Question 1

Under adaptive expectations, the short-term effect of an unanticipated shift to a more expansionary macroeconomic policy will be a:

Accepted Answer

A) temporary reduction in the unemployment rate. 
B) permanent reduction in the unemployment rate. 
C) temporary reduction in the inflation rate. 
D) permanent reduction in the inflation rate. 
A) temporary reduction in the unemployment rate. 
B) permanent reduction in the unemployment rate. 
C) temporary reduction in the inflation rate. 
D) permanent reduction in the inflation rate.

Question 2

Which of the following models emphasizes the importance of credible, predictable government policies for maintaining full employment with low inflation?

Accepted Answer

A) The monetarist model. 
B) The Keynesian model. 
C) The supply-side model. 
D) The rational expectations model. 
A) The monetarist model. 
B) The Keynesian model. 
C) The supply-side model. 
D) The rational expectations model.

Question 3

Exhibit 17-3 Aggregate demand and aggregate supply curves   As shown in Exhibit 17-3, 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) from 100 to 110 initially and then eventually move back to 100. 
B) directly from 100 to 110 and then remain at 110. 
C) directly from 100 to 120 and then remain at 120. 
D) from 100 to 110 initially and then eventually move to 120. 
A) from 100 to 110 initially and then eventually move back to 100. 
B) directly from 100 to 110 and then remain at 110. 
C) directly from 100 to 120 and then remain at 120. 
D) from 100 to 110 initially and then eventually move to 120.

Question 4

The Phillips curve illustrates the relationship between:

Accepted Answer

A) change in the money supply and change in unemployment. 
B) tax rates and tax revenues. 
C) the equilibrium level of income and the employment rate. 
D) inflation and unemployment. 
A) change in the money supply and change in unemployment. 
B) tax rates and tax revenues. 
C) the equilibrium level of income and the employment rate. 
D) inflation and unemployment.

Question 5

Exhibit 17-5 Short-run and long-run Phillips curve   Suppose the government shown in Exhibit 17-5 uses contractionary monetary policy to reduce inflation from 9 to 6 percent. If people have rational expectations, then:

Accepted Answer

A) the economy will remain stuck at point E1. 
B) the natural rate will permanently increase to 8 percent. 
C) unemployment will rise to 8 percent in the short run. 
D) unemployment will remain at 6 percent as the inflation rate falls. 
A) the economy will remain stuck at point E1. 
B) the natural rate will permanently increase to 8 percent. 
C) unemployment will rise to 8 percent in the short run. 
D) unemployment will remain at 6 percent as the inflation rate falls.

Question 6

The proponents of adaptive expectations believe that:

Accepted Answer

A) there will be a substantial time lag before people anticipate the effects of a shift to a more expansionary macro-policy. 
B) macro-policies that stimulate demand and place upward pressure on the general level of prices will temporarily increase output and employment. 
C) discretionary changes in macro-policy can be made in a manner that will reduce the economic ups and downs of a market economy. 
D) all of these are true. 
A) there will be a substantial time lag before people anticipate the effects of a shift to a more expansionary macro-policy. 
B) macro-policies that stimulate demand and place upward pressure on the general level of prices will temporarily increase output and employment. 
C) discretionary changes in macro-policy can be made in a manner that will reduce the economic ups and downs of a market economy. 
D) all of these are true.

Question 7

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

Question 8

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:

Accepted Answer

A) labor to adjust nominal wages sluggishly. 
B) the aggregate supply curve to remain at SRAS1. 
C) the price level to eventually rise from 100 to 110. 
D) none of these. 
A) labor to adjust nominal wages sluggishly. 
B) the aggregate supply curve to remain at SRAS1. 
C) the price level to eventually rise from 100 to 110. 
D) none of these.

Question 9

According to the theory of rational expectations,

Accepted Answer

A) workers' experience tells them that government action to lower unemployment will not affect inflation. 
B) consumers and investors generally behave so that rationally formed government attempts to stimulate aggregate demand have their desired effects. 
C) policy goals can be achieved easily in the short run. 
D) workers' wage demands include anticipated inflation. 
E) expansionary monetary policy will lead to permanent interest rate declines. 
A) workers' experience tells them that government action to lower unemployment will not affect inflation. 
B) consumers and investors generally behave so that rationally formed government attempts to stimulate aggregate demand have their desired effects. 
C) policy goals can be achieved easily in the short run. 
D) workers' wage demands include anticipated inflation. 
E) expansionary monetary policy will lead to permanent interest rate declines.

Question 10

Under the natural rate hypothesis, expansionary monetary and fiscal policies can at best produce a:

Accepted Answer

A) permanent change in the long-run Phillips curve. 
B) short-run change in the unemployment rate. 
C) long-run change in the unemployment rate. 
D) permanent change in the unemployment rate. 
A) permanent change in the long-run Phillips curve. 
B) short-run change in the unemployment rate. 
C) long-run change in the unemployment rate. 
D) permanent change in the unemployment rate.

Question 11

The rational expectations hypothesis implies that discretionary macro-policy will:

Accepted Answer

A) be ineffective, even in the short run. 
B) be effective in the short run but ineffective in the long run. 
C) be effective both in the short run and long run. 
D) make it possible to trade-off a higher rate of inflation for a lower rate of unemployment. 
A) be ineffective, even in the short run. 
B) be effective in the short run but ineffective in the long run. 
C) be effective both in the short run and long run. 
D) make it possible to trade-off a higher rate of inflation for a lower rate of unemployment.

Question 12

Under the adaptive expectations hypothesis, which of the following is the effect of a shift to a more expansionary monetary policy?

Accepted Answer

A) In the short run, the real rate of output will be unaffected, but in the long run, it will increase. 
B) In the short run, the unemployment rate will decrease, but in the long run, it will self correct to the natural rate of unemployment. 
C) There will be a permanent increase in the real rate of output, but the inflation rate will also be a little higher. 
D) In the short run, the impact on the real rate of output is uncertain, but in the long run, output will increase. 
A) In the short run, the real rate of output will be unaffected, but in the long run, it will increase. 
B) In the short run, the unemployment rate will decrease, but in the long run, it will self correct to the natural rate of unemployment. 
C) There will be a permanent increase in the real rate of output, but the inflation rate will also be a little higher. 
D) In the short run, the impact on the real rate of output is uncertain, but in the long run, output will increase.

Question 13

The Phillips curve represents a direct relationship between the inflation rate and the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 14

Since the 1970s, the Phillips curve has:

Accepted Answer

A) remained stable. 
B) moved in a clockwise direction. 
C) been unstable. 
D) been used as a reliable model to guide public policy. 
A) remained stable. 
B) moved in a clockwise direction. 
C) been unstable. 
D) been used as a reliable model to guide public policy.

Question 15

According to the Phillips curve, a more expansionary macro-policy that causes inflation to be greater will:

Accepted Answer

A) place downward pressure on prices. 
B) reduce unemployment. 
C) reduce output. 
D) reduce the natural rate of unemployment. 
A) place downward pressure on prices. 
B) reduce unemployment. 
C) reduce output. 
D) reduce the natural rate of unemployment.

Question 16

Exhibit 17-3 Aggregate demand and aggregate supply curves   As shown in Exhibit 17-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the economy to move:

Accepted Answer

A) from E1 to E2 initially and then eventually move back to E1. 
B) directly from E1 to E2 and then remain at E2. 
C) directly from E1 to E3 and then remain at E3. 
D) from E1 to E2 initially and then eventually move to E3. 
A) from E1 to E2 initially and then eventually move back to E1. 
B) directly from E1 to E2 and then remain at E2. 
C) directly from E1 to E3 and then remain at E3. 
D) from E1 to E2 initially and then eventually move to E3.

Question 17

Suppose that the economy experiences an increase in the inflation rate at the same time that the unemployment rate decreases. This situation indicates a:

Accepted Answer

A) shift in the Phillips curve. 
B) movement along a vertical Phillips curve. 
C) movement along a horizontal Phillips curve. 
D) movement along a positively-sloped Phillips curve. 
E) movement along a negatively-sloped Phillips curve. 
A) shift in the Phillips curve. 
B) movement along a vertical Phillips curve. 
C) movement along a horizontal Phillips curve. 
D) movement along a positively-sloped Phillips curve. 
E) movement along a negatively-sloped Phillips curve.

Question 18

Under the natural rate hypothesis, expansionary monetary and fiscal policies can at best produce a:

Accepted Answer

A) permanent change in the unemployment rate. 
B) short-run change in the unemployment rate. 
C) permanent change in the inflation rate. 
D) short-run change in the long-run Phillips curve. 
A) permanent change in the unemployment rate. 
B) short-run change in the unemployment rate. 
C) permanent change in the inflation rate. 
D) short-run change in the long-run Phillips curve.

Question 19

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

Accepted Answer

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

Question 20

Which of the following best describes the idea of a political business cycle?

Accepted Answer

A) Politicians have a bias to cut taxes and increase government spending. 
B) Special interests result in alternating federal deficits. 
C) Politicians will use fiscal and monetary policy to cause output, real incomes, and employment to be rising prior to elections. 
D) Good intentions of politicians influence the business cycle. 
A) Politicians have a bias to cut taxes and increase government spending. 
B) Special interests result in alternating federal deficits. 
C) Politicians will use fiscal and monetary policy to cause output, real incomes, and employment to be rising prior to elections. 
D) Good intentions of politicians influence the business cycle.

Exam 17: The Phillips Curve and Expectations Theory

Under adaptive expectations, the short-term effect of an unanticipated shift to a more expansionary macroeconomic policy will be a:

Which of the following models emphasizes the importance of credible, predictable government policies for maintaining full employment with low inflation?

Exhibit 17-3 Aggregate demand and aggregate supply curves As shown in Exhibit 17-3, 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:

The Phillips curve illustrates the relationship between:

Exhibit 17-5 Short-run and long-run Phillips curve Suppose the government shown in Exhibit 17-5 uses contractionary monetary policy to reduce inflation from 9 to 6 percent. If people have rational expectations, then:

The proponents of adaptive expectations believe that:

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

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:

According to the theory of rational expectations,

Under the natural rate hypothesis, expansionary monetary and fiscal policies can at best produce a:

The rational expectations hypothesis implies that discretionary macro-policy will:

Under the adaptive expectations hypothesis, which of the following is the effect of a shift to a more expansionary monetary policy?

The Phillips curve represents a direct relationship between the inflation rate and the unemployment rate.

Since the 1970s, the Phillips curve has:

According to the Phillips curve, a more expansionary macro-policy that causes inflation to be greater will:

Exhibit 17-3 Aggregate demand and aggregate supply curves As shown in Exhibit 17-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the economy to move:

Suppose that the economy experiences an increase in the inflation rate at the same time that the unemployment rate decreases. This situation indicates a:

Under the natural rate hypothesis, expansionary monetary and fiscal policies can at best produce a:

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

Which of the following best describes the idea of a political business cycle?

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 17-3 Aggregate demand and aggregate supply curves As shown in Exhibit 17-3, 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:

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:

Exhibit 17-3 Aggregate demand and aggregate supply curves As shown in Exhibit 17-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the economy to move: