Question 1

The idea behind the Phillips curve is that ________.

Accepted Answer

A)  tight labor markets lead to inflationary pressures 
B)  when the unemployment rate is low, wages will increase 
C)  when firms raise wages to attract new workers, prices will also increase 
D)  all of the above 
E)  none of the above 
A)  tight labor markets lead to inflationary pressures 
B)  when the unemployment rate is low, wages will increase 
C)  when firms raise wages to attract new workers, prices will also increase 
D)  all of the above 
E)  none of the above

Question 2

If the short-run aggregate supply curve is shifting down repeatedly, it is rather likely that ________.

Accepted Answer

A)  output is declining repeatedly, relative to potential output 
B)  the long-run aggregate supply curve is shifting to the left 
C)  negative price shocks are recurring 
D)  all of the above 
E)  none of the above 
A)  output is declining repeatedly, relative to potential output 
B)  the long-run aggregate supply curve is shifting to the left 
C)  negative price shocks are recurring 
D)  all of the above 
E)  none of the above

Question 3

When a price shock occurs, the inflation rate is affected ________.

Accepted Answer

A)  only in the period of the price shock 
B)  only in the period after the price shock 
C)  only if the price shock causes a change in output 
D)  only if the price shock persists for more than one period 
E)  none of the above 
A)  only in the period of the price shock 
B)  only in the period after the price shock 
C)  only if the price shock causes a change in output 
D)  only if the price shock persists for more than one period 
E)  none of the above

Question 4

Why is there no long-run trade-off between unemployment and inflation?

Accepted Answer

Because when the labor market is so tigh

Question 5

If expectations about inflation are adaptive, they are ________.

Accepted Answer

A)  not based on all available, relevant information 
B)  backward-looking 
C)  likely to change slowly 
D)  all of the above 
E)  none of the above 
A)  not based on all available, relevant information 
B)  backward-looking 
C)  likely to change slowly 
D)  all of the above 
E)  none of the above

Question 6

In the long run ________.

Accepted Answer

A)  the aggregate supply is vertical with respect to unemployment 
B)  the Phillips curve is vertical at a given level of expected inflation 
C)  the economy reaches the potential output level consistent with the natural rate of unemployment 
D)  all of the above 
E)  none of the above 
A)  the aggregate supply is vertical with respect to unemployment 
B)  the Phillips curve is vertical at a given level of expected inflation 
C)  the economy reaches the potential output level consistent with the natural rate of unemployment 
D)  all of the above 
E)  none of the above

Question 7

Aggregate Supply Curves (1)
  
-Based on the graph above, a cause of movement from point 1 to point 2 might be ________.

Accepted Answer

A)  a positive price shock 
B)  government policy that lowers unemployment 
C)  an increase in potential output 
D)  an increase in expected inflation 
E)  none of the above 
A)  a positive price shock 
B)  government policy that lowers unemployment 
C)  an increase in potential output 
D)  an increase in expected inflation 
E)  none of the above

Question 8

In the short run, if current output remains persistently above potential ________.

Accepted Answer

A)  inflation will rise causing a movement along the aggregate supply curve 
B)  expected inflation will rise causing an upward shift of the aggregate supply curve 
C)  the aggregate supply curve will shift until current output returns to its potential level 
D)  all of the above 
E)  none of the above 
A)  inflation will rise causing a movement along the aggregate supply curve 
B)  expected inflation will rise causing an upward shift of the aggregate supply curve 
C)  the aggregate supply curve will shift until current output returns to its potential level 
D)  all of the above 
E)  none of the above

Question 9

If wages and prices become extremely flexible ________.

Accepted Answer

A)  there is no trade off between inflation and unemployment 
B)  unemployment can hardly deviate from the natural rate 
C)  it becomes very difficult to differentiate the short-run from the long-run Phillips curve 
D)  all of the above 
E)  none of the above 
A)  there is no trade off between inflation and unemployment 
B)  unemployment can hardly deviate from the natural rate 
C)  it becomes very difficult to differentiate the short-run from the long-run Phillips curve 
D)  all of the above 
E)  none of the above

Question 10

The Phillips curve was ________.

Accepted Answer

A)  never very popular in policy circles 
B)  influential in efforts to bring the unemployment rate down to low levels 
C)  generally confirmed in the 1970s, when low unemployment persisted despite rising inflation 
D)  all of the above 
E)  none of the above 
A)  never very popular in policy circles 
B)  influential in efforts to bring the unemployment rate down to low levels 
C)  generally confirmed in the 1970s, when low unemployment persisted despite rising inflation 
D)  all of the above 
E)  none of the above

Question 11

________ will cause a movement along the modern Phillips curve.

Accepted Answer

A)  An increase in oil prices 
B)  An increase in the price of imports 
C)  Wage agreements that include compensation for inflation 
D)  all of the above 
E)  none of the above 
A)  An increase in oil prices 
B)  An increase in the price of imports 
C)  Wage agreements that include compensation for inflation 
D)  all of the above 
E)  none of the above

Question 12

Given the accelerationist Phillips curve △π = - 0.3 (U - 6) + ρ, suppose that inflation in the preceding period was 3 percent, unemployment is 7 percent, and there is no price shock. The current inflation rate is ________.

Accepted Answer

A)  2.7 percent 
B)  3 percent 
C)  0.9 percent 
D)  3.3 percent 
E)  none of the above 
A)  2.7 percent 
B)  3 percent 
C)  0.9 percent 
D)  3.3 percent 
E)  none of the above

Question 13

The short-run aggregate supply curve shows that inflation will change as a result of changes in ________.

Accepted Answer

A)  output 
B)  potential output 
C)  expected inflation 
D)  price shocks 
E)  all of the above 
A)  output 
B)  potential output 
C)  expected inflation 
D)  price shocks 
E)  all of the above

Question 14

Which of the following best approximates Okun's law?

Accepted Answer

A)  a 1 percent increase in output leads to a 2 percent decrease in unemployment 
B)  a 1 percent increase in output leads to a 1 percent decrease in unemployment 
C)  a 2 percent increase in output leads to a 4 percent increase in unemployment 
D)  a 2 percent increase in output leads to a 1 percent decrease in unemployment 
E)  none of the above 
A)  a 1 percent increase in output leads to a 2 percent decrease in unemployment 
B)  a 1 percent increase in output leads to a 1 percent decrease in unemployment 
C)  a 2 percent increase in output leads to a 4 percent increase in unemployment 
D)  a 2 percent increase in output leads to a 1 percent decrease in unemployment 
E)  none of the above

Question 15

Given the accelerationist Phillips curve △π = - 0.7 (U - 5) + ρ, suppose that inflation has increased from 8 percent to 10 percent. If the unemployment rate is 4 percent, then the price shock is ________.

Accepted Answer

A)  2.7 percent 
B)  0.6 percent 
C)  1.3 percent 
D)  1 percent 
E)  none of the above 
A)  2.7 percent 
B)  0.6 percent 
C)  1.3 percent 
D)  1 percent 
E)  none of the above

Question 16

As wages and prices become more sticky ________.

Accepted Answer

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

Question 17

The natural rate of output is ________.

Accepted Answer

A)  independent of the inflation rate 
B)  always lower than potential output 
C)  unrelated to the natural rate of unemployment 
D)  all of the above 
E)  none of the above 
A)  independent of the inflation rate 
B)  always lower than potential output 
C)  unrelated to the natural rate of unemployment 
D)  all of the above 
E)  none of the above

Question 18

An example of a price shock is ________.

Accepted Answer

A)  an increase in wages as a result of higher expected inflation 
B)  the arrival of immigrants seeking employment 
C)  the decline in autonomous spending that results from rising unemployment 
D)  all of the above 
E)  none of the above 
A)  an increase in wages as a result of higher expected inflation 
B)  the arrival of immigrants seeking employment 
C)  the decline in autonomous spending that results from rising unemployment 
D)  all of the above 
E)  none of the above

Question 19

As wages and prices become more flexible ________.

Accepted Answer

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

Question 20

Suppose the government lowers unemployment by hiring more government workers. How does it matter whether wages and prices are sticky?

Accepted Answer

As long as wages and prices are sticky,

Exam 11: Aggregate Supply and the Phillips Curve

The idea behind the Phillips curve is that ________.

If the short-run aggregate supply curve is shifting down repeatedly, it is rather likely that ________.

When a price shock occurs, the inflation rate is affected ________.

Why is there no long-run trade-off between unemployment and inflation?

If expectations about inflation are adaptive, they are ________.

In the long run ________.

Aggregate Supply Curves (1) -Based on the graph above, a cause of movement from point 1 to point 2 might be ________.

In the short run, if current output remains persistently above potential ________.

If wages and prices become extremely flexible ________.

The Phillips curve was ________.

________ will cause a movement along the modern Phillips curve.

Given the accelerationist Phillips curve △π = - 0.3 (U - 6) + ρ, suppose that inflation in the preceding period was 3 percent, unemployment is 7 percent, and there is no price shock. The current inflation rate is ________.

The short-run aggregate supply curve shows that inflation will change as a result of changes in ________.

Which of the following best approximates Okun's law?

Given the accelerationist Phillips curve △π = - 0.7 (U - 5) + ρ, suppose that inflation has increased from 8 percent to 10 percent. If the unemployment rate is 4 percent, then the price shock is ________.

As wages and prices become more sticky ________.

The natural rate of output is ________.

An example of a price shock is ________.

As wages and prices become more flexible ________.

Suppose the government lowers unemployment by hiring more government workers. How does it matter whether wages and prices are sticky?

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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