Question 1

If actual inflation is less than expected inflation,actual real wages will be ________ expected real wages and unemployment will ________.

Accepted Answer

A)  greater than; rise 
B)  greater than; fall 
C)  less than; rise 
D)  less than; fall 
A)  greater than; rise 
B)  greater than; fall 
C)  less than; rise 
D)  less than; fall A

Question 2

Which of the following best explains the negative slope of the short-run Phillips curve?

Accepted Answer

A)  Weak growth in aggregate demand keeps the economy below potential GDP, so unemployment rises but inflation falls. 
B)  Aggregate demand grows so quickly that the inflation rate rises as unemployment rises. 
C)  Long-run aggregate supply increases quickly enough that inflation falls as unemployment also falls. 
D)  Short-run aggregate supply increases at the same pace as aggregate demand increases so that inflation and unemployment do not change. 
A)  Weak growth in aggregate demand keeps the economy below potential GDP, so unemployment rises but inflation falls. 
B)  Aggregate demand grows so quickly that the inflation rate rises as unemployment rises. 
C)  Long-run aggregate supply increases quickly enough that inflation falls as unemployment also falls. 
D)  Short-run aggregate supply increases at the same pace as aggregate demand increases so that inflation and unemployment do not change. A

Question 3

What is the relationship between the short-run Phillips curve and the long-run Phillips curve?

Accepted Answer

Along the short-run Phillips curve,the expected inflation rate is constant.When the expected inflation rate changes,the short-run Phillips curve shifts.The long-run Phillips curve is a vertical line at the natural rate of unemployment.The short-run Phillips curve intersects the long-run Phillips curve at the expected inflation rate.

Question 4

The curve showing the short-run relationship between the unemployment rate and the inflation rate is called

Accepted Answer

A)  the monetary policy curve. 
B)  the Phillips curve. 
C)  the Sargent curve. 
D)  the unemployment curve. 
A)  the monetary policy curve. 
B)  the Phillips curve. 
C)  the Sargent curve. 
D)  the unemployment curve.

Question 5

If the Phillips curve represents a "structural relationship," then

Accepted Answer

A)  the trade-off between unemployment and inflation is permanent. 
B)  the trade-off between unemployment and inflation holds only for the short run. 
C)  the trade-off between unemployment and inflation holds in the long run, but not in the short run. 
D)  the Phillips curve will be vertical in the long run. 
A)  the trade-off between unemployment and inflation is permanent. 
B)  the trade-off between unemployment and inflation holds only for the short run. 
C)  the trade-off between unemployment and inflation holds in the long run, but not in the short run. 
D)  the Phillips curve will be vertical in the long run.

Question 6

Proponents of the new classical macroeconomics do not believe which of the following?

Accepted Answer

A)  Expansionary monetary policy can be an effective policy tool. 
B)  Workers and firms use information contained in Fed policy to form inflation expectations. 
C)  Wages and prices will adjust rapidly in the economy. 
D)  The economy will normally be at its potential level. 
A)  Expansionary monetary policy can be an effective policy tool. 
B)  Workers and firms use information contained in Fed policy to form inflation expectations. 
C)  Wages and prices will adjust rapidly in the economy. 
D)  The economy will normally be at its potential level.

Question 7

Lucas and Sargent argue that the short-run trade-off between unemployment and inflation is caused by

Accepted Answer

A)  workers and firms using Fed policy to predict inflation. 
B)  workers and firms using all the information available to predict inflation. 
C)  workers and firms rapidly adjusting wages and prices in response to changes in expectations. 
D)  workers and firms being fooled by unexpected changes in monetary policy. 
A)  workers and firms using Fed policy to predict inflation. 
B)  workers and firms using all the information available to predict inflation. 
C)  workers and firms rapidly adjusting wages and prices in response to changes in expectations. 
D)  workers and firms being fooled by unexpected changes in monetary policy.

Question 8

If firms and workers have rational expectations,including knowledge of the policy being used by the Federal Reserve,the short-run Phillips curve will be

Accepted Answer

A)  negatively sloped. 
B)  positively sloped. 
C)  vertical. 
D)  flatter in the long run than it is in the short run. 
A)  negatively sloped. 
B)  positively sloped. 
C)  vertical. 
D)  flatter in the long run than it is in the short run.

Question 9

If actual inflation is less than expected inflation,which of the following will be true?

Accepted Answer

A)  Real wages will rise. 
B)  Real wages will fall. 
C)  The Phillips curve will be a vertical line. 
D)  The unemployment rate will fall. 
A)  Real wages will rise. 
B)  Real wages will fall. 
C)  The Phillips curve will be a vertical line. 
D)  The unemployment rate will fall.

Question 10

The long-run Phillips curve is ________ than the short-run Phillips curve.

Accepted Answer

A)  flatter 
B)  steeper 
C)  less stable 
D)  more volatile 
A)  flatter 
B)  steeper 
C)  less stable 
D)  more volatile

Question 11

If wages and prices adjust slowly,we would expect expansionary monetary policy to be

Accepted Answer

A)  less likely to reduce the natural unemployment rate. 
B)  more likely to reduce inflation. 
C)  more likely to affect the unemployment rate. 
D)  more likely to result in a vertical short-run Phillips curve. 
A)  less likely to reduce the natural unemployment rate. 
B)  more likely to reduce inflation. 
C)  more likely to affect the unemployment rate. 
D)  more likely to result in a vertical short-run Phillips curve.

Question 12

Figure 28-2
  
-Refer to Figure 28-2.Suppose the economy is at point B in the figure above.Which of the following is true?

Accepted Answer

A)  The expected rate of inflation is 3%. 
B)  The natural rate of unemployment is 3.8%. 
C)  The current unemployment rate is 5%. 
D)  The economy is producing at potential GDP. 
E)  Expected inflation and actual inflation are the same. 
A)  The expected rate of inflation is 3%. 
B)  The natural rate of unemployment is 3.8%. 
C)  The current unemployment rate is 5%. 
D)  The economy is producing at potential GDP. 
E)  Expected inflation and actual inflation are the same.

Question 13

In order to change inflationary expectations in 1979,the Fed's monetary policy under Paul Volcker's leadership resulted in ________ and ________.

Accepted Answer

A)  disinflation; high unemployment 
B)  steep inflation; low unemployment 
C)  disinflation; low unemployment 
D)  steep inflation; high unemployment 
E)  deflation; high unemployment 
A)  disinflation; high unemployment 
B)  steep inflation; low unemployment 
C)  disinflation; low unemployment 
D)  steep inflation; high unemployment 
E)  deflation; high unemployment

Question 14

Some economists and lawmakers believe the Fed lost some of its independence when it

Accepted Answer

A)  began printing money at the directive of the White House prior to the 2008 presidential election. 
B)  began working closely with the Treasury Department while dealing with the financial crisis of 2008. 
C)  embarked on an expansionary monetary policy during the recession of 2007-2009. 
D)  began using the federal funds rate instead of M1 and M2 as a monetary policy target. 
A)  began printing money at the directive of the White House prior to the 2008 presidential election. 
B)  began working closely with the Treasury Department while dealing with the financial crisis of 2008. 
C)  embarked on an expansionary monetary policy during the recession of 2007-2009. 
D)  began using the federal funds rate instead of M1 and M2 as a monetary policy target.

Question 15

Figure 28-1
  
-Refer to Figure 28-1.Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above,and the unemployment rate at A is the natural rate.If the economy was to move to point C,which of the following must be true?

Accepted Answer

A)  The economy is producing a level of GDP equal to potential GDP. 
B)  Aggregate demand must have decreased. 
C)  Equilibrium GDP at point C must be above potential GDP. 
D)  The Fed conducted contractionary policy to cause the move. 
E)  The Fed sold treasury bills to cause the move. 
A)  The economy is producing a level of GDP equal to potential GDP. 
B)  Aggregate demand must have decreased. 
C)  Equilibrium GDP at point C must be above potential GDP. 
D)  The Fed conducted contractionary policy to cause the move. 
E)  The Fed sold treasury bills to cause the move.

Question 16

According to the short-run Phillips curve,if unemployment is 3.2% and inflation is 1.3%,an increase in the inflation rate might result in which of the following?

Accepted Answer

A)  an increase in the unemployment rate to 3.4% 
B)  a decrease in the unemployment rate to 3.0% 
C)  a decrease in the demand for labor in the economy 
D)  a return to the original inflation rate of 1.3% 
A)  an increase in the unemployment rate to 3.4% 
B)  a decrease in the unemployment rate to 3.0% 
C)  a decrease in the demand for labor in the economy 
D)  a return to the original inflation rate of 1.3%

Question 17

The major criticism of real business cycle models is

Accepted Answer

A)  negative technology shocks are uncommon and can't explain all business cycle fluctuations. 
B)  positive technology shocks actually push real GDP above the economy's potential GDP. 
C)  negative technology shocks actually push real GDP below the economy's potential GDP 
D)  this model relies too heavily on monetary explanations for fluctuations in real GDP. 
A)  negative technology shocks are uncommon and can't explain all business cycle fluctuations. 
B)  positive technology shocks actually push real GDP above the economy's potential GDP. 
C)  negative technology shocks actually push real GDP below the economy's potential GDP 
D)  this model relies too heavily on monetary explanations for fluctuations in real GDP.

Question 18

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

Accepted Answer

A)  The short-run Phillips curve shifts down. 
B)  The short-run Phillips curve shifts up. 
C)  The short-run Phillips curve becomes the long-run Phillips curve. 
D)  The short-run Phillips curve is not affected by expansionary monetary policy. 
A)  The short-run Phillips curve shifts down. 
B)  The short-run Phillips curve shifts up. 
C)  The short-run Phillips curve becomes the long-run Phillips curve. 
D)  The short-run Phillips curve is not affected by expansionary monetary policy.

Question 19

When individuals use all available information about an economic variable to make a decision,expectations are

Accepted Answer

A)  underestimates of reality. 
B)  accurate. 
C)  rational. 
D)  overestimates of reality. 
A)  underestimates of reality. 
B)  accurate. 
C)  rational. 
D)  overestimates of reality.

Question 20

If the Federal Reserve announces that its target for the federal funds rate is rising from 4 percent to 4.25 percent,how do you expect workers and firms to react?

Accepted Answer

A)  As long as the Fed's announcement is credible, workers and firms will increase their consumption and investment spending, which will increase aggregate demand and inflation. 
B)  As long as the Fed's announcement is credible, workers and firms will reduce their consumption and investment spending, which will reduce aggregate demand and reduce inflation. 
C)  If the Fed's announcement is not credible, workers and firms will not expect inflation to fall so they will reduce their consumption and investment spending, which will increase aggregate demand and reduce inflation. 
D)  Workers and firms will incorporate the increase in interest rates into their expectations of inflation, and they will expect inflation to rise as a result of Fed's policy announcement. 
A)  As long as the Fed's announcement is credible, workers and firms will increase their consumption and investment spending, which will increase aggregate demand and inflation. 
B)  As long as the Fed's announcement is credible, workers and firms will reduce their consumption and investment spending, which will reduce aggregate demand and reduce inflation. 
C)  If the Fed's announcement is not credible, workers and firms will not expect inflation to fall so they will reduce their consumption and investment spending, which will increase aggregate demand and reduce inflation. 
D)  Workers and firms will incorporate the increase in interest rates into their expectations of inflation, and they will expect inflation to rise as a result of Fed's policy announcement.

If actual inflation is less than expected inflation,actual real wages will be expected real wages and unemployment will .

Which of the following best explains the negative slope of the short-run Phillips curve?

What is the relationship between the short-run Phillips curve and the long-run Phillips curve?

The curve showing the short-run relationship between the unemployment rate and the inflation rate is called

If the Phillips curve represents a "structural relationship," then

Proponents of the new classical macroeconomics do not believe which of the following?

Lucas and Sargent argue that the short-run trade-off between unemployment and inflation is caused by

If firms and workers have rational expectations,including knowledge of the policy being used by the Federal Reserve,the short-run Phillips curve will be

If actual inflation is less than expected inflation,which of the following will be true?

The long-run Phillips curve is ________ than the short-run Phillips curve.

If wages and prices adjust slowly,we would expect expansionary monetary policy to be

Figure 28-2 -Refer to Figure 28-2.Suppose the economy is at point B in the figure above.Which of the following is true?

In order to change inflationary expectations in 1979,the Fed's monetary policy under Paul Volcker's leadership resulted in and .

Some economists and lawmakers believe the Fed lost some of its independence when it

Figure 28-1 -Refer to Figure 28-1.Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above,and the unemployment rate at A is the natural rate.If the economy was to move to point C,which of the following must be true?

According to the short-run Phillips curve,if unemployment is 3.2% and inflation is 1.3%,an increase in the inflation rate might result in which of the following?

The major criticism of real business cycle models is

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

When individuals use all available information about an economic variable to make a decision,expectations are

If the Federal Reserve announces that its target for the federal funds rate is rising from 4 percent to 4.25 percent,how do you expect workers and firms to react?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency,government Price Setting,and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 17: Inflation, unemployment, and Federal Reserve Policy

If actual inflation is less than expected inflation,actual real wages will be ________ expected real wages and unemployment will ________.

Which of the following best explains the negative slope of the short-run Phillips curve?

What is the relationship between the short-run Phillips curve and the long-run Phillips curve?

The curve showing the short-run relationship between the unemployment rate and the inflation rate is called

If the Phillips curve represents a "structural relationship," then

Proponents of the new classical macroeconomics do not believe which of the following?

Lucas and Sargent argue that the short-run trade-off between unemployment and inflation is caused by

If firms and workers have rational expectations,including knowledge of the policy being used by the Federal Reserve,the short-run Phillips curve will be

If actual inflation is less than expected inflation,which of the following will be true?

The long-run Phillips curve is ________ than the short-run Phillips curve.

If wages and prices adjust slowly,we would expect expansionary monetary policy to be

Figure 28-2 -Refer to Figure 28-2.Suppose the economy is at point B in the figure above.Which of the following is true?

In order to change inflationary expectations in 1979,the Fed's monetary policy under Paul Volcker's leadership resulted in ________ and ________.

Some economists and lawmakers believe the Fed lost some of its independence when it

Figure 28-1 -Refer to Figure 28-1.Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above,and the unemployment rate at A is the natural rate.If the economy was to move to point C,which of the following must be true?

According to the short-run Phillips curve,if unemployment is 3.2% and inflation is 1.3%,an increase in the inflation rate might result in which of the following?

The major criticism of real business cycle models is

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

When individuals use all available information about an economic variable to make a decision,expectations are

If the Federal Reserve announces that its target for the federal funds rate is rising from 4 percent to 4.25 percent,how do you expect workers and firms to react?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency,government Price Setting,and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

If actual inflation is less than expected inflation,actual real wages will be expected real wages and unemployment will .

In order to change inflationary expectations in 1979,the Fed's monetary policy under Paul Volcker's leadership resulted in and .