Question 1

Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 7 percent, according to Okun's law, $\tilde { Y }$ is:

Accepted Answer

A)  4 percent 
B)  -4 percent 
C)  2 percent 
D)  -2 percent 
E)  Not enough information is given.

Question 2

What does the Phillips curve represent?

Accepted Answer

The answer of What does the Phillips curve represent?...

Question 3

Refer to the following figure when answering  
Figure 9.4: U.S. Inflation 1990-2012 
 (Source: Bureau of Labor Statistics)
-Consider two economies. Economy 1 has a steep Phillips curve and Economy 2 has a gently sloped Phillips curve. If each economy experiences an identical economic expansion, ________ would increase less in ________.

Accepted Answer

A)  the change in inflation; Economy 2 
B)  the change in unemployment; Economy 1 
C)  the change in unemployment; Economy 2 
D)  the change in interest rates; Economy 1 
E)  Not enough information is given.

Question 4

The Phillips curve shows the negative relationship between output fluctuations and the change in inflation.

Accepted Answer

A) True 
 B)False

Question 5

According to the text, which of the following can be used to estimate potential output?
i. Get the data from the Census Bureau.
ii. Survey leading economists.
iii. Gather current data from statistical agencies, such as the Bureau of Economic Analysis.

Accepted Answer

A)  i only 
B)  ii only 
C)  iii only 
D)  i and ii 
E)  None of these answers are correct.

Question 6

Suppose an economy exhibits a large unexpected decrease in productivity growth that lasts for a decade; however, monetary policymakers are slow to recognize that the change is to potential, not current, output, and they interpret the decrease in output as a recession that leads current to fall below potential output. In this scenario, policymakers believe that ________ pressures are building and incorrectly respond by ________ interest rates, sending the economy into a(n) ________ gap.

Accepted Answer

A)  inflationary; raising; inflationary 
B)  inflationary; reducing; inflationary 
C)  inflationary; raising; recessionary 
D)  recessionary; reducing; inflationary 
E)  Not enough information is given.

Question 7

Suppose an economy exhibits a large unexpected increase in productivity growth that lasts for a decade; however, monetary policymakers are slow to recognize that the change is to potential, not current, output, and they interpret the increase in output as a boom that leads current to exceed potential output. In this scenario, policymakers believe that ________ pressures are building and incorrectly respond by ________ interest rates, sending the economy into a(n) ________ gap.

Accepted Answer

A)  inflationary; raising; recessionary 
B)  inflationary; reducing; recessionary 
C)  recessionary; raising; expansionary 
D)  recessionary; reducing; recessionary 
E)  Not enough information is given.

Question 8

Taken together, the Phillips curve and Okun's law imply there is a ________ relationship between ________ and unemployment.

Accepted Answer

A)  positive; inflation 
B)  negative; inflation 
C)  negative; interest rates 
D)  positive; interest rates 
E)  Not enough information is given.

Question 9

A decline in long-term productivity implies that an economy requires more resources to produce goods; therefore, as costs of production rise, we should see an acceleration in inflation.

Accepted Answer

A) True 
 B)False

Question 10

According to the Phillips curve presented in the text, a negative macroeconomic shock:

Accepted Answer

A)  increases the rate of inflation 
B)  decreases the rate of inflation 
C)  has no effect on the rate of inflation 
D)  has a negative effect on the unemployment rate 
E)  has a positive effect on the unemployment rate

Question 11

The long-run model determines ________ and ________, while the short-run model determines ________ and ________.

Accepted Answer

A)  potential output; long-run inflation; current output; current inflation 
B)  potential output; unemployment; current output; long-run inflation 
C)  current output; long-run inflation; unemployment; current inflation 
D)  potential output; unemployment; unemployment; current inflation 
E)  current output; unemployment; potential output; current inflation

Question 12

If an economy has a horizontal Phillips curve and experiences an expansion, inflation:

Accepted Answer

A)  falls 
B)  rises sharply 
C)  rises, but not very much 
D)  does not change 
E)  falls sharply

Question 13

Defining $Y _ { t}$  as current output, $\bar { Y } _ { t }$ as potential output, and $\tilde { Y } _ { t }$  as short-run fluctuations, the text uses the following equation to measure the fluctuations  component of output: $\tilde { Y } _ { t } = \frac { Y _ { t } + \bar { Y } _ { t } } { Y _ { t } }$  .

Accepted Answer

A) True 
 B)False

Question 14

Defining u as the unemployment rate and $\bar { u }$ as the natural rate of unemployment, Okun's law is given by the following equation:

Accepted Answer

A)  $\tilde { Y } = \frac { u } { \overline { \bar { u } } }$ 
B)  $\tilde { Y } = - 2 \times ( u - \bar { u } )$ 
C)  $\tilde { Y } = 2 \times ( u - \bar { u } )$ 
D)  $\tilde { Y } = - 2 \times \bar { u }$ 
E)  $\tilde { Y } = - 2 \times u$

Question 15

Which of the following is NOT an example of a short-term macroeconomic "shock"?

Accepted Answer

A)  a drought 
B)  planned investment expenditures 
C)  increased military spending 
D)  a change in the tax code 
E)  political unrest

Question 16

Taxes, oil price changes, government spending, interest rate changes, new technologies, and disasters are examples of:

Accepted Answer

A)  long-term economic shocks 
B)  short-term economic shocks 
C)  political unrest 
D)  monetary policy 
E)  fiscal policy

Question 17

What is the best definition of the short term in the short-term model?

Accepted Answer

A)  about two years 
B)  the amount of time the economy spends at its potential output 
C)  the length of time for short-term deviations to return to their long-run values 
D)  the length of a recession 
E)  There is no such thing as the short term.

Question 18

Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 3 percent, according to Okun's law, $\tilde { Y }$ is:

Accepted Answer

A)  2 percent 
B)  -4 percent 
C)  4 percent 
D)  -2 percent 
E)  Not enough information is given.

Question 19

New technology, oil price changes, pork-barrel spending, interest rate changes, changes in planned investment, and disasters are examples of:

Accepted Answer

A)  long-term economic shocks 
B)  short-term economic shocks 
C)  political unrest 
D)  monetary policy 
E)  fiscal policy

Question 20

Refer to the following figure when answering  
Figure 9.4: U.S. Inflation 1990-2012 
 (Source: Bureau of Labor Statistics)
-Consider Figure 9.4, which shows the annual inflation rate. According to the Phillips curve, the period from about 2003 to 2005 was a period of:

Accepted Answer

A)  recession 
B)  expansion 
C)  stagnation 
D)  None of these answers are correct. 
E)  Not enough information is given.

Exam 9: An Introduction to the Short Run

Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 7 percent, according to Okun's law, $\tilde { Y }$ is:

What does the Phillips curve represent?

The Phillips curve shows the negative relationship between output fluctuations and the change in inflation.

According to the text, which of the following can be used to estimate potential output? i. Get the data from the Census Bureau. ii. Survey leading economists. iii. Gather current data from statistical agencies, such as the Bureau of Economic Analysis.

Taken together, the Phillips curve and Okun's law imply there is a relationship between and unemployment.

A decline in long-term productivity implies that an economy requires more resources to produce goods; therefore, as costs of production rise, we should see an acceleration in inflation.

According to the Phillips curve presented in the text, a negative macroeconomic shock:

The long-run model determines and , while the short-run model determines and .

If an economy has a horizontal Phillips curve and experiences an expansion, inflation:

Defining u as the unemployment rate and $\bar { u }$ as the natural rate of unemployment, Okun's law is given by the following equation:

Which of the following is NOT an example of a short-term macroeconomic "shock"?

Taxes, oil price changes, government spending, interest rate changes, new technologies, and disasters are examples of:

What is the best definition of the short term in the short-term model?

Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 3 percent, according to Okun's law, $\tilde { Y }$ is:

New technology, oil price changes, pork-barrel spending, interest rate changes, changes in planned investment, and disasters are examples of:

Refer to the following figure when answering Figure 9.4: U.S. Inflation 1990-2012 (Source: Bureau of Labor Statistics) -Consider Figure 9.4, which shows the annual inflation rate. According to the Phillips curve, the period from about 2003 to 2005 was a period of:

Exam 9: An Introduction to the Short Run

Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 7 percent, according to Okun's law, Y~\tilde { Y }Y~ is:

What does the Phillips curve represent?

The Phillips curve shows the negative relationship between output fluctuations and the change in inflation.

According to the text, which of the following can be used to estimate potential output? i. Get the data from the Census Bureau. ii. Survey leading economists. iii. Gather current data from statistical agencies, such as the Bureau of Economic Analysis.

Taken together, the Phillips curve and Okun's law imply there is a ________ relationship between ________ and unemployment.

A decline in long-term productivity implies that an economy requires more resources to produce goods; therefore, as costs of production rise, we should see an acceleration in inflation.

According to the Phillips curve presented in the text, a negative macroeconomic shock:

The long-run model determines ________ and ________, while the short-run model determines ________ and ________.

If an economy has a horizontal Phillips curve and experiences an expansion, inflation:

Defining u as the unemployment rate and uˉ\bar { u }uˉ as the natural rate of unemployment, Okun's law is given by the following equation:

Which of the following is NOT an example of a short-term macroeconomic "shock"?

Taxes, oil price changes, government spending, interest rate changes, new technologies, and disasters are examples of:

What is the best definition of the short term in the short-term model?

Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 3 percent, according to Okun's law, Y~\tilde { Y }Y~ is:

New technology, oil price changes, pork-barrel spending, interest rate changes, changes in planned investment, and disasters are examples of:

Refer to the following figure when answering Figure 9.4: U.S. Inflation 1990-2012 (Source: Bureau of Labor Statistics) -Consider Figure 9.4, which shows the annual inflation rate. According to the Phillips curve, the period from about 2003 to 2005 was a period of:

Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 7 percent, according to Okun's law, $\tilde { Y }$ is:

Taken together, the Phillips curve and Okun's law imply there is a relationship between and unemployment.

The long-run model determines and , while the short-run model determines and .

Defining u as the unemployment rate and $\bar { u }$ as the natural rate of unemployment, Okun's law is given by the following equation:

Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 3 percent, according to Okun's law, $\tilde { Y }$ is: