Question 1

According to the natural-rate hypothesis, the levels of output and unemployment depend on:

Accepted Answer

A)  aggregate demand in the short run, but not in the long run. 
B)  aggregate demand in the long run, but not in the short run. 
C)  the natural rate of unemployment in the short run, but the natural rate of inflation in the long run. 
D)  the natural rate of inflation in the short run, but the natural rate of unemployment in the long run. 
A)  aggregate demand in the short run, but not in the long run. 
B)  aggregate demand in the long run, but not in the short run. 
C)  the natural rate of unemployment in the short run, but the natural rate of inflation in the long run. 
D)  the natural rate of inflation in the short run, but the natural rate of unemployment in the long run. A

Question 2

Both models of aggregate supply discussed in Chapter 14 imply that if the price level is lower than expected, then output ______ natural rate 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 B

Question 3

Assume that an economy is initially operating at the natural rate of output. Use the model of aggregate demand and aggregate supply (using the upward-sloping short-run aggregate supply curve) to illustrate graphically the short-run and long-run effects on price and output of a reduction in government spending that produces a budget surplus.

Accepted Answer

In the short run output and prices decrease. In the long run output increases to restore full employment, but at a lower price level.

Question 4

All of the following are requirements for reducing inflation without causing a recession except:

Accepted Answer

A)  workers and firms must form expectations rationally. 
B)  the plan must be announced before expectations are formed. 
C)  the plan must be believed by workers and firms. 
D)  the government's budget must be balanced. 
A)  workers and firms must form expectations rationally. 
B)  the plan must be announced before expectations are formed. 
C)  the plan must be believed by workers and firms. 
D)  the government's budget must be balanced.

Question 5

The NAIRU is the:

Accepted Answer

A)  North American institutional rate of unemployment. 
B)  natural aggregate investment return on utilization. 
C)  nonaccelerating inflation rate of unemployment. 
D)  normal American inelastic rate of unemployment. 
A)  North American institutional rate of unemployment. 
B)  natural aggregate investment return on utilization. 
C)  nonaccelerating inflation rate of unemployment. 
D)  normal American inelastic rate of unemployment.

Question 6

Which of the following will shift the aggregate supply curve up to the left?

Accepted Answer

A)  an increase in the price level 
B)  a decrease in the level of output 
C)  an increase in the expected price level 
D)  a decrease in the price level 
A)  an increase in the price level 
B)  a decrease in the level of output 
C)  an increase in the expected price level 
D)  a decrease in the price level

Question 7

If the short-run aggregate supply curve is assumed to be horizontal and money demand is proportional to income, then the mother of all models in the Appendix to Chapter 14 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 model with floating exchange rate 
A)  classical closed economy 
B)  aggregate demand and aggregate supply 
C)  IS-LM model 
D)  Mundell-Fleming model with floating exchange rate

Question 8

An economy must sacrifice 12 percent of GDP to reduce inflation. Which of the following plans represents the "cold turkey" solution to inflation?

Accepted Answer

A)  Reduce output by 1 percent for 12 years. 
B)  Reduce output by 2 percent for 6 years. 
C)  Reduce output by 4 percent for 3 years. 
D)  Reduce output by 12 percent for 1 year. 
A)  Reduce output by 1 percent for 12 years. 
B)  Reduce output by 2 percent for 6 years. 
C)  Reduce output by 4 percent for 3 years. 
D)  Reduce output by 12 percent for 1 year.

Question 9

According to the sticky-price model, output will be at the natural level if:

Accepted Answer

A)  firms expect a high price level and the demand for goods is high. 
B)  the proportion of firms with flexible prices equals the proportion of firms with sticky prices. 
C)  the price level equals the expected price level. 
D)  expectations are formed adaptively, but not if expectations are formed rationally. 
A)  firms expect a high price level and the demand for goods is high. 
B)  the proportion of firms with flexible prices equals the proportion of firms with sticky prices. 
C)  the price level equals the expected price level. 
D)  expectations are formed adaptively, but not if expectations are formed rationally.

Question 10

Assume that the sacrifice ratio for an economy is 4. If the central bank wishes to reduce inflation from 10 percent to 5 percent, this will cost the economy ______ percent of one year's GDP.

Accepted Answer

A)  4 
B)  5 
C)  20 
D)  40 
A)  4 
B)  5 
C)  20 
D)  40

Question 11

The Phillips curve analysis described in Chapter 14 implies that there is a negative tradeoff between inflation and unemployment in:

Accepted Answer

A)  both the short run and long run. 
B)  in the short run only. 
C)  in the long run only. 
D)  in neither the short run nor the long run. 
A)  both the short run and long run. 
B)  in the short run only. 
C)  in the long run only. 
D)  in neither the short run nor the long run.

Question 12

According to the sticky-price model, other things being equal, the greater the proportion, s, of firms that follow the sticky-price rule, the ______ the ______ in output in response to an unexpected price increase.

Accepted Answer

A)  greater; increase 
B)  smaller; increase 
C)  greater; decrease 
D)  smaller; decrease 
A)  greater; increase 
B)  smaller; increase 
C)  greater; decrease 
D)  smaller; decrease

Question 13

Each of the two models of short-run aggregate supply is based on some market imperfection. In the sticky-price model, the imperfection is that:

Accepted Answer

A)  some firms do not adjust their prices instantly to changes in demand. 
B)  expectations are formed adaptively rather than rationally. 
C)  firms confuse changes in the overall level of prices with changes in relative prices. 
D)  the real wage adjusts to bring labor supply and labor demand into equilibrium. 
A)  some firms do not adjust their prices instantly to changes in demand. 
B)  expectations are formed adaptively rather than rationally. 
C)  firms confuse changes in the overall level of prices with changes in relative prices. 
D)  the real wage adjusts to bring labor supply and labor demand into equilibrium.

Question 14

Along an aggregate supply curve, if the level of output is less than the natural level of output, then the price level is:

Accepted Answer

A)  greater than the expected price level. 
B)  less than the expected price level. 
C)  equal to the natural price level. 
D)  stuck at the existing price level. 
A)  greater than the expected price level. 
B)  less than the expected price level. 
C)  equal to the natural price level. 
D)  stuck at the existing price level.

Question 15

In the case of cost-push inflation, other things being equal:

Accepted Answer

A)  both the inflation rate and the unemployment rate rise at the same time. 
B)  the unemployment rate rises but the inflation rate falls. 
C)  the inflation rate rises but the unemployment rate falls. 
D)  both the inflation rate and the unemployment rate fall. 
A)  both the inflation rate and the unemployment rate rise at the same time. 
B)  the unemployment rate rises but the inflation rate falls. 
C)  the inflation rate rises but the unemployment rate falls. 
D)  both the inflation rate and the unemployment rate fall.

Question 16

According to the natural-rate hypothesis, output will be at the natural rate:

Accepted Answer

A)  if inflation exceeds expected inflation. 
B)  if inflation falls below expected inflation. 
C)  in the long run. 
D)  if aggregate demand affects output in the long run. 
A)  if inflation exceeds expected inflation. 
B)  if inflation falls below expected inflation. 
C)  in the long run. 
D)  if aggregate demand affects output in the long run.

Question 17

All of the following are exogenous variables in the mother of all models in the Appendix to Chapter 14 except the:

Accepted Answer

A)  world interest rate. 
B)  labor force. 
C)  world real interest rate. 
D)  price level. 
A)  world interest rate. 
B)  labor force. 
C)  world real interest rate. 
D)  price level.

Question 18

How is hysteresis related to recession? Explain.

Accepted Answer

Hysteresis is the term used to

Question 19

Using the sticky-price model, the higher the average rate of inflation, the more frequently firms must adjust their prices, which implies that a high rate of inflation:

Accepted Answer

A)  has no effect on the slope of the short-run aggregate supply curve. 
B)  should make the short-run aggregate supply curve flatter. 
C)  makes the short-run aggregate supply curve steeper. 
D)  causes prices to be sticky. 
A)  has no effect on the slope of the short-run aggregate supply curve. 
B)  should make the short-run aggregate supply curve flatter. 
C)  makes the short-run aggregate supply curve steeper. 
D)  causes prices to be sticky.

Question 20

If the short-run aggregate supply curve is assumed to be horizontal and there are no international capital flows, then the mother of all models in the Appendix to Chapter 14 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 model with floating exchange rate 
A)  classical closed economy 
B)  aggregate demand and aggregate supply 
C)  IS-LM model 
D)  Mundell-Fleming model with floating exchange rate

According to the natural-rate hypothesis, the levels of output and unemployment depend on:

Both models of aggregate supply discussed in Chapter 14 imply that if the price level is lower than expected, then output ______ natural rate of output.

All of the following are requirements for reducing inflation without causing a recession except:

The NAIRU is the:

Which of the following will shift the aggregate supply curve up to the left?

If the short-run aggregate supply curve is assumed to be horizontal and money demand is proportional to income, then the mother of all models in the Appendix to Chapter 14 corresponds to which of the following special cases?

An economy must sacrifice 12 percent of GDP to reduce inflation. Which of the following plans represents the "cold turkey" solution to inflation?

According to the sticky-price model, output will be at the natural level if:

Assume that the sacrifice ratio for an economy is 4. If the central bank wishes to reduce inflation from 10 percent to 5 percent, this will cost the economy ______ percent of one year's GDP.

The Phillips curve analysis described in Chapter 14 implies that there is a negative tradeoff between inflation and unemployment in:

According to the sticky-price model, other things being equal, the greater the proportion, s, of firms that follow the sticky-price rule, the the in output in response to an unexpected price increase.

Each of the two models of short-run aggregate supply is based on some market imperfection. In the sticky-price model, the imperfection is that:

Along an aggregate supply curve, if the level of output is less than the natural level of output, then the price level is:

In the case of cost-push inflation, other things being equal:

According to the natural-rate hypothesis, output will be at the natural rate:

All of the following are exogenous variables in the mother of all models in the Appendix to Chapter 14 except the:

How is hysteresis related to recession? Explain.

Using the sticky-price model, the higher the average rate of inflation, the more frequently firms must adjust their prices, which implies that a high rate of inflation:

If the short-run aggregate supply curve is assumed to be horizontal and there are no international capital flows, then the mother of all models in the Appendix to Chapter 14 corresponds to which of the following special cases?

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

Exam 14: Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

According to the natural-rate hypothesis, the levels of output and unemployment depend on:

Both models of aggregate supply discussed in Chapter 14 imply that if the price level is lower than expected, then output ______ natural rate of output.

All of the following are requirements for reducing inflation without causing a recession except:

The NAIRU is the:

Which of the following will shift the aggregate supply curve up to the left?

If the short-run aggregate supply curve is assumed to be horizontal and money demand is proportional to income, then the mother of all models in the Appendix to Chapter 14 corresponds to which of the following special cases?

An economy must sacrifice 12 percent of GDP to reduce inflation. Which of the following plans represents the "cold turkey" solution to inflation?

According to the sticky-price model, output will be at the natural level if:

Assume that the sacrifice ratio for an economy is 4. If the central bank wishes to reduce inflation from 10 percent to 5 percent, this will cost the economy ______ percent of one year's GDP.

The Phillips curve analysis described in Chapter 14 implies that there is a negative tradeoff between inflation and unemployment in:

According to the sticky-price model, other things being equal, the greater the proportion, s, of firms that follow the sticky-price rule, the ______ the ______ in output in response to an unexpected price increase.

Each of the two models of short-run aggregate supply is based on some market imperfection. In the sticky-price model, the imperfection is that:

Along an aggregate supply curve, if the level of output is less than the natural level of output, then the price level is:

In the case of cost-push inflation, other things being equal:

According to the natural-rate hypothesis, output will be at the natural rate:

All of the following are exogenous variables in the mother of all models in the Appendix to Chapter 14 except the:

How is hysteresis related to recession? Explain.

Using the sticky-price model, the higher the average rate of inflation, the more frequently firms must adjust their prices, which implies that a high rate of inflation:

If the short-run aggregate supply curve is assumed to be horizontal and there are no international capital flows, then the mother of all models in the Appendix to Chapter 14 corresponds to which of the following special cases?

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

According to the sticky-price model, other things being equal, the greater the proportion, s, of firms that follow the sticky-price rule, the the in output in response to an unexpected price increase.