Question 1

Each of the following conditions will tend to reduce the sacrifice ratio except when:

Accepted Answer

A)  workers and firms set wages and prices based on rational expectations. 
B)  policymakers make credible commitments to policy changes. 
C)  announcements of policy changes are made before workers and firms have formed expectations. 
D)  the concept of hysteresis accurately describes the impact of history on the natural rate of unemployment. 
A)  workers and firms set wages and prices based on rational expectations. 
B)  policymakers make credible commitments to policy changes. 
C)  announcements of policy changes are made before workers and firms have formed expectations. 
D)  the concept of hysteresis accurately describes the impact of history on the natural rate of unemployment.

Question 2

According to the open-economy Phillips curve model,other things equal,the unemployment rate rises in all the following situations except when:

Accepted Answer

A)  actual inflation rises. 
B)  expected inflation rises. 
C)  the country's real exchange rate falls. 
D)  the natural unemployment rate rises. 
A)  actual inflation rises. 
B)  expected inflation rises. 
C)  the country's real exchange rate falls. 
D)  the natural unemployment rate rises.

Question 3

In the 1980s in Canada,there was 
I: rising inflationary expectations,and
II: expansionary monetary policy.

Accepted Answer

A)  I is true; II is not. 
B)  II is true; I is not. 
C)  Both I and II are true. 
D)  Neither I nor II is true. 
A)  I is true; II is not. 
B)  II is true; I is not. 
C)  Both I and II are true. 
D)  Neither I nor II is true.

Question 4

According to the imperfect-information model,in countries in which there is a great deal of variability of prices:

Accepted Answer

A)  the response of output to unexpected changes in prices will be relatively large. 
B)  the response of output to unexpected changes in prices will be relatively small. 
C)  output will respond negatively to an unexpected rise in prices. 
D)  output will not respond to an unexpected change in prices. 
A)  the response of output to unexpected changes in prices will be relatively large. 
B)  the response of output to unexpected changes in prices will be relatively small. 
C)  output will respond negatively to an unexpected rise in prices. 
D)  output will not respond to an unexpected change in prices.

Question 5

All of the following are ways that the modern Phillips curve differs from the relationship observed by A.W.Phillips in 1958 except that the modern Phillips curve:

Accepted Answer

A)  substitutes the output gap for unemployment. 
B)  includes supply shocks. 
C)  includes expected inflation. 
D)  substitutes price inflation for wage inflation. 
A)  substitutes the output gap for unemployment. 
B)  includes supply shocks. 
C)  includes expected inflation. 
D)  substitutes price inflation for wage inflation.

Question 6

If the short-run aggregate supply curve is assumed to be horizontal and there are no international capital flows,then the big,comprehensive model corresponds to which of the following special cases?

Accepted Answer

A)  classical closed economy 
B)  aggregate demand and aggregate supply 
C)  IS-LM model 
D)  Mundell-Fleming with floating exchange rate 
A)  classical closed economy 
B)  aggregate demand and aggregate supply 
C)  IS-LM model 
D)  Mundell-Fleming with floating exchange rate

Question 7

Inflation inertia refers to the idea that inflation:

Accepted Answer

A)  is always present in economies. 
B)  keeps on going unless something acts to stop it. 
C)  cannot be reduced unless unemployment is increased. 
D)  can be generated by either demand-pull or cost-push forces. 
A)  is always present in economies. 
B)  keeps on going unless something acts to stop it. 
C)  cannot be reduced unless unemployment is increased. 
D)  can be generated by either demand-pull or cost-push forces.

Question 8

Assume that an economy has the Phillips curve $\pi$ = $\pi$ -1 - 0.5(u - 0.06).How many percentage point-years of cyclical unemployment are needed to reduce inflation by 5 percentage points?

Accepted Answer

A)  20 
B)  10 
C)  5 
D)  2.5 
A)  20 
B)  10 
C)  5 
D)  2.5

Question 9

To illustrate inflation inertia in an aggregate demand-aggregate supply model,the short-run aggregate supply curve shifts upward because of increases in ______,and the aggregate demand curve shifts upward because of increases in ______.

Accepted Answer

A)  the expected price level; the money supply 
B)  the money supply; the expected price level 
C)  output; the price level 
D)  the price level; output 
A)  the expected price level; the money supply 
B)  the money supply; the expected price level 
C)  output; the price level 
D)  the price level; output

Question 10

According to the sticky-price model:

Accepted Answer

A)  all firms announce their prices in advance. 
B)  all firms set their prices in accord with observed prices and output. 
C)  some firms set their prices according to the aggregate supply equation. 
D)  some firms announce their prices in advance,and some firms set their prices in accord with observed prices and output. 
A)  all firms announce their prices in advance. 
B)  all firms set their prices in accord with observed prices and output. 
C)  some firms set their prices according to the aggregate supply equation. 
D)  some firms announce their prices in advance,and some firms set their prices in accord with observed prices and output.

Question 11

Assume that people form expectations rationally and that the sticky-price model describes the aggregate supply curve in the economy.For each of the following scenarios,explain whether monetary policy can have real effects on the economy:
a.The central bank determines monetary policy using the same information available to all firms and at the same time firms are setting prices,so both firms and policymakers have the same information.b.The central bank determines monetary policy after firms have set prices using information not available at the time prices were set.

Accepted Answer

a. The aggregate supply curve implies th

Question 12

If only unanticipated changes in the money supply affect real GDP,the public has rational expectations,and everyone has the same information about the state of the economy,then:

Accepted Answer

A)  monetary policy can be used to systematically stabilize output. 
B)  monetary policy cannot be used to systematically stabilize output. 
C)  a policy of keeping the money supply constant is optimal. 
D)  a policy of adjusting the money supply in response to the state of the economy is optimal. 
A)  monetary policy can be used to systematically stabilize output. 
B)  monetary policy cannot be used to systematically stabilize output. 
C)  a policy of keeping the money supply constant is optimal. 
D)  a policy of adjusting the money supply in response to the state of the economy is optimal.

Question 13

According to the imperfect-information model,when the price level rises and the producer expects the price level to rise,the producer:

Accepted Answer

A)  increases production. 
B)  does not change production. 
C)  decreases production. 
D)  hires more workers. 
A)  increases production. 
B)  does not change production. 
C)  decreases production. 
D)  hires more workers.

Question 14

Workers resist wage decreases more vigorously than they resist wage increases.This phenomenon makes the short-run Phillips curve nonlinear-steeper when inflation is positive than when inflation is negative.Given this nonlinearity,which of the following statements are true? 
I.A positive inflation target (say 2%)leads to less unemployment than does an inflation target of zero.
II.The NAIRU (noninflationary rate of unemployment)is increased.

Accepted Answer

A)  I is true; II is not. 
B)  II is true; I is not. 
C)  Both I and II are true. 
D)  Neither I nor II is true. 
A)  I is true; II is not. 
B)  II is true; I is not. 
C)  Both I and II are true. 
D)  Neither I nor II is true.

Question 15

The Phillips curve expresses a short-run link:

Accepted Answer

A)  among nominal variables. 
B)  among real variables. 
C)  among unexpected variables. 
D)  between nominal and real variables. 
A)  among nominal variables. 
B)  among real variables. 
C)  among unexpected variables. 
D)  between nominal and real variables.

Question 16

Use the following to answer questions :
Exhibit: AD-AS Shifts
  
-(Exhibit: Short-run Phillips Curve)As the short-run Phillips curve shifts from A to B to C to D:

Accepted Answer

A)  the expected rate of inflation is unchanged at every level of unemployment. 
B)  there is a lower-expected rate of inflation at every level of unemployment. 
C)  there is a higher-expected rate of inflation for every level of unemployment. 
D)  the natural rate of unemployment falls. 
A)  the expected rate of inflation is unchanged at every level of unemployment. 
B)  there is a lower-expected rate of inflation at every level of unemployment. 
C)  there is a higher-expected rate of inflation for every level of unemployment. 
D)  the natural rate of unemployment falls.

Question 17

Assume that a firm has a production function Y = 1,000L1/2,where Y is output and L is labour.Labour demand is Ld = 250,000(P/W)2 and labour supply is Ls = 31,250(W/P).Initially,there is an equilibrium in which output is 250,000,employment is 62,500,the nominal wage is 20,and the price level is 10.Demand for output is 250,000 at the given price,so all output is sold.Suddenly,demand at the given price drops to 200,000,but the firm does not lower its price.It lowers output and lays off workers.a.Assuming that the firm cannot produce for inventory,how much will the firm want to produce?
b.Assuming output equals the amount given under part a,what employment force will the firms want to hire?
c.If the firm continues to pay the same nominal and real wage,how much more labour will workers wish to supply than the firm will want to hire?

Accepted Answer

a. 200,000

Question 18

Use the following to answer questions :
Exhibit: AD-AS Shifts
  
-(Exhibit: AD-AS Shifts)Starting from long-run equilibrium at A with output equal to Y and the price level equal to P1,a cost-push inflation would be represented by a shift from:

Accepted Answer

A)  AD1 to AD2. 
B)  AD1 to AD3. 
C)  AS1 to AS2. 
D)  AS1 to AS3. 
A)  AD1 to AD2. 
B)  AD1 to AD3. 
C)  AS1 to AS2. 
D)  AS1 to AS3.

Question 19

Both models of aggregate supply discussed in Chapter 13 imply that if the price level is higher than expected,then output ______ natural level of output.

Accepted Answer

A)  exceeds the 
B)  falls below the 
C)  equals the 
D)  moves to a different 
A)  exceeds the 
B)  falls below the 
C)  equals the 
D)  moves to a different

Question 20

In the sticky-wage model,if labour contracts specify that the nominal wage be fully indexed for inflation,the short-run aggregate supply schedule will:

Accepted Answer

A)  slope upward to the right. 
B)  be vertical. 
C)  be horizontal. 
D)  shift upward. 
A)  slope upward to the right. 
B)  be vertical. 
C)  be horizontal. 
D)  shift upward.

Each of the following conditions will tend to reduce the sacrifice ratio except when:

According to the open-economy Phillips curve model,other things equal,the unemployment rate rises in all the following situations except when:

In the 1980s in Canada,there was I: rising inflationary expectations,and II: expansionary monetary policy.

According to the imperfect-information model,in countries in which there is a great deal of variability of prices:

All of the following are ways that the modern Phillips curve differs from the relationship observed by A.W.Phillips in 1958 except that the modern Phillips curve:

If the short-run aggregate supply curve is assumed to be horizontal and there are no international capital flows,then the big,comprehensive model corresponds to which of the following special cases?

Inflation inertia refers to the idea that inflation:

Assume that an economy has the Phillips curve $\pi$ = $\pi$ _-₁ - 0.5(u - 0.06).How many percentage point-years of cyclical unemployment are needed to reduce inflation by 5 percentage points?

To illustrate inflation inertia in an aggregate demand-aggregate supply model,the short-run aggregate supply curve shifts upward because of increases in ,and the aggregate demand curve shifts upward because of increases in .

According to the sticky-price model:

If only unanticipated changes in the money supply affect real GDP,the public has rational expectations,and everyone has the same information about the state of the economy,then:

According to the imperfect-information model,when the price level rises and the producer expects the price level to rise,the producer:

The Phillips curve expresses a short-run link:

Use the following to answer questions : Exhibit: AD-AS Shifts -(Exhibit: Short-run Phillips Curve)As the short-run Phillips curve shifts from A to B to C to D:

Use the following to answer questions : Exhibit: AD-AS Shifts -(Exhibit: AD-AS Shifts)Starting from long-run equilibrium at A with output equal to Y and the price level equal to P₁,a cost-push inflation would be represented by a shift from:

Both models of aggregate supply discussed in Chapter 13 imply that if the price level is higher than expected,then output ______ natural level of output.

In the sticky-wage model,if labour contracts specify that the nominal wage be fully indexed for inflation,the short-run aggregate supply schedule will:

The Science of Macroeconomics

The Data of Macroeconomics

The Open Economy

Unemployment

Economic Growth I

Economic Growth II

Introduction to Economic Fluctuations

Aggregate Demand I

Stabilization Policy

Government Debt and Budget Deficits

Investment

Money Supply and Money Demand

The Financial System

Filters

Exam 13: Aggregate Supply and the Short-Run

Each of the following conditions will tend to reduce the sacrifice ratio except when:

According to the open-economy Phillips curve model,other things equal,the unemployment rate rises in all the following situations except when:

In the 1980s in Canada,there was I: rising inflationary expectations,and II: expansionary monetary policy.

According to the imperfect-information model,in countries in which there is a great deal of variability of prices:

All of the following are ways that the modern Phillips curve differs from the relationship observed by A.W.Phillips in 1958 except that the modern Phillips curve:

If the short-run aggregate supply curve is assumed to be horizontal and there are no international capital flows,then the big,comprehensive model corresponds to which of the following special cases?

Inflation inertia refers to the idea that inflation:

Assume that an economy has the Phillips curve π\piπ = π\piπ -1 - 0.5(u - 0.06).How many percentage point-years of cyclical unemployment are needed to reduce inflation by 5 percentage points?

To illustrate inflation inertia in an aggregate demand-aggregate supply model,the short-run aggregate supply curve shifts upward because of increases in ______,and the aggregate demand curve shifts upward because of increases in ______.

According to the sticky-price model:

If only unanticipated changes in the money supply affect real GDP,the public has rational expectations,and everyone has the same information about the state of the economy,then:

According to the imperfect-information model,when the price level rises and the producer expects the price level to rise,the producer:

The Phillips curve expresses a short-run link:

Use the following to answer questions : Exhibit: AD-AS Shifts -(Exhibit: Short-run Phillips Curve)As the short-run Phillips curve shifts from A to B to C to D:

Use the following to answer questions : Exhibit: AD-AS Shifts -(Exhibit: AD-AS Shifts)Starting from long-run equilibrium at A with output equal to Y and the price level equal to P1,a cost-push inflation would be represented by a shift from:

Both models of aggregate supply discussed in Chapter 13 imply that if the price level is higher than expected,then output ______ natural level of output.

In the sticky-wage model,if labour contracts specify that the nominal wage be fully indexed for inflation,the short-run aggregate supply schedule will:

The Science of Macroeconomics

The Data of Macroeconomics

The Open Economy

Unemployment

Economic Growth I

Economic Growth II

Introduction to Economic Fluctuations

Aggregate Demand I

Stabilization Policy

Government Debt and Budget Deficits

Investment

Money Supply and Money Demand

The Financial System

Filters

Assume that an economy has the Phillips curve $\pi$ = $\pi$ _-₁ - 0.5(u - 0.06).How many percentage point-years of cyclical unemployment are needed to reduce inflation by 5 percentage points?

To illustrate inflation inertia in an aggregate demand-aggregate supply model,the short-run aggregate supply curve shifts upward because of increases in ,and the aggregate demand curve shifts upward because of increases in .

Use the following to answer questions : Exhibit: AD-AS Shifts -(Exhibit: AD-AS Shifts)Starting from long-run equilibrium at A with output equal to Y and the price level equal to P₁,a cost-push inflation would be represented by a shift from: