Question 1

The long-run Phillips Curve is

Accepted Answer

A)  horizontal at the level of expected inflation p(e). 
B)  vertical at the natural level of Y/Y(n) = 100. 
C)  dependent on price expectations. 
D)  dependent on the rate of inflation. 
A)  horizontal at the level of expected inflation p(e). 
B)  vertical at the natural level of Y/Y(n) = 100. 
C)  dependent on price expectations. 
D)  dependent on the rate of inflation.

Question 2

All points on the SP curve (but not on the LP line) share the characteristic that the economy is not in the long-run equilibrium because

Accepted Answer

A)  price level is constantly increasing faster than nominal wage rate. 
B)  wage contracts failed to anticipate inflation correctly. 
C)  wage contracts failed to specify in advance the wage increases necessary to keep up with inflation. 
D)  All of the above. 
A)  price level is constantly increasing faster than nominal wage rate. 
B)  wage contracts failed to anticipate inflation correctly. 
C)  wage contracts failed to specify in advance the wage increases necessary to keep up with inflation. 
D)  All of the above.

Question 3

At any point on the current SP curve that is to the right of the LP line, actual inflation is ________ than expected, which leads to wage renegotiations that shift SP ________.

Accepted Answer

A)  lower, upward 
B)  lower, downward 
C)  higher, upward 
D)  higher, downward 
A)  lower, upward 
B)  lower, downward 
C)  higher, upward 
D)  higher, downward

Question 4

Figure 8-6  
-In the figure above, a contractionary monetary policy with no change in inflationary expectations takes us along path

Accepted Answer

A)  A. 
B)  H. 
C)  G. 
D)  F. 
E)  E. 
A)  A. 
B)  H. 
C)  G. 
D)  F. 
E)  E.

Question 5

Natural real GDP is the rate of output produced by the amount of labor hired when

Accepted Answer

A)  inflation is zero. 
B)  inflation is expected to be zero. 
C)  inflation is both zero and is expected to be zero. 
D)  being correctly anticipated. 
A)  inflation is zero. 
B)  inflation is expected to be zero. 
C)  inflation is both zero and is expected to be zero. 
D)  being correctly anticipated.

Question 6

Beneficial supply shocks ________ the rate of inflation and ________ the natural rate of unemployment.

Accepted Answer

A)  reduce, reduce 
B)  reduce, increase 
C)  increase, reduce 
D)  increase, increase 
A)  reduce, reduce 
B)  reduce, increase 
C)  increase, reduce 
D)  increase, increase

Question 7

The "direct effect" of an adverse supply shock in the SP/LP model is

Accepted Answer

A)  a rightward shift of LP. 
B)  a leftward shift of LP. 
C)  an upward shift of SP. 
D)  a downward shift of SP. 
A)  a rightward shift of LP. 
B)  a leftward shift of LP. 
C)  an upward shift of SP. 
D)  a downward shift of SP.

Question 8

At every current AD/SAS equilibrium point to the right of the LAS curve, the price level is ________ than that expected on average and figured into the wage contracts in force, and thus there is pressure on the SAS curve to shift ________ with wage renegotiations.

Accepted Answer

A)  greater, upward 
B)  greater, downward 
C)  less, upward 
D)  less, downward 
A)  greater, upward 
B)  greater, downward 
C)  less, upward 
D)  less, downward

Question 9

Given an adverse supply shock, a "neutral policy" will

Accepted Answer

A)  maintain the inflation rate and the output ratio. 
B)  lower the inflation rate and the output ratio. 
C)  raise the inflation rate and the output ratio. 
D)  maintain the inflation rate but lower the output ratio. 
A)  maintain the inflation rate and the output ratio. 
B)  lower the inflation rate and the output ratio. 
C)  raise the inflation rate and the output ratio. 
D)  maintain the inflation rate but lower the output ratio.

Question 10

Can monetary policy maintain a constant price level when confronted with the effects of an adverse supply shock?

Accepted Answer

A)  Yes, if the economy is characterized by real and/or nominal wage rigidity 
B)  No, if the economy is characterized by real and/or nominal wage rigidity 
C)  Yes, if the economy is characterized by continuous renegotiation 
D)  No, if the economy is characterized by overlapping contracts 
A)  Yes, if the economy is characterized by real and/or nominal wage rigidity 
B)  No, if the economy is characterized by real and/or nominal wage rigidity 
C)  Yes, if the economy is characterized by continuous renegotiation 
D)  No, if the economy is characterized by overlapping contracts

Question 11

Which of the following was not a beneficial supply shock occurring in the 1990s?

Accepted Answer

A)  falling computer prices 
B)  the transition to managed health care organizations, i.e. HMOs. 
C)  a stronger bargaining position for labor 
D)  increased global competition 
A)  falling computer prices 
B)  the transition to managed health care organizations, i.e. HMOs. 
C)  a stronger bargaining position for labor 
D)  increased global competition

Question 12

Figure 8-3  
-Suppose that a country's workers are universally protected by COLA's and an adverse SAS shock, occurs. After wage and price adjustments, ceteris paribus, we find

Accepted Answer

A)  output falls dramatically and unemployment rises. 
B)  real wages decline and unemployment rises. 
C)  real wages rise and unemployment falls. 
D)  none of the above 
A)  output falls dramatically and unemployment rises. 
B)  real wages decline and unemployment rises. 
C)  real wages rise and unemployment falls. 
D)  none of the above

Question 13

Figure 8-5  
-In the figure above, the wage rate attached to SAS1 is

Accepted Answer

A)  1.10. 
B)  between 1.05 and 1.10. 
C)  1.05. 
D)  1.00. 
A)  1.10. 
B)  between 1.05 and 1.10. 
C)  1.05. 
D)  1.00.

Question 14

In 1996, the growth rate of real GDP was 2.46 percent and the inflation rate was 1.94 percent. The growth of nominal GDP was

Accepted Answer

A)  4.4 percent. 
B)  0.52 percent. 
C)  3.88 percent. 
D)  4.92 percent. 
A)  4.4 percent. 
B)  0.52 percent. 
C)  3.88 percent. 
D)  4.92 percent.

Question 15

Figure 8-2  
-If there is a permanent adverse supply shock

Accepted Answer

A)  the rate of inflation can be held constant if real wages are kept from falling. 
B)  an extinguishing policy will produce an acceleration of inflation. 
C)  the level of employment at the natural level of real GDP will remain constant only if the labor supply curve is upward sloping to the right. 
D)  a policy of accommodation at the original natural level of real GDP is not possible without an acceleration of inflation. 
A)  the rate of inflation can be held constant if real wages are kept from falling. 
B)  an extinguishing policy will produce an acceleration of inflation. 
C)  the level of employment at the natural level of real GDP will remain constant only if the labor supply curve is upward sloping to the right. 
D)  a policy of accommodation at the original natural level of real GDP is not possible without an acceleration of inflation.

Question 16

If expectations are adaptive it means that the expected rate of inflation

Accepted Answer

A)  depends on the observed rate of inflation. 
B)  depends on one's previously expected rate of inflation. 
C)  will be rising when inflation is rising. 
D)  All of the above are accurate statements about adaptive expectations. 
A)  depends on the observed rate of inflation. 
B)  depends on one's previously expected rate of inflation. 
C)  will be rising when inflation is rising. 
D)  All of the above are accurate statements about adaptive expectations.

Question 17

Oil price increases generally produce ________ supply shocks in which the price level rises and then ________.

Accepted Answer

A)  temporary, holds at its new higher level 
B)  temporary, returns to its previous level 
C)  permanent, holds at its new higher level 
D)  permanent, returns to its previous level 
A)  temporary, holds at its new higher level 
B)  temporary, returns to its previous level 
C)  permanent, holds at its new higher level 
D)  permanent, returns to its previous level

Question 18

Everywhere to the right of the long-run Phillips Curve

Accepted Answer

A)  actual inflation is less than expected inflation and the expected inflation rate will be reduced. 
B)  actual inflation is less than expected inflation and the expected inflation rate will be raised. 
C)  actual inflation is greater than expected inflation and the expected inflation rate will be raised. 
D)  actual inflation is greater than expected inflation and the expected inflation rate will be reduced. 
A)  actual inflation is less than expected inflation and the expected inflation rate will be reduced. 
B)  actual inflation is less than expected inflation and the expected inflation rate will be raised. 
C)  actual inflation is greater than expected inflation and the expected inflation rate will be raised. 
D)  actual inflation is greater than expected inflation and the expected inflation rate will be reduced.

Question 19

According to Gordon an upward shift in the SAS curve caused by a renegotiation of nominal wages is

Accepted Answer

A)  supply inflation since the SAS curve shifted. 
B)  not supply inflation since the required change in nominal wages is the result of past change in AD and pe. 
C)  natural since the SAS curve shifted. 
D)  a permanent acceleration of inflation. 
A)  supply inflation since the SAS curve shifted. 
B)  not supply inflation since the required change in nominal wages is the result of past change in AD and pe. 
C)  natural since the SAS curve shifted. 
D)  a permanent acceleration of inflation.

Question 20

Figure 8-4  
-From an initial AD/SAS/LAS equilibrium with price and wage index numbers of 1.00 and an output index number of 100, suppose a new SAS curve must be drawn for a wage level of 1.03. Applying a general rule for drawing SAS curves, it goes through the

Accepted Answer

A)  current AD curve at Y = 103. 
B)  current AD curve at P = 1.03. 
C)  LAS curve at Y = 103. 
D)  LAS curve at P = 1.03. 
A)  current AD curve at Y = 103. 
B)  current AD curve at P = 1.03. 
C)  LAS curve at Y = 103. 
D)  LAS curve at P = 1.03.

The long-run Phillips Curve is

All points on the SP curve (but not on the LP line) share the characteristic that the economy is not in the long-run equilibrium because

At any point on the current SP curve that is to the right of the LP line, actual inflation is than expected, which leads to wage renegotiations that shift SP .

Figure 8-6 -In the figure above, a contractionary monetary policy with no change in inflationary expectations takes us along path

Natural real GDP is the rate of output produced by the amount of labor hired when

Beneficial supply shocks the rate of inflation and the natural rate of unemployment.

The "direct effect" of an adverse supply shock in the SP/LP model is

At every current AD/SAS equilibrium point to the right of the LAS curve, the price level is than that expected on average and figured into the wage contracts in force, and thus there is pressure on the SAS curve to shift with wage renegotiations.

Given an adverse supply shock, a "neutral policy" will

Can monetary policy maintain a constant price level when confronted with the effects of an adverse supply shock?

Which of the following was not a beneficial supply shock occurring in the 1990s?

Figure 8-3 -Suppose that a country's workers are universally protected by COLA's and an adverse SAS shock, occurs. After wage and price adjustments, ceteris paribus, we find

Figure 8-5 -In the figure above, the wage rate attached to SAS1 is

In 1996, the growth rate of real GDP was 2.46 percent and the inflation rate was 1.94 percent. The growth of nominal GDP was

Figure 8-2 -If there is a permanent adverse supply shock

If expectations are adaptive it means that the expected rate of inflation

Oil price increases generally produce supply shocks in which the price level rises and then .

Everywhere to the right of the long-run Phillips Curve

According to Gordon an upward shift in the SAS curve caused by a renegotiation of nominal wages is

Figure 8-4 -From an initial AD/SAS/LAS equilibrium with price and wage index numbers of 1.00 and an output index number of 100, suppose a new SAS curve must be drawn for a wage level of 1.03. Applying a general rule for drawing SAS curves, it goes through the

What Is Macroeconomics

The Measurement of Income, Prices, and Unemployment

Spending, Income, and Interest Rates

Monetary and Fiscal Policy in the Is-Lm Model

The Government Budget, Foreign Borrowing, and the Twin Deficits

International Trade, Exchange Rates, and Macroeconomic Policy

Aggregate Demand, Aggregate Supply, and the Self-Correcting Economy

The Goals of Stabilization Policy: Low Inflation and Low Unemployment

The Theory of Economic Growth

The Big Questions of Economic Growth

The Government Budget, the Public Debt, and Social Security

Money and Financial Markets

Stabilization Policy in the Closed and Open Economy

The Economics of Consumption Behavior

The Economics of Investment Behavior

New Classical Macro Confronts New Keynesian Macro

Conclusion: Where We Stand

Filters

Exam 8: Inflation: Its Causes and Cures

The long-run Phillips Curve is

All points on the SP curve (but not on the LP line) share the characteristic that the economy is not in the long-run equilibrium because

At any point on the current SP curve that is to the right of the LP line, actual inflation is ________ than expected, which leads to wage renegotiations that shift SP ________.

Figure 8-6 -In the figure above, a contractionary monetary policy with no change in inflationary expectations takes us along path

Natural real GDP is the rate of output produced by the amount of labor hired when

Beneficial supply shocks ________ the rate of inflation and ________ the natural rate of unemployment.

The "direct effect" of an adverse supply shock in the SP/LP model is

At every current AD/SAS equilibrium point to the right of the LAS curve, the price level is ________ than that expected on average and figured into the wage contracts in force, and thus there is pressure on the SAS curve to shift ________ with wage renegotiations.

Given an adverse supply shock, a "neutral policy" will

Can monetary policy maintain a constant price level when confronted with the effects of an adverse supply shock?

Which of the following was not a beneficial supply shock occurring in the 1990s?

Figure 8-3 -Suppose that a country's workers are universally protected by COLA's and an adverse SAS shock, occurs. After wage and price adjustments, ceteris paribus, we find

Figure 8-5 -In the figure above, the wage rate attached to SAS1 is

In 1996, the growth rate of real GDP was 2.46 percent and the inflation rate was 1.94 percent. The growth of nominal GDP was

Figure 8-2 -If there is a permanent adverse supply shock

If expectations are adaptive it means that the expected rate of inflation

Oil price increases generally produce ________ supply shocks in which the price level rises and then ________.

Everywhere to the right of the long-run Phillips Curve

According to Gordon an upward shift in the SAS curve caused by a renegotiation of nominal wages is

Figure 8-4 -From an initial AD/SAS/LAS equilibrium with price and wage index numbers of 1.00 and an output index number of 100, suppose a new SAS curve must be drawn for a wage level of 1.03. Applying a general rule for drawing SAS curves, it goes through the

What Is Macroeconomics

The Measurement of Income, Prices, and Unemployment

Spending, Income, and Interest Rates

Monetary and Fiscal Policy in the Is-Lm Model

The Government Budget, Foreign Borrowing, and the Twin Deficits

International Trade, Exchange Rates, and Macroeconomic Policy

Aggregate Demand, Aggregate Supply, and the Self-Correcting Economy

The Goals of Stabilization Policy: Low Inflation and Low Unemployment

The Theory of Economic Growth

The Big Questions of Economic Growth

The Government Budget, the Public Debt, and Social Security

Money and Financial Markets

Stabilization Policy in the Closed and Open Economy

The Economics of Consumption Behavior

The Economics of Investment Behavior

New Classical Macro Confronts New Keynesian Macro

Conclusion: Where We Stand

Filters

At any point on the current SP curve that is to the right of the LP line, actual inflation is than expected, which leads to wage renegotiations that shift SP .

Beneficial supply shocks the rate of inflation and the natural rate of unemployment.

At every current AD/SAS equilibrium point to the right of the LAS curve, the price level is than that expected on average and figured into the wage contracts in force, and thus there is pressure on the SAS curve to shift with wage renegotiations.

Oil price increases generally produce supply shocks in which the price level rises and then .