Question 1

________ 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

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

Question 3

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 C

Question 4

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

The answer of Unprecedented stimulative policies throughout the global economy...

Question 5

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

Question 6

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

Question 7

________ is (are)the endogenous variable(s)in the Phillips curve.

Accepted Answer

A)  Expected inflation
B)  Inflation
C)  The natural rate of unemployment
D)  all of the above
E)  none of the above

Question 8

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

Question 9

Given the accelerationist Phillips curve Δπ = - 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

Question 10

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 answer of What factors cause a shift in the...

Question 11

Which of the following never assumes,either implicitly or explicitly,independence between nominal and real variables?

Accepted Answer

A)  the AS curve
B)  the Phillips curve
C)  Okun's law
D)  the classical dichotomy
E)  none of the above

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

According to the accelerationist Phillips curve,________.

Accepted Answer

A)  expectations adjust continually to the latest information
B)  increases in inflation cause the unemployment gap to widen
C)  inflation will change so long as an unemployment gap persists
D)  all of the above
E)  none of the above

Question 17

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

Accepted Answer

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

Question 18

In the 1960s,the Phillips curve was ________.

Accepted Answer

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

Question 19

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

Question 20

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

Exam 11: Aggregate Supply and the Phillips Curve