Question 1

In the long run ________.

Accepted Answer

A)  the aggregate supply is vertical with respect to output 
B)  the Phillips curve is vertical with respect to unemployment 
C)  fluctuations in the inflation rate have no impact on output and unemployment 
D)  all of the above 
E)  none of the above 
A)  the aggregate supply is vertical with respect to output 
B)  the Phillips curve is vertical with respect to unemployment 
C)  fluctuations in the inflation rate have no impact on output and unemployment 
D)  all of the above 
E)  none of the above

Question 2

If the Fed were to announce that fighting inflation is not a high priority for the immediate future ________.

Accepted Answer

A)  households might expect higher inflation 
B)  the short run aggregate supply would shift upwards 
C)  firms might begin raising their prices to keep up with expected inflation 
D)  all of the above 
E)  none of the above 
A)  households might expect higher inflation 
B)  the short run aggregate supply would shift upwards 
C)  firms might begin raising their prices to keep up with expected inflation 
D)  all of the above 
E)  none of the above

Question 3

When a price shock has occurred, inflation returns to its pre-shock rate ________.

Accepted Answer

A)  in the period following the price shock 
B)  in the period when output has returned to its pre-shock rate 
C)  once the output gap has returned to zero 
D)  only in the long run 
E)  none of the above 
A)  in the period following the price shock 
B)  in the period when output has returned to its pre-shock rate 
C)  once the output gap has returned to zero 
D)  only in the long run 
E)  none of the above

Question 4

On the modern Phillips curve, the beginning of a recession 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 5

Which statement(s) is (are) consistent with a positive relationship between inflation and the output gap?

Accepted Answer

A)  If output rises above its potential level, the unemployment rate falls and firms will raise wages and prices more rapidly. 
B)  In the short run, the AS curve is upward sloping. 
C)  Through Okun's law, the negative relationship between the output and unemployment gaps allows the modern Phillips curve to be translated into the AS curve. 
D)  all of the above 
E)  none of the above 
A)  If output rises above its potential level, the unemployment rate falls and firms will raise wages and prices more rapidly. 
B)  In the short run, the AS curve is upward sloping. 
C)  Through Okun's law, the negative relationship between the output and unemployment gaps allows the modern Phillips curve to be translated into the AS curve. 
D)  all of the above 
E)  none of the above

Question 6

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

Accepted Answer

A)  that inflation is directly related to expectations of future inflation 
B)  that inflation is negatively related to the unemployment gap 
C)  that in the long run unemployment will be at the natural rate 
D)  all of the above 
E)  none of the above 
A)  that inflation is directly related to expectations of future inflation 
B)  that inflation is negatively related to the unemployment gap 
C)  that in the long run unemployment will be at the natural rate 
D)  all of the above 
E)  none of the above

Question 7

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

Accepted Answer

A)  that firms and workers care about real wages 
B)  that inflation and expected inflation influence each other 
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 real wages 
B)  that inflation and expected inflation influence each other 
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 8

The idea behind the Phillips curve is that ________.

Accepted Answer

A)  tightness in the labor market raises wages but has little impact on prices 
B)  when the unemployment rate is low, wages will decrease 
C)  when firms raise wages to attract new workers, prices will also increase 
D)  all of the above 
E)  none of the above 
A)  tightness in the labor market raises wages but has little impact on prices 
B)  when the unemployment rate is low, wages will decrease 
C)  when firms raise wages to attract new workers, prices will also increase 
D)  all of the above 
E)  none of the above

Question 9

If Okun's law is U - Un = - 0.5 (Y - YP), and potential output grows at 2% per year, then a recession that causes output to decrease by one percentage point will cause unemployment to increase by ________.

Accepted Answer

A)  1 percentage point 
B)  1.5 percentage points 
C)  2 percentage points 
D)  3 percentage points 
E)  one-half percentage point 
A)  1 percentage point 
B)  1.5 percentage points 
C)  2 percentage points 
D)  3 percentage points 
E)  one-half percentage point

Question 10

Based on the data in this table,   if the inflation rate in period zero had been 3 percent, then the accelerationist Phillips curve is ________.

Accepted Answer

A)  △π = - 1.8 (U - 7) + ρ 
B)  △π = - 1.1 (U - 6) + ρ 
C)  △π = - 0.9 (U - 6) + ρ 
D)  △π = - 0.4 (U - 9) + ρ 
E)  none of the above 
A)  △π = - 1.8 (U - 7) + ρ 
B)  △π = - 1.1 (U - 6) + ρ 
C)  △π = - 0.9 (U - 6) + ρ 
D)  △π = - 0.4 (U - 9) + ρ 
E)  none of the above

Question 11

Aggregate Supply Curves (1)
  
-Based on the graph above, the short-run aggregate supply curve is ________.

Accepted Answer

A)  π = 2 + 1.5 (Y - 10) + ρ 
B)  Y = 8   +
  (π) + ρ 
C)  π = 2 + (Y - 11) + ρ 
D)  π = 3.5 + 2 (Y - 10) + ρ 
E)  none of the above 
A)  π = 2 + 1.5 (Y - 10) + ρ 
B)  Y = 8   +
  (π) + ρ 
C)  π = 2 + (Y - 11) + ρ 
D)  π = 3.5 + 2 (Y - 10) + ρ 
E)  none of the above

Question 12

Aggregate Supply Curves (1)
  
-Based on the graph above, if the economy is at point 2, then (assuming no price shocks and no changes in actual and potential output) the inflation rate next period will be ________ percent.

Accepted Answer

A)  5 
B)  3.5 
C)  4.5 
D)  4 
E)  none of the above 
A)  5 
B)  3.5 
C)  4.5 
D)  4 
E)  none of the above

Question 13

How do you suppose most people form an expectation of future inflation? Is that method consistent with the assumption of adaptive expectations?

Accepted Answer

Like any mechanic in the Bronx, most peo

Question 14

In the 1960s, advocates of the Phillips curve suggested ________ .

Accepted Answer

A)  an "optimal" goal of 1% unemployment and 1% to 2% inflation rates could be achieved 
B)  a "realistic" goal of 7% unemployment and 6% to 7% inflation rates could be achieved 
C)  a "nonperfectionist" goal of 3% unemployment and 4% to 5% inflation rates could be achieved 
D)  all of the above 
E)  none of the above 
A)  an "optimal" goal of 1% unemployment and 1% to 2% inflation rates could be achieved 
B)  a "realistic" goal of 7% unemployment and 6% to 7% inflation rates could be achieved 
C)  a "nonperfectionist" goal of 3% unemployment and 4% to 5% inflation rates could be achieved 
D)  all of the above 
E)  none of the above

Question 15

What are price shocks? Why were they not included in the original formulation of the Phillips curve? Why were they added to the modern Phillips curve?

Accepted Answer

In the Phillips curve, inflation is dete

Question 16

Aggregate Supply Curves (1)
  
-Based on the graph above, suppose the economy is at point 2, then output falls to 10 and there is a price shock of one percent. The inflation rate next period will be ________ percent.

Accepted Answer

A)  5 
B)  3.5 
C)  4.5 
D)  4 
E)  none of the above 
A)  5 
B)  3.5 
C)  4.5 
D)  4 
E)  none of the above

Question 17

Based on the data in this table,   If the natural rate of unemployment is steady at 7 percent, and, in period four, there is no price shock and unemployment is 8 percent, then the inflation rate in period 4 will be ________ percent.

Accepted Answer

A)  4.4 
B)  3.6 
C)  3.4 
D)  1.6 
E)  none of the above 
A)  4.4 
B)  3.6 
C)  3.4 
D)  1.6 
E)  none of the above

Question 18

Unprecedented stimulative policies throughout the global economy have sparked debate over the inflationary implications. Defenders of the policies argue that, even if the policies raise inflationary expectations, actual inflation will remain low. Critics charge that current policies are nearly certain to result in excessive inflation. What does the aggregate supply curve have to say?

Accepted Answer

As long as the negative output gap persi

Question 19

Suppose the output gap is zero, and policy makers wish to reduce the inflation rate from 10 percent to 5 percent. Which of these policies seems best?

Accepted Answer

A)  contractionary policies to reduce output at least 5 percent below potential output 
B)  a convincing declaration of the inflation rate target, so that expected inflation falls to 5 percent 
C)  no policy action; inflation will fall on its own, eventually 
D)  no policy action; inflation will converge to its long-run rate, regardless of policy 
E)  price and wage controls to counteract their stickiness 
A)  contractionary policies to reduce output at least 5 percent below potential output 
B)  a convincing declaration of the inflation rate target, so that expected inflation falls to 5 percent 
C)  no policy action; inflation will fall on its own, eventually 
D)  no policy action; inflation will converge to its long-run rate, regardless of policy 
E)  price and wage controls to counteract their stickiness

Question 20

________ may cause a shift of the long-run aggregate supply curve.

Accepted Answer

A)  A major earthquake 
B)  A change in expected inflation 
C)  A price shock 
D)  all of the above 
E)  none of the above 
A)  A major earthquake 
B)  A change in expected inflation 
C)  A price shock 
D)  all of the above 
E)  none of the above

Exam 11: Aggregate Supply and the Phillips Curve

In the long run ________.

If the Fed were to announce that fighting inflation is not a high priority for the immediate future ________.

When a price shock has occurred, inflation returns to its pre-shock rate ________.

On the modern Phillips curve, the beginning of a recession is shown by ________.

Which statement(s) is (are) consistent with a positive relationship between inflation and the output gap?

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

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

The idea behind the Phillips curve is that ________.

If Okun's law is U - Un = - 0.5 (Y - YP), and potential output grows at 2% per year, then a recession that causes output to decrease by one percentage point will cause unemployment to increase by ________.

Based on the data in this table, if the inflation rate in period zero had been 3 percent, then the accelerationist Phillips curve is ________.

Aggregate Supply Curves (1) -Based on the graph above, the short-run aggregate supply curve is ________.

Aggregate Supply Curves (1) -Based on the graph above, if the economy is at point 2, then (assuming no price shocks and no changes in actual and potential output) the inflation rate next period will be ________ percent.

How do you suppose most people form an expectation of future inflation? Is that method consistent with the assumption of adaptive expectations?

In the 1960s, advocates of the Phillips curve suggested ________ .

What are price shocks? Why were they not included in the original formulation of the Phillips curve? Why were they added to the modern Phillips curve?

Aggregate Supply Curves (1) -Based on the graph above, suppose the economy is at point 2, then output falls to 10 and there is a price shock of one percent. The inflation rate next period will be ________ percent.

Based on the data in this table, If the natural rate of unemployment is steady at 7 percent, and, in period four, there is no price shock and unemployment is 8 percent, then the inflation rate in period 4 will be ________ percent.

Suppose the output gap is zero, and policy makers wish to reduce the inflation rate from 10 percent to 5 percent. Which of these policies seems best?

________ may cause a shift of the long-run aggregate supply curve.

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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