Question 1

Keynesians prefer a disinflation policy of

Accepted Answer

A)  cold turkey. 
B)  stabilization. 
C)  gradualism. 
D)  aggregate demand management. 
A)  cold turkey. 
B)  stabilization. 
C)  gradualism. 
D)  aggregate demand management. C

Question 2

If the expected inflation rate is equal to the actual inflation rate,

Accepted Answer

A)  the unemployment rate should be equal to the natural level of unemployment. 
B)  the unemployment rate should be greater than the natural level of unemployment. 
C)  the unemployment rate should be less than the natural level of unemployment. 
D)  the Phillips curve will be unstable. 
A)  the unemployment rate should be equal to the natural level of unemployment. 
B)  the unemployment rate should be greater than the natural level of unemployment. 
C)  the unemployment rate should be less than the natural level of unemployment. 
D)  the Phillips curve will be unstable. A

Question 3

Friedman and Phelps suggested that there should not be a stable relationship between inflation and unemployment, but there should be a stable relationship between

Accepted Answer

A)  anticipated inflation and frictional unemployment. 
B)  anticipated inflation and cyclical unemployment. 
C)  unanticipated inflation and frictional unemployment. 
D)  unanticipated inflation and cyclical unemployment. 
A)  anticipated inflation and frictional unemployment. 
B)  anticipated inflation and cyclical unemployment. 
C)  unanticipated inflation and frictional unemployment. 
D)  unanticipated inflation and cyclical unemployment. D

Question 4

Ball's research showed that the sacrifice ratio

Accepted Answer

A)  was the same for all countries. 
B)  was nearly zero for most countries. 
C)  was about 10 for all countries except Canada, where it was about 1.5 
D)  varied considerably across countries. 
A)  was the same for all countries. 
B)  was nearly zero for most countries. 
C)  was about 10 for all countries except Canada, where it was about 1.5 
D)  varied considerably across countries.

Question 5

When there is a hyperinflation, all of the following occur except

Accepted Answer

A)  people spend a lot of time and energy getting rid of currency as fast as possible. 
B)  the government finds it difficult to collect taxes. 
C)  markets become inefficient because prices are no longer reliable signals. 
D)  people make fixed rate loans to protect themselves against inflation. 
A)  people spend a lot of time and energy getting rid of currency as fast as possible. 
B)  the government finds it difficult to collect taxes. 
C)  markets become inefficient because prices are no longer reliable signals. 
D)  people make fixed rate loans to protect themselves against inflation.

Question 6

Countries in which wages adjust rapidly to changes in the supply and demand for labour are likely to have ________ sacrifice ratio.

Accepted Answer

A)  an infinite 
B)  a high 
C)  a low 
D)  a negative 
A)  an infinite 
B)  a high 
C)  a low 
D)  a negative

Question 7

An increase in the expected rate of inflation would

Accepted Answer

A)  shift the Phillips curve upward. 
B)  shift the Phillips curve downward. 
C)  shift the long-run Phillips curve to the right. 
D)  shift the long-run Phillips curve to the left. 
A)  shift the Phillips curve upward. 
B)  shift the Phillips curve downward. 
C)  shift the long-run Phillips curve to the right. 
D)  shift the long-run Phillips curve to the left.

Question 8

The Phillips curve shifted during the 1970s primarily because of

Accepted Answer

A)  the two large oil price shocks. 
B)  the changing demographics of the population. 
C)  tight monetary policy. 
D)  easy fiscal policy. 
A)  the two large oil price shocks. 
B)  the changing demographics of the population. 
C)  tight monetary policy. 
D)  easy fiscal policy.

Question 9

The fact that the long-run Phillips curve is vertical implies that

Accepted Answer

A)  monetary policy can't affect unemployment. 
B)  money is neutral in the long run. 
C)  there is a natural rate of inflation. 
D)  money can't affect inflation in the long run. 
A)  monetary policy can't affect unemployment. 
B)  money is neutral in the long run. 
C)  there is a natural rate of inflation. 
D)  money can't affect inflation in the long run.

Question 10

What are the pros and cons of using cold turkey disinflation compared to a policy of gradualism?

Accepted Answer

Cold turkey disinflation reduces inflati

Question 11

Countries in which wages adjust slowly to changes in the supply of and demand for labour are likely to have ________ sacrifice ratio.

Accepted Answer

A)  an infinite 
B)  a high 
C)  a low 
D)  a zero 
A)  an infinite 
B)  a high 
C)  a low 
D)  a zero

Question 12

The insider-outsider theory suggests that

Accepted Answer

A)  insiders get lower wages but higher benefits than outsiders. 
B)  unemployment insurance leads to higher rates of unemployment. 
C)  unions seek high wages without causing firms to cut employment. 
D)  the minimum wage forces low-skilled workers to become unemployed. 
A)  insiders get lower wages but higher benefits than outsiders. 
B)  unemployment insurance leads to higher rates of unemployment. 
C)  unions seek high wages without causing firms to cut employment. 
D)  the minimum wage forces low-skilled workers to become unemployed.

Question 13

The sacrifice ratio is

Accepted Answer

A)  the amount of output lost when the inflation rate is reduced by one percentage point. 
B)  the percentage reduction in inflation when output falls one percentage point below potential. 
C)  the percentage change in employment when output declines by one percentage point. 
D)  the number of percentage points that the unemployment rate rises when output declines by one percentage point. 
A)  the amount of output lost when the inflation rate is reduced by one percentage point. 
B)  the percentage reduction in inflation when output falls one percentage point below potential. 
C)  the percentage change in employment when output declines by one percentage point. 
D)  the number of percentage points that the unemployment rate rises when output declines by one percentage point.

Question 14

Starting on a Phillips curve with expected inflation equal to 5% and unemployment at its natural rate, show what happens to unemployment if the Central Bank tries to reduce inflation, but has no credibility. As time passes and people realize that the inflation rate is now lower, what happens to the short-run Phillips curve?

Accepted Answer

The unemployment rate rises as the econo

Question 15

Ball found that the disinflation in Canada had a sacrifice ratio of about

Accepted Answer

A)  0.5 
B)  1.0 
C)  1.5 
D)  2.0 
A)  0.5 
B)  1.0 
C)  1.5 
D)  2.0

Question 16

Friedman and Phelps argued that the Phillips curve could not be stable because

Accepted Answer

A)  it was not consistent with economic theory. 
B)  it was not supported by the data. 
C)  they thought the relationship was between the unanticipated inflation and unemployment. 
D)  they thought the relationship was between the inflation and cyclical unemployment. 
A)  it was not consistent with economic theory. 
B)  it was not supported by the data. 
C)  they thought the relationship was between the unanticipated inflation and unemployment. 
D)  they thought the relationship was between the inflation and cyclical unemployment.

Question 17

The relationship between inflation and unemployment is given by π = πe - 3(u - .06).
a. Graph the short-run and long-run Phillips curves.
b. What is the value of the natural rate of unemployment?
c. If actual inflation is .02 and expected inflation is .05, what is the unemployment rate?
d. If actual inflation is .08 and expected inflation is .05, what is the unemployment rate?

Accepted Answer

a. Long run: vertical line at

Question 18

One reason for the rise in the natural rate of unemployment is

Accepted Answer

A)  changes in the demographic composition of the work force. 
B)  the rise in inflation. 
C)  increased competition from foreign workers. 
D)  the depreciation of the dollar relative to foreign currencies. 
A)  changes in the demographic composition of the work force. 
B)  the rise in inflation. 
C)  increased competition from foreign workers. 
D)  the depreciation of the dollar relative to foreign currencies.

Question 19

Phillips's research looked at British data on

Accepted Answer

A)  unemployment and inflation. 
B)  unemployment and nominal wage growth. 
C)  inflation and nominal wage growth. 
D)  unemployment and output. 
A)  unemployment and inflation. 
B)  unemployment and nominal wage growth. 
C)  inflation and nominal wage growth. 
D)  unemployment and output.

Question 20

Keynesians contend that stabilization policy can offset the output and unemployment effect of unanticipated inflation because

Accepted Answer

A)  nominal wage and price stickiness prevent prices and inflation from adjusting quickly and as a result unemployment sustains. 
B)  price and inflation expectations do not adjust quickly as claimed by classical economists. 
C)  nominal wage and price adjust quickly and as a result cyclical unemployment remains zero. 
D)  price and inflation expectations adjust quickly and employment rises. 
A)  nominal wage and price stickiness prevent prices and inflation from adjusting quickly and as a result unemployment sustains. 
B)  price and inflation expectations do not adjust quickly as claimed by classical economists. 
C)  nominal wage and price adjust quickly and as a result cyclical unemployment remains zero. 
D)  price and inflation expectations adjust quickly and employment rises.

Keynesians prefer a disinflation policy of

If the expected inflation rate is equal to the actual inflation rate,

Friedman and Phelps suggested that there should not be a stable relationship between inflation and unemployment, but there should be a stable relationship between

Ball's research showed that the sacrifice ratio

When there is a hyperinflation, all of the following occur except

Countries in which wages adjust rapidly to changes in the supply and demand for labour are likely to have ________ sacrifice ratio.

An increase in the expected rate of inflation would

The Phillips curve shifted during the 1970s primarily because of

The fact that the long-run Phillips curve is vertical implies that

What are the pros and cons of using cold turkey disinflation compared to a policy of gradualism?

Countries in which wages adjust slowly to changes in the supply of and demand for labour are likely to have ________ sacrifice ratio.

The insider-outsider theory suggests that

The sacrifice ratio is

Ball found that the disinflation in Canada had a sacrifice ratio of about

Friedman and Phelps argued that the Phillips curve could not be stable because

One reason for the rise in the natural rate of unemployment is

Phillips's research looked at British data on

Keynesians contend that stabilization policy can offset the output and unemployment effect of unanticipated inflation because

Introduction to Macroeconomics

The Measurement and Structure of the Canadian Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LMAD-AS Model: A General Framework for Macroeconomic Analysis

Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Keynesian Business Cycle Analysis: Non-Market-Clearing Macroeconomics

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

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Exam 13: Unemployment and Inflation

Keynesians prefer a disinflation policy of

If the expected inflation rate is equal to the actual inflation rate,

Friedman and Phelps suggested that there should not be a stable relationship between inflation and unemployment, but there should be a stable relationship between

Ball's research showed that the sacrifice ratio

When there is a hyperinflation, all of the following occur except

Countries in which wages adjust rapidly to changes in the supply and demand for labour are likely to have ________ sacrifice ratio.

An increase in the expected rate of inflation would

The Phillips curve shifted during the 1970s primarily because of

The fact that the long-run Phillips curve is vertical implies that

What are the pros and cons of using cold turkey disinflation compared to a policy of gradualism?

Countries in which wages adjust slowly to changes in the supply of and demand for labour are likely to have ________ sacrifice ratio.

The insider-outsider theory suggests that

The sacrifice ratio is

Ball found that the disinflation in Canada had a sacrifice ratio of about

Friedman and Phelps argued that the Phillips curve could not be stable because

One reason for the rise in the natural rate of unemployment is

Phillips's research looked at British data on

Keynesians contend that stabilization policy can offset the output and unemployment effect of unanticipated inflation because

Introduction to Macroeconomics

The Measurement and Structure of the Canadian Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LMAD-AS Model: A General Framework for Macroeconomic Analysis

Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Keynesian Business Cycle Analysis: Non-Market-Clearing Macroeconomics

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters