Question 1

If workers realize that an increase in nominal wage rates does not necessarily constitute a rise in real wages, then we would expect:

Accepted Answer

A)  an increase in employment. 
B)  a decrease in employment. 
C)  a downward movement along the Philips curve. 
D)  a rightward shift of the Phillips curve. 
E)  a leftward shift of the Phillips curve.

Question 2

The figure given below depicts the equilibrium level of real GDP and the price level in an economy, derived from the aggregate demand aggregate supply model.
Figure 14.3
 
-Refer to Figure 14.3. Consider that the economy initially operates at point A. Therefore, according to the theory of rational expectations, an unanticipated increase in consumer confidence will cause the economy to move along the path:

Accepted Answer

A)  ADC. 
B)  AC. 
C)  ABDC. 
D)  AD. 
E)  ABC.

Question 3

The figure given below depicts the long run equilibrium in an economy.
Figure 14.1
  In the figure:
ADS1U1B11S1U1B0 and ADS1U1B12S1U1B0: Aggregate demand curves
ASS1U1B11S1U1B0 and ASS1U1B12S1U1B0: Aggregate supply curves
-Refer to Figure 14.1. The movement from point A to point B to point C results in:

Accepted Answer

A)  a constant price level and a decline in the natural rate of unemployment. 
B)  a rightward shift of the short-run Phillips curve. 
C)  a lower price level and no change in the natural rate of unemployment. 
D)  a movement up the short-run Phillips curve. 
E)  a lower price level and a decline in the natural rate of unemployment.

Question 4

Consider an economy in equilibrium, and assume no change in aggregate demand. An earthquake that destroys many factories across the country would result in a(n):

Accepted Answer

A)  increase in the average price level and a decrease in real GDP. 
B)  increase in the average price level and no change in real GDP. 
C)  increase in the average price level and an increase in real GDP. 
D)  decrease in the average price level and an increase in real GDP. 
E)  decrease in the average price level and a decrease in real GDP.

Question 5

Contrary to what believers in the Phillips curve would say, U.S. economic data from 1955 to 2000 show evidence of:

Accepted Answer

A)  a negative relationship between the unemployment rate and inflation. 
B)  no short run relationship between the unemployment rate and inflation. 
C)  increases in both unemployment and inflation rates. 
D)  a constant rate of inflation, with changing rates of unemployment. 
E)  a constant rate of unemployment, with changing rates of inflation.

Question 6

The figure given below represents the short run and long run Phillips curve.
Figure 14.4
 
-Refer to Figure 14.4. A movement from point A to point C would be associated with an:

Accepted Answer

A)  outward shift of both the aggregate demand and the aggregate supply curve. 
B)  outward shift of the aggregate supply curve and an inward shift of the aggregate demand curve. 
C)  outward shift of the aggregate demand curve and an inward shift of the aggregate supply curve. 
D)  outward shift of the aggregate demand curve but no change in the aggregate supply curve. 
E)  inward shift of both the aggregate demand and the aggregate supply curve

Question 7

The Phillips curve is named after the economist A. W. Phillips, who discovered:

Accepted Answer

A)  an inverse relationship between the PPI and the budget deficit in the United States. 
B)  an inverse relationship between wage rates in Great Britain and the unemployment rate. 
C)  an inverse relationship between economic growth and the unemployment rate in Great Britain. 
D)  a positive relationship between inflation and the unemployment rate in the United States. 
E)  a positive relationship between British national debt and economic downturns.

Question 8

The long-run Phillips curve is a horizontal line at the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 9

Hyperinflation in developing countries is typically the result of:

Accepted Answer

A)  low interest rates. 
B)  an economic recession. 
C)  high income tax rates. 
D)  large government fiscal deficits. 
E)  large trade deficits.

Question 10

Monetary reform is a new monetary policy that includes:

Accepted Answer

A)  the introduction of a new unit of currency. 
B)  a reduction in borrowing. 
C)  an increase in government spending. 
D)  the issuing of more currency. 
E)  an increase in taxes.

Question 11

In the short run, a decline in aggregate demand would be associated with:

Accepted Answer

A)  an inward shift of the Phillips curve. 
B)  an outward shift of the Phillips curve. 
C)  a movement up along the Phillips curve. 
D)  a movement down along the Phillips curve. 
E)  no change along the Phillips curve.

Question 12

If an increase in inflation is expected, which of the following events is the least likely to occur?

Accepted Answer

A)  Unemployment will remain constant. 
B)  Nominal GDP will increase. 
C)  Nominal wage rates will increase at the same rate as expected inflation. 
D)  A worker's reservation wage will rise at the same rate as expected inflation. 
E)  Nominal wage rates will remain constant.

Question 13

The money supply increases when, other things equal:

Accepted Answer

A)  the government surplus rises. 
B)  the amount of government borrowing rises. 
C)  tax revenues increase. 
D)  government spending increases. 
E)  the government deficit falls.

Question 14

In the 1980s, U.S. economists acknowledged that, it was not possible to exploit the tradeoff suggested by the Philips curve of the 1960s. This realization led to more stable macroeconomic policy, which in turn contributed to:

Accepted Answer

A)  more volatility in real output. 
B)  less volatility in real output. 
C)  complete removal of unemployment. 
D)  more volatility in the price level. 
E)  short business cycles.

Question 15

Business inventories tend to fall after an unexpected increase in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 16

Following an unexpected decline in aggregate demand, once production cutbacks start offsetting rising inventory levels:

Accepted Answer

A)  the aggregate demand curve will shift to the right. 
B)  the aggregate supply curve will shift to the left. 
C)  the economy will return to its natural rate of unemployment. 
D)  the short-run Phillips curve will shift to the right. 
E)  the economy will face both higher inflation and a higher unemployment rate.

Question 17

The actual rate of inflation is equal to the expected rate of inflation along the:

Accepted Answer

A)  downward-sloping Phillips curve. 
B)  upward-sloping aggregate supply curve. 
C)  horizontal aggregate supply curve. 
D)  downward-sloping aggregate demand curve. 
E)  vertical Phillips curve.

Question 18

One factor that explains the short-run tradeoff between inflation and unemployment is labor contracts that fix wages for an extended period of time.

Accepted Answer

A) True 
 B)False

Question 19

The observed unemployment rate is less than the natural rate of unemployment if:

Accepted Answer

A)  the inflation rate is lower than expected. 
B)  the reservation wage is adjusted to account for higher inflation. 
C)  real wage increases with increase in prices. 
D)  reservation wages go up with the rate of inflation. 
E)  the inflation rate is higher than expected.

Question 20

The figure given below depicts the long run equilibrium in an economy.
Figure 14.1
  In the figure:
ADS1U1B11S1U1B0 and ADS1U1B12S1U1B0: Aggregate demand curves
ASS1U1B11S1U1B0 and ASS1U1B12S1U1B0: Aggregate supply curves
-Refer to Figure 14.1. When the economy moves from point B to point C:

Accepted Answer

A)  both the unemployment rate and the rate of inflation increases. 
B)  both the unemployment rate and the rate of inflation declines. 
C)  the unemployment rate declines at the cost of higher inflation. 
D)  the rate of inflation declines at the cost of a higher unemployment rate. 
E)  the rate of inflation declines with no change in the unemployment rate.

Exam 14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

If workers realize that an increase in nominal wage rates does not necessarily constitute a rise in real wages, then we would expect:

The figure given below depicts the long run equilibrium in an economy. Figure 14.1 In the figure: AD₁ and AD₂: Aggregate demand curves AS₁ and AS₂: Aggregate supply curves -Refer to Figure 14.1. The movement from point A to point B to point C results in:

Consider an economy in equilibrium, and assume no change in aggregate demand. An earthquake that destroys many factories across the country would result in a(n) :

Contrary to what believers in the Phillips curve would say, U.S. economic data from 1955 to 2000 show evidence of:

The figure given below represents the short run and long run Phillips curve. Figure 14.4 -Refer to Figure 14.4. A movement from point A to point C would be associated with an:

The Phillips curve is named after the economist A. W. Phillips, who discovered:

The long-run Phillips curve is a horizontal line at the natural rate of unemployment.

Hyperinflation in developing countries is typically the result of:

Monetary reform is a new monetary policy that includes:

In the short run, a decline in aggregate demand would be associated with:

If an increase in inflation is expected, which of the following events is the least likely to occur?

The money supply increases when, other things equal:

In the 1980s, U.S. economists acknowledged that, it was not possible to exploit the tradeoff suggested by the Philips curve of the 1960s. This realization led to more stable macroeconomic policy, which in turn contributed to:

Business inventories tend to fall after an unexpected increase in aggregate demand.

Following an unexpected decline in aggregate demand, once production cutbacks start offsetting rising inventory levels:

The actual rate of inflation is equal to the expected rate of inflation along the:

One factor that explains the short-run tradeoff between inflation and unemployment is labor contracts that fix wages for an extended period of time.

The observed unemployment rate is less than the natural rate of unemployment if:

The figure given below depicts the long run equilibrium in an economy. Figure 14.1 In the figure: AD₁ and AD₂: Aggregate demand curves AS₁ and AS₂: Aggregate supply curves -Refer to Figure 14.1. When the economy moves from point B to point C:

Exam 14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

If workers realize that an increase in nominal wage rates does not necessarily constitute a rise in real wages, then we would expect:

The figure given below depicts the long run equilibrium in an economy. Figure 14.1 In the figure: AD1 and AD2: Aggregate demand curves AS1 and AS2: Aggregate supply curves -Refer to Figure 14.1. The movement from point A to point B to point C results in:

Consider an economy in equilibrium, and assume no change in aggregate demand. An earthquake that destroys many factories across the country would result in a(n) :

Contrary to what believers in the Phillips curve would say, U.S. economic data from 1955 to 2000 show evidence of:

The figure given below represents the short run and long run Phillips curve. Figure 14.4 -Refer to Figure 14.4. A movement from point A to point C would be associated with an:

The Phillips curve is named after the economist A. W. Phillips, who discovered:

The long-run Phillips curve is a horizontal line at the natural rate of unemployment.

Hyperinflation in developing countries is typically the result of:

Monetary reform is a new monetary policy that includes:

In the short run, a decline in aggregate demand would be associated with:

If an increase in inflation is expected, which of the following events is the least likely to occur?

The money supply increases when, other things equal:

In the 1980s, U.S. economists acknowledged that, it was not possible to exploit the tradeoff suggested by the Philips curve of the 1960s. This realization led to more stable macroeconomic policy, which in turn contributed to:

Business inventories tend to fall after an unexpected increase in aggregate demand.

Following an unexpected decline in aggregate demand, once production cutbacks start offsetting rising inventory levels:

The actual rate of inflation is equal to the expected rate of inflation along the:

One factor that explains the short-run tradeoff between inflation and unemployment is labor contracts that fix wages for an extended period of time.

The observed unemployment rate is less than the natural rate of unemployment if:

The figure given below depicts the long run equilibrium in an economy. Figure 14.1 In the figure: AD1 and AD2: Aggregate demand curves AS1 and AS2: Aggregate supply curves -Refer to Figure 14.1. When the economy moves from point B to point C:

The figure given below depicts the long run equilibrium in an economy. Figure 14.1 In the figure: AD₁ and AD₂: Aggregate demand curves AS₁ and AS₂: Aggregate supply curves -Refer to Figure 14.1. The movement from point A to point B to point C results in:

The figure given below depicts the long run equilibrium in an economy. Figure 14.1 In the figure: AD₁ and AD₂: Aggregate demand curves AS₁ and AS₂: Aggregate supply curves -Refer to Figure 14.1. When the economy moves from point B to point C: