Question 1

________ will cause a movement along the modern Phillips curve.

Accepted Answer

A) An increase in oil prices 
B) An increase in the price of imports 
C) Wage agreements that include compensation for inflation 
D) all of the above 
E) none of the above 
A) An increase in oil prices 
B) An increase in the price of imports 
C) Wage agreements that include compensation for inflation 
D) all of the above 
E) none of the above

Question 2

On the modern Phillips curve,the initial impact of productivity improvements that lower the costs of production is shown by ________.

Accepted Answer

A) an upward movement along the Phillips curve to a higher inflation rate 
B) an upward shift of the Phillips curve leading to higher inflation rates for any unemployment rate 
C) a downward shift of the Phillips curve leading to lower inflation rates for any unemployment rate 
D) a downward movement along the Phillips curve to higher unemployment rates 
E) none of the above 
A) an upward movement along the Phillips curve to a higher inflation rate 
B) an upward shift of the Phillips curve leading to higher inflation rates for any unemployment rate 
C) a downward shift of the Phillips curve leading to lower inflation rates for any unemployment rate 
D) a downward movement along the Phillips curve to higher unemployment rates 
E) none of the above

Question 3

If the short-run aggregate supply curve is shifting down repeatedly,it is rather likely that ________.

Accepted Answer

A) output is declining repeatedly,relative to potential output 
B) the long-run aggregate supply curve is shifting to the left 
C) negative price shocks are recurring 
D) all of the above 
E) none of the above 
A) output is declining repeatedly,relative to potential output 
B) the long-run aggregate supply curve is shifting to the left 
C) negative price shocks are recurring 
D) all of the above 
E) none of the above

Question 4

The short-run aggregate supply curve is π =   
+ 0.8 (Y - 20)+ ρ.Suppose inflation last year was 5 percent,current output is 20,and there is a price shock of 2 percent.Suppose,further,that potential output rises next year to 21,while output remains at 20 and next year's price shock is zero.Calculate and explain next year's inflation.

Accepted Answer

Current inflation is 5 + 0.8 (20 - 20)+

Question 5

Why are changes in the output gap larger than changes in the unemployment gap? Why is the relationship expressed in Okun's law not affected by inflation or expected inflation?

Accepted Answer

Common sense suggests that output and un

Question 6

The Phillips curve was ________.

Accepted Answer

A) adopted by economic policy teams in the Kennedy and Johnson administrations 
B) influential in efforts to bring the unemployment rate down to low levels 
C) discredited in the 1970s,when both inflation and unemployment were relatively high 
D) all of the above 
E) none of the above 
A) adopted by economic policy teams in the Kennedy and Johnson administrations 
B) influential in efforts to bring the unemployment rate down to low levels 
C) discredited in the 1970s,when both inflation and unemployment were relatively high 
D) all of the above 
E) none of the above

Question 7

According to the short-run aggregate supply curve,if output minus potential output equals zero,then ________.

Accepted Answer

A) unemployment might be zero 
B) inflation might be stable 
C) expected inflation must be stable 
D) price shocks must be zero 
E) none of the above 
A) unemployment might be zero 
B) inflation might be stable 
C) expected inflation must be stable 
D) price shocks must be zero 
E) none of the above

Question 8

If expectations about inflation are adaptive,they are ________.

Accepted Answer

A) formed by looking at the future 
B) likely to change rapidly 
C) based on past inflation 
D) all of the above 
E) none of the above 
A) formed by looking at the future 
B) likely to change rapidly 
C) based on past inflation 
D) all of the above 
E) none of the above

Question 9

The idea behind the Phillips curve is that ________.

Accepted Answer

A) when the unemployment rate is low wages will decrease 
B) tightness in the labor market puts upward pressures on wages and prices 
C) when firms raise wages to attract new workers,prices decrease 
D) all of the above 
E) none of the above 
A) when the unemployment rate is low wages will decrease 
B) tightness in the labor market puts upward pressures on wages and prices 
C) when firms raise wages to attract new workers,prices decrease 
D) all of the above 
E) none of the above

Question 10

When a price shock occurs,the inflation rate is affected ________.

Accepted Answer

A) only in the period of the price shock 
B) only in the period after the price shock 
C) only if the price shock causes a change in output 
D) only if the price shock persists for more than one period 
E) none of the above 
A) only in the period of the price shock 
B) only in the period after the price shock 
C) only if the price shock causes a change in output 
D) only if the price shock persists for more than one period 
E) none of the above

Question 11

What are price shocks? Why were they not included in the original formulation of the Phillips curve? Why were they added to the modern Phillips curve?

Accepted Answer

In the Phillips curve,inflation is deter

Question 12

Which of the following is true in regards to Okun's law?

Accepted Answer

A) employment does not increase commensurately with output rises because firms tend to hoard labor 
B) when demand increases,firms tend to work their employees harder and longer 
C) it is Okun's prediction of the negative relationship between the output and unemployment gaps that allows the modern Phillips curve to be translated into the AS curve 
D) all of the above 
E) none of the above 
A) employment does not increase commensurately with output rises because firms tend to hoard labor 
B) when demand increases,firms tend to work their employees harder and longer 
C) it is Okun's prediction of the negative relationship between the output and unemployment gaps that allows the modern Phillips curve to be translated into the AS curve 
D) all of the above 
E) none of the above

Question 13

In the 1960s,advocates of the Phillips curve suggested ________.

Accepted Answer

A) an "optimal" goal of 1% unemployment and 1% to 2% inflation rates could be achieved 
B) a "realistic" goal of 7% unemployment and 6% to 7% inflation rates could be achieved 
C) a "nonperfectionist" goal of 3% unemployment and 4% to 5% inflation rates could be achieved 
D) all of the above 
E) none of the above 
A) an "optimal" goal of 1% unemployment and 1% to 2% inflation rates could be achieved 
B) a "realistic" goal of 7% unemployment and 6% to 7% inflation rates could be achieved 
C) a "nonperfectionist" goal of 3% unemployment and 4% to 5% inflation rates could be achieved 
D) all of the above 
E) none of the above

Question 14

In 2005 hurricane Katrina devastated large portions of the Gulf Coast economy.Many refineries went offline disrupting oil refining and distribution.What do you think was a likely result?

Accepted Answer

A) the restricted supply constituted a cost push shock that would have shifted the long run AS curve to the right 
B) the restricted supply constituted a cost push shock that would have shifted the short run AS curve to the left 
C) the restricted supply constituted a cost push shock that would have meant an upward movement along the Phillips curve 
D) all of the above 
E) none of the above 
A) the restricted supply constituted a cost push shock that would have shifted the long run AS curve to the right 
B) the restricted supply constituted a cost push shock that would have shifted the short run AS curve to the left 
C) the restricted supply constituted a cost push shock that would have meant an upward movement along the Phillips curve 
D) all of the above 
E) none of the above

Question 15

How do you suppose most people form an expectation of future inflation? Is that method consistent with the assumption of adaptive expectations?

Accepted Answer

Like any mechanic in the Bronx,most peop

Question 16

According to Okun's law,an increase in which of the following is associated with an increase in unemployment?

Accepted Answer

A) inflation 
B) output 
C) expected inflation 
D) autonomous expenditure 
E) potential output 
A) inflation 
B) output 
C) expected inflation 
D) autonomous expenditure 
E) potential output

Question 17

Suppose the output gap is zero,and policy makers wish to reduce the inflation rate from 10 percent to 5 percent.Which of these policies seems best?

Accepted Answer

A) contractionary policies to reduce output at least 5 percent below potential output 
B) a convincing declaration of the inflation rate target,so that expected inflation falls to 5 percent 
C) no policy action;inflation will fall on its own,eventually 
D) no policy action;inflation will converge to its long-run rate,regardless of policy 
E) price and wage controls to counteract their stickiness 
A) contractionary policies to reduce output at least 5 percent below potential output 
B) a convincing declaration of the inflation rate target,so that expected inflation falls to 5 percent 
C) no policy action;inflation will fall on its own,eventually 
D) no policy action;inflation will converge to its long-run rate,regardless of policy 
E) price and wage controls to counteract their stickiness

Question 18

Based on the data in this table,  
If the inflation rate in period zero had been 3 percent,then the accelerationist Phillips curve is ________.

Accepted Answer

A) Δπ = - 1.8 (U - 7)+ ρ 
B) Δπ = - 1.1 (U - 6)+ ρ 
C) Δπ = - 0.9 (U - 6)+ ρ 
D) Δπ = - 0.4 (U - 9)+ ρ 
E) none of the above 
A) Δπ = - 1.8 (U - 7)+ ρ 
B) Δπ = - 1.1 (U - 6)+ ρ 
C) Δπ = - 0.9 (U - 6)+ ρ 
D) Δπ = - 0.4 (U - 9)+ ρ 
E) none of the above

Question 19

When a price shock has occurred,inflation returns to its pre-shock rate ________.

Accepted Answer

A) in the period following the price shock 
B) in the period when output has returned to its pre-shock rate 
C) once the output gap has returned to zero 
D) only in the long run 
E) none of the above 
A) in the period following the price shock 
B) in the period when output has returned to its pre-shock rate 
C) once the output gap has returned to zero 
D) only in the long run 
E) none of the above

Question 20

Which statement(s)is (are)consistent with a positive relationship between inflation and the output gap?

Accepted Answer

A) If output rises above its potential level,the unemployment rate falls and firms will raise wages and prices more rapidly. 
B) In the short run,the AS curve is upward sloping. 
C) Through Okun's law,the negative relationship between the output and unemployment gaps allows the modern Phillips curve to be translated into the AS curve. 
D) all of the above 
E) none of the above 
A) If output rises above its potential level,the unemployment rate falls and firms will raise wages and prices more rapidly. 
B) In the short run,the AS curve is upward sloping. 
C) Through Okun's law,the negative relationship between the output and unemployment gaps allows the modern Phillips curve to be translated into the AS curve. 
D) all of the above 
E) none of the above

Exam 11: Aggregate Supply and the Phillips Curve

________ will cause a movement along the modern Phillips curve.

On the modern Phillips curve,the initial impact of productivity improvements that lower the costs of production is shown by ________.

If the short-run aggregate supply curve is shifting down repeatedly,it is rather likely that ________.

Why are changes in the output gap larger than changes in the unemployment gap? Why is the relationship expressed in Okun's law not affected by inflation or expected inflation?

The Phillips curve was ________.

According to the short-run aggregate supply curve,if output minus potential output equals zero,then ________.

If expectations about inflation are adaptive,they are ________.

The idea behind the Phillips curve is that ________.

When a price shock occurs,the inflation rate is affected ________.

What are price shocks? Why were they not included in the original formulation of the Phillips curve? Why were they added to the modern Phillips curve?

Which of the following is true in regards to Okun's law?

In the 1960s,advocates of the Phillips curve suggested ________.

In 2005 hurricane Katrina devastated large portions of the Gulf Coast economy.Many refineries went offline disrupting oil refining and distribution.What do you think was a likely result?

How do you suppose most people form an expectation of future inflation? Is that method consistent with the assumption of adaptive expectations?

According to Okun's law,an increase in which of the following is associated with an increase in unemployment?

Suppose the output gap is zero,and policy makers wish to reduce the inflation rate from 10 percent to 5 percent.Which of these policies seems best?

Based on the data in this table, If the inflation rate in period zero had been 3 percent,then the accelerationist Phillips curve is ________.

When a price shock has occurred,inflation returns to its pre-shock rate ________.

Which statement(s)is (are)consistent with a positive relationship between inflation and the output gap?

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

The Aggregate Demand and Supply Model

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

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