Question 1

The Phillips curve tradeoff worsened in the 1970s because of:

Accepted Answer

A)  oil shocks. 
B)  aggressive unions. 
C)  environmental concerns. 
D)  the Watergate scandal. 
A)  oil shocks. 
B)  aggressive unions. 
C)  environmental concerns. 
D)  the Watergate scandal.

Question 2

One of the Reagan administration's economic policies to combat stagflation was to increase government spending.

Accepted Answer

A) True 
 B)False

Question 3

(Figure: Understanding Phillips Curve Shifts)   The graph shows two Phillips curves.Suppose the economy originally faced curve PC1.Which of the following would cause the curve to shift to PC2?

Accepted Answer

A)  Workers in the economy are expecting lower inflation. 
B)  The natural rate of unemployment rose. 
C)  The nonaccelerating inflation rate of unemployment increased. 
D)  The actual unemployment rate fell. 
A)  Workers in the economy are expecting lower inflation. 
B)  The natural rate of unemployment rose. 
C)  The nonaccelerating inflation rate of unemployment increased. 
D)  The actual unemployment rate fell.

Question 4

Workers work for the sake of making a nominal wage.

Accepted Answer

A) True 
 B)False

Question 5

If policymakers want to keep unemployment below the natural rate,they must continually increase aggregate demand so that inflation is always greater than anticipated,thereby setting up an inflationary spiral.

Accepted Answer

A) True 
 B)False

Question 6

Describe how inflationary expectations can take on a life of their own and thwart policymakers.Use a graph to support your response.Begin with full employment and inflation and inflationary expectations equal to zero.

Accepted Answer

Panel A of the graph that follows shows

Question 7

Use the following to answer questions 
Figure: Understanding Phillips Curves Shifts 2  
-(Figure: Understanding Phillips Curves Shifts 2)What would cause an outward shift from Phillips curve PC1 to Phillips curve PC0?

Accepted Answer

A)  a decrease in the expected inflation rate 
B)  an increase in the expected inflation rate 
C)  a decrease in the natural rate of unemployment 
D)  an increase in the natural rate of unemployment 
A)  a decrease in the expected inflation rate 
B)  an increase in the expected inflation rate 
C)  a decrease in the natural rate of unemployment 
D)  an increase in the natural rate of unemployment

Question 8

What factors affect the government's ability to keep deficits and debt under control over the long term? Explain.

Accepted Answer

First,rising future debt obligations in

Question 9

What happens when the actual inflation rate is more than the expected rate?

Accepted Answer

Unanticipated inflation means that real

Question 10

If wages rise by 3% and productivity rises by 2%,then prices can be expected to rise by 5%.

Accepted Answer

A) True 
 B)False

Question 11

If rational expectations theory is correct,then any increase in aggregate demand caused by announced expansionary policies:

Accepted Answer

A)  leads to a short-run increase in real output but no long-run increase. 
B)  causes the inflation rate to fall. 
C)  is offset by rising inflationary expectations,causing the short-run aggregate supply curve to immediately shift to the left. 
D)  is offset by rising inflationary expectations,causing the short-run aggregate supply curve to slowly shift to the left. 
A)  leads to a short-run increase in real output but no long-run increase. 
B)  causes the inflation rate to fall. 
C)  is offset by rising inflationary expectations,causing the short-run aggregate supply curve to immediately shift to the left. 
D)  is offset by rising inflationary expectations,causing the short-run aggregate supply curve to slowly shift to the left.

Question 12

Some analysts blame the financial crisis of 2008 on Fed policy.They argue that:

Accepted Answer

A)  a restrictive policy lowered aggregate demand and GDP. 
B)  low interest rates encouraged excessive mortgage borrowing,leading to the housing bubble. 
C)  the Fed securitized the mortgages into collateralized debt obligations and encouraged excessive risk taking. 
D)  did not adequately regulate the mortgage market's credit standards for issuing loans as required by the Federal Reserve Act. 
A)  a restrictive policy lowered aggregate demand and GDP. 
B)  low interest rates encouraged excessive mortgage borrowing,leading to the housing bubble. 
C)  the Fed securitized the mortgages into collateralized debt obligations and encouraged excessive risk taking. 
D)  did not adequately regulate the mortgage market's credit standards for issuing loans as required by the Federal Reserve Act.

Question 13

Rational expectations analysis leads to the conclusion that policy changes will be effective in the short run.

Accepted Answer

A) True 
 B)False

Question 14

Given that wages are often the highest cost a firm pays,is it possible for wages to rise and prices to fall? Explain.

Accepted Answer

Prices are related to both wages and pro

Question 15

During the 1960s in the United States,policymakers believed that if they accepted minor increases in inflation,they could keep unemployment low.

Accepted Answer

A) True 
 B)False

Question 16

What factor does NOT help to explain the recent phenomenon of a jobless recovery?

Accepted Answer

A)  a rapid increase in productivity 
B)  greater reliance on temporary and part-time workers 
C)  outsourcing 
D)  higher levels of government stimulus spending 
A)  a rapid increase in productivity 
B)  greater reliance on temporary and part-time workers 
C)  outsourcing 
D)  higher levels of government stimulus spending

Question 17

One of the primary assumptions of the rational expectations model is that:

Accepted Answer

A)  labor and product markets are highly competitive. 
B)  people expect others to behave irrationally. 
C)  labor markets exhibit short-term stickiness. 
D)  prices do not adjust quickly to expansionary policy. 
A)  labor and product markets are highly competitive. 
B)  people expect others to behave irrationally. 
C)  labor markets exhibit short-term stickiness. 
D)  prices do not adjust quickly to expansionary policy.

Question 18

The main practical difference between the rational expectations and adaptive expectations theories is the speed of adjustment in the economy.

Accepted Answer

A) True 
 B)False

Question 19

The natural rate of unemployment is:

Accepted Answer

A)  the rate that produces worker revolutions. 
B)  zero unemployment. 
C)  the rate at which there are no inflationary pressures on the economy. 
D)  the equilibrium to which the economy naturally tends. 
A)  the rate that produces worker revolutions. 
B)  zero unemployment. 
C)  the rate at which there are no inflationary pressures on the economy. 
D)  the equilibrium to which the economy naturally tends.

Question 20

Adjustable-rate mortgages:

Accepted Answer

A)  are mortgages whose interest rates can change. 
B)  are mortgages whose interest rates can't change. 
C)  usually have interest rates higher than market rates during the first year. 
D)  are more attractive when interest rates on fixed mortgages fall. 
A)  are mortgages whose interest rates can change. 
B)  are mortgages whose interest rates can't change. 
C)  usually have interest rates higher than market rates during the first year. 
D)  are more attractive when interest rates on fixed mortgages fall.

The Phillips curve tradeoff worsened in the 1970s because of:

One of the Reagan administration's economic policies to combat stagflation was to increase government spending.

(Figure: Understanding Phillips Curve Shifts) The graph shows two Phillips curves.Suppose the economy originally faced curve PC₁.Which of the following would cause the curve to shift to PC₂?

Workers work for the sake of making a nominal wage.

If policymakers want to keep unemployment below the natural rate,they must continually increase aggregate demand so that inflation is always greater than anticipated,thereby setting up an inflationary spiral.

Describe how inflationary expectations can take on a life of their own and thwart policymakers.Use a graph to support your response.Begin with full employment and inflation and inflationary expectations equal to zero.

Use the following to answer questions Figure: Understanding Phillips Curves Shifts 2 -(Figure: Understanding Phillips Curves Shifts 2)What would cause an outward shift from Phillips curve PC₁ to Phillips curve PC₀?

What factors affect the government's ability to keep deficits and debt under control over the long term? Explain.

What happens when the actual inflation rate is more than the expected rate?

If wages rise by 3% and productivity rises by 2%,then prices can be expected to rise by 5%.

If rational expectations theory is correct,then any increase in aggregate demand caused by announced expansionary policies:

Some analysts blame the financial crisis of 2008 on Fed policy.They argue that:

Rational expectations analysis leads to the conclusion that policy changes will be effective in the short run.

Given that wages are often the highest cost a firm pays,is it possible for wages to rise and prices to fall? Explain.

During the 1960s in the United States,policymakers believed that if they accepted minor increases in inflation,they could keep unemployment low.

What factor does NOT help to explain the recent phenomenon of a jobless recovery?

One of the primary assumptions of the rational expectations model is that:

The main practical difference between the rational expectations and adaptive expectations theories is the speed of adjustment in the economy.

The natural rate of unemployment is:

Adjustable-rate mortgages:

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

International Trade

Open Economy Macroeconomic

Filters

Exam 14: Macroeconomic Policy: Challenges in a Global Economy

The Phillips curve tradeoff worsened in the 1970s because of:

One of the Reagan administration's economic policies to combat stagflation was to increase government spending.

(Figure: Understanding Phillips Curve Shifts) The graph shows two Phillips curves.Suppose the economy originally faced curve PC1.Which of the following would cause the curve to shift to PC2?

Workers work for the sake of making a nominal wage.

If policymakers want to keep unemployment below the natural rate,they must continually increase aggregate demand so that inflation is always greater than anticipated,thereby setting up an inflationary spiral.

Describe how inflationary expectations can take on a life of their own and thwart policymakers.Use a graph to support your response.Begin with full employment and inflation and inflationary expectations equal to zero.

Use the following to answer questions Figure: Understanding Phillips Curves Shifts 2 -(Figure: Understanding Phillips Curves Shifts 2)What would cause an outward shift from Phillips curve PC1 to Phillips curve PC0?

What factors affect the government's ability to keep deficits and debt under control over the long term? Explain.

What happens when the actual inflation rate is more than the expected rate?

If wages rise by 3% and productivity rises by 2%,then prices can be expected to rise by 5%.

If rational expectations theory is correct,then any increase in aggregate demand caused by announced expansionary policies:

Some analysts blame the financial crisis of 2008 on Fed policy.They argue that:

Rational expectations analysis leads to the conclusion that policy changes will be effective in the short run.

Given that wages are often the highest cost a firm pays,is it possible for wages to rise and prices to fall? Explain.

During the 1960s in the United States,policymakers believed that if they accepted minor increases in inflation,they could keep unemployment low.

What factor does NOT help to explain the recent phenomenon of a jobless recovery?

One of the primary assumptions of the rational expectations model is that:

The main practical difference between the rational expectations and adaptive expectations theories is the speed of adjustment in the economy.

The natural rate of unemployment is:

Adjustable-rate mortgages:

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

International Trade

Open Economy Macroeconomic

Filters

(Figure: Understanding Phillips Curve Shifts) The graph shows two Phillips curves.Suppose the economy originally faced curve PC₁.Which of the following would cause the curve to shift to PC₂?

Use the following to answer questions Figure: Understanding Phillips Curves Shifts 2 -(Figure: Understanding Phillips Curves Shifts 2)What would cause an outward shift from Phillips curve PC₁ to Phillips curve PC₀?