Question 1

If expectations about inflation are adaptive, they are ________.

Accepted Answer

A)  quick to respond to price shocks 
B)  consistent with the notion of sticky prices 
C)  based on changes in productivity 
D)  all of the above 
E)  none of the above 
A)  quick to respond to price shocks 
B)  consistent with the notion of sticky prices 
C)  based on changes in productivity 
D)  all of the above 
E)  none of the above B

Question 2

Observations of inflation in the 1970s prompted what further addition to the Phillips curve?

Accepted Answer

A)  price shocks 
B)  expected inflation 
C)  personal consumption expenditures 
D)  all of the above 
E)  none of the above 
A)  price shocks 
B)  expected inflation 
C)  personal consumption expenditures 
D)  all of the above 
E)  none of the above A

Question 3

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 D

Question 4

What can be concluded from Milton Friedman and Edmund Phelps' expectations-augmented Phillips curve?

Accepted Answer

A)  that there is no long run tradeoff between unemployment and inflation 
B)  that there is a short run tradeoff between unemployment and inflation 
C)  that there are two types of Phillips curves 
D)  all of the above 
E)  none of the above 
A)  that there is no long run tradeoff between unemployment and inflation 
B)  that there is a short run tradeoff between unemployment and inflation 
C)  that there are two types of Phillips curves 
D)  all of the above 
E)  none of the above

Question 5

Milton Friedman and Edmund Phelps contributed which insight(s) to Phillips curve analysis?

Accepted Answer

A)  that firms and workers care about nominal, not real wages 
B)  that wage changes have a one-to-one relationship with changes in expected inflation 
C)  that, in the long run, prices are flexible, so unemployment cannot remain above zero 
D)  all of the above 
E)  none of the above 
A)  that firms and workers care about nominal, not real wages 
B)  that wage changes have a one-to-one relationship with changes in expected inflation 
C)  that, in the long run, prices are flexible, so unemployment cannot remain above zero 
D)  all of the above 
E)  none of the above

Question 6

In the long run ________.

Accepted Answer

A)  the amount of output an economy can produce is determined by real variables like capital, labor and technological advances 
B)  aggregate supply is fixed at the potential level of output 
C)  there is enough time for prices to fully adjust so the classical dichotomy holds 
D)  all of the above 
E)  none of the above 
A)  the amount of output an economy can produce is determined by real variables like capital, labor and technological advances 
B)  aggregate supply is fixed at the potential level of output 
C)  there is enough time for prices to fully adjust so the classical dichotomy holds 
D)  all of the above 
E)  none of the above

Question 7

On the modern Phillips curve, the initial impact of an increase in the world price of steel 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 8

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 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

In the 1960s, the Phillips curve was ________.

Accepted Answer

A)  consistent with a positive relationship between inflation and unemployment 
B)  suggestive of a temporary trade off between inflation and unemployment 
C)  a very popular explanation for inflation fluctuations 
D)  all of the above 
E)  none of the above 
A)  consistent with a positive relationship between inflation and unemployment 
B)  suggestive of a temporary trade off between inflation and unemployment 
C)  a very popular explanation for inflation fluctuations 
D)  all of the above 
E)  none of the above

Question 11

Based on the data in this table,   If the natural rate of unemployment is steady at 8 percent, what is the inflation rate in period 3?

Accepted Answer

A)  8.5 percent 
B)  7.5 percent 
C)  5.5 percent 
D)  6.3 percent 
E)  none of the above 
A)  8.5 percent 
B)  7.5 percent 
C)  5.5 percent 
D)  6.3 percent 
E)  none of the above

Question 12

On the modern Phillips curve, the initial impact of government policies to stimulate the economy 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 13

Milton Friedman and Edmund Phelps contributed which insight(s) to Phillips curve analysis?

Accepted Answer

A)  that firms and workers care about nominal, not real wages 
B)  that wages have a one-to-one relationship with inflation 
C)  that, in the long run, the level of unemployment is independent of inflation 
D)  all of the above 
E)  none of the above 
A)  that firms and workers care about nominal, not real wages 
B)  that wages have a one-to-one relationship with inflation 
C)  that, in the long run, the level of unemployment is independent of inflation 
D)  all of the above 
E)  none of the above

Question 14

Technological advances lead to ________.

Accepted Answer

A)  a shift of the short run AS curve up 
B)  a shift of the long run AS curve to the left 
C)  an upward movement along the long run AS curve 
D)  all of the above 
E)  none of the above 
A)  a shift of the short run AS curve up 
B)  a shift of the long run AS curve to the left 
C)  an upward movement along the long run AS curve 
D)  all of the above 
E)  none of the above

Question 15

When wages and prices are completely flexible ________.

Accepted Answer

A)  inflation is determined by expected inflation and price shocks 
B)  labor hoarding occurs 
C)  unemployment is disconnected from the real economy 
D)  all of the above 
E)  none of the above 
A)  inflation is determined by expected inflation and price shocks 
B)  labor hoarding occurs 
C)  unemployment is disconnected from the real economy 
D)  all of the above 
E)  none of the above

Question 16

The short-run aggregate supply curve is π = πe + 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 17

If Okun's law is U - Un = - 0.6 (Y - YP), and the Phillips curve is π = πe - 2.5 (U - Un ) + ρ, then the short-run aggregate supply curve is ________.

Accepted Answer

A)  π = πe - 1.5 (Y - YP) + ρ 
B)  π = πe + 4.2 (Y - YP) + ρ 
C)  π = πe - 2.5 (Y - YP) + ρ 
D)  π = πe - 2.5 (Y + YP) + ρ 
E)  none of the above 
A)  π = πe - 1.5 (Y - YP) + ρ 
B)  π = πe + 4.2 (Y - YP) + ρ 
C)  π = πe - 2.5 (Y - YP) + ρ 
D)  π = πe - 2.5 (Y + YP) + ρ 
E)  none of the above

Question 18

What factors cause a shift in the long-run aggregate supply curve? Might any of these cause the short-run aggregate supply curve to shift, also?

Accepted Answer

The factors that shift the long-run aggr

Question 19

As wages and prices become more sticky ________.

Accepted Answer

A)  the short-run Phillips curve gets flatter 
B)  wages become less responsive to unemployment deviations from the natural rate 
C)  it becomes easier to differentiate the short-run from the long-run Phillips curve 
D)  all of the above 
E)  none of the above 
A)  the short-run Phillips curve gets flatter 
B)  wages become less responsive to unemployment deviations from the natural rate 
C)  it becomes easier to differentiate the short-run from the long-run Phillips curve 
D)  all of the above 
E)  none of the above

Question 20

The idea behind the Phillips curve is that ________.

Accepted Answer

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

Exam 11: Aggregate Supply and the Phillips Curve

If expectations about inflation are adaptive, they are ________.

Observations of inflation in the 1970s prompted what further addition to the Phillips curve?

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

What can be concluded from Milton Friedman and Edmund Phelps' expectations-augmented Phillips curve?

Milton Friedman and Edmund Phelps contributed which insight(s) to Phillips curve analysis?

In the long run ________.

On the modern Phillips curve, the initial impact of an increase in the world price of steel is shown by ________.

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 idea behind the Phillips curve is that ________.

In the 1960s, the Phillips curve was ________.

Based on the data in this table, If the natural rate of unemployment is steady at 8 percent, what is the inflation rate in period 3?

On the modern Phillips curve, the initial impact of government policies to stimulate the economy is shown by ________.

Milton Friedman and Edmund Phelps contributed which insight(s) to Phillips curve analysis?

Technological advances lead to ________.

When wages and prices are completely flexible ________.

If Okun's law is U - Un = - 0.6 (Y - YP), and the Phillips curve is π = πe - 2.5 (U - Un ) + ρ, then the short-run aggregate supply curve is ________.

What factors cause a shift in the long-run aggregate supply curve? Might any of these cause the short-run aggregate supply curve to shift, also?

As wages and prices become more sticky ________.

The idea behind the Phillips curve is that ________.

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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