment rate are equal.

Question 18

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

Accepted Answer

A) level of inflation is unaffected. 
B) inflation rate goes from 3 percent to 14 percent. 
C) inflation rate goes from 3 percent to 8 percent. 
D) inflation rate goes from 8 percent to 14 percent. 
A) level of inflation is unaffected. 
B) inflation rate goes from 3 percent to 14 percent. 
C) inflation rate goes from 3 percent to 8 percent. 
D) inflation rate goes from 8 percent to 14 percent.

Question 19

This school of thought argues that because people anticipate the consequences of announced government policy and incorporate these anticipated consequences into their present decision making, people end up undermining the government policy. What is it?

Accepted Answer

A) Neo-Keynesian. 
B) Keynesian. 
C) Monetarist. 
D) Supply-side. 
E) Rational expectations. 
A) Neo-Keynesian. 
B) Keynesian. 
C) Monetarist. 
D) Supply-side. 
E) Rational expectations.

Question 20

Which of the following curves show an inverse relationship between a nation's inflation and unemployment rates?

Accepted Answer

A) The aggregate demand curve. 
B) The aggregate supply curve. 
C) The short-run Phillips curve. 
D) The long-run Phillips curve. 
A) The aggregate demand curve. 
B) The aggregate supply curve. 
C) The short-run Phillips curve. 
D) The long-run Phillips curve.

Exam 17: The Phillips Curve and Expectations Theory

Compliance with wage and price controls by unions and businesses is strictly voluntary.

Under adaptive expectations theory, people expect the rate of inflation this year to be:

The adaptive expectations hypothesis implies that people:

Incorporation of expectations into economic decision making indicates that in the long run:

During the 1970s, the inflation rate and the unemployment rate were inversely related.

Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the price level to move:

The Phillips curve shows a negative relationship between the:

The view that individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy)is called:

Explain why rational expectations theorists do not support government intervention to alleviate unemployment. Explain their views on the effectiveness of fiscal policy and monetary policy.

According to the natural rate hypothesis, the unemployment rate should equal 0 percent in the long run.

Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the price level to move:

What is the difference between the Keynesian and rational expectations theories concerning the success of stabilization policy?

Which of the following is not an example of an incomes policy?

The long-run Phillips curve:

A Phillips curve shows the relationship between the inflation rate and the:

The rational expectations hypothesis indicates that people:

Experience with the Phillips curve since the 1970s has shown that the:

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

This school of thought argues that because people anticipate the consequences of announced government policy and incorporate these anticipated consequences into their present decision making, people end up undermining the government policy. What is it?

Which of the following curves show an inverse relationship between a nation's inflation and unemployment rates?

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 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move:

Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move: