Deck 16: Inflation and Unemployment

Question 1

The notion that there is a tradeoff between inflation and unemployment is expressed as a

A)Phillips curve.
B)Keynes curve.
C)Schumpeter curve.
D)Friedman curve.

Answer 1

A

Question 2

Use the following to answer questions
Exhibit: Inflation and Unemployment 1
(Exhibit: Inflation and Unemployment 1)
Consider point B where unemployment is relatively high and inflation is relatively low.In order to move up the curve toward point A, what fiscal policy measures should the policymakers undertake?

A)Decrease taxes and government spending
B)Increase taxes and government spending
C)Increase taxes and decrease government spending
D)Decrease taxes and increase government spending

Answer 2

D

Question 3

Suppose an economy is operating with a recessionary gap.In this case, policymakers would seek to move the economy

A)back down the Phillips curve toward an unemployment rate that is closer to the natural rate of unemployment.
B)up the Phillips curve toward an unemployment rate that is closer to the natural rate of unemployment.
C)back down the Phillips curve toward an unemployment rate that is further from the natural rate of unemployment.
D)up the Phillips curve toward an unemployment rate that is further from the natural rate of unemployment.

Answer 3

B

Question 4

Suppose that an economy experiences an increase in the unemployment rate and a decline in
The inflation rate simultaneously.This situation would be consistent with a movement along a

A)vertical Phillips curve.
B)horizontal Phillips curve.
C)positively sloped Phillips curve.
D)negatively sloped Phillips curve.

Question 5

From 1992 through 2000, the United States experienced

A)rising unemployment and rising inflation.
B)falling unemployment and an inflation rate that was about 2% or less.
C)falling unemployment and an inflation rate that increased moderately over the period.
D)rising unemployment and a decreasing inflation rate.

Question 6

Use the following to answer questions
Exhibit: Inflation and Unemployment 1
(Exhibit: Inflation and Unemployment 1)
Consider point A where inflation is relatively high and unemployment is relatively low.In order to move down the curve toward point B, what fiscal policy measures should the policymakers undertake?

A)Decrease taxes and government spending
B)Increase taxes and government spending
C)Increase taxes and decrease government spending
D)Decrease taxes and increase government spending

Question 7

Along an actual (observed)
Phillips curve,

A)aggregate output varies inversely with the unemployment rate.
B)aggregate output directly inversely with the inflation rate.
C)the inflation rate varies inversely with the unemployment rate.
D)the inflation rate varies directly with the unemployment rate.

Question 8

A Phillips curve implies

A)a negative relationship between consumption and saving.
B)a positive relationship between inflation and prices.
C)a negative relationship between inflation and unemployment.
D)a positive relationship between consumption expenditure and inflation.

Question 9

Which of the following economists came up with a theory regarding the tradeoff between
Unemployment and inflation?

A)Almarin Phillips
B)John Maynard Keynes
C)Joseph Schumpeter
D)Milton Friedman

Question 10

Which of the following statements is true of the U.S.experience with regards to the Phillips curve hypothesis?
I.Values of inflation and unemployment rates during the 1960s generally conformed to the tradeoff implied by the Phillips curve.
II.Annual observations of inflation and unemployment from 1961 to 2015 do not
Seem consistent with a Phillips curve.
III.Annual observations of inflation and unemployment from 1961 to 2015 seem consistent
With a Phillips curve.

A)I only
B)II only
C)I and II only
D)III only

Question 11

Each point on a Phillips curve is a different combination of

A)aggregate output and the unemployment rate.
B)the inflation rate and the unemployment rate.
C)aggregate output and the inflation rate.
D)saving and disposable income.

Question 12

What are three phases of inflation-unemployment cycles?

A)An expansionary phase, a full-employment phase, and a contractionary phase
B)A Phillips phase, a stagflation phase, and a growth phase
C)A Phillips phase, a stagflation phase, and a recovery phase
D)An expansionary phase, a stagflation phase, and a recovery phase

Question 13

The inflation rate can be measured as

A)the change in the average price level from one year to the next.
B)the change in the implicit price deflator from one year to the next.
C)the annual percentage change in the implicit price deflator from one year to the next.
D)the change in the consumer price index from one year to the next.

Question 14

Which of the following characterizes the relationship between inflation and unemployment in the United States?
I.There have been periods in which a clear tradeoff between inflation and unemployment
Seemed to exist.
II.There have been periods in which inflation and unemployment rose together.
III.There have been periods in which inflation and unemployment fell together.

A)I, II, and III
B)I and II
C)I and III
D)I only

Question 15

Which of the following is a cost of unemployment?
I.output foregone
II.unemployment compensation that must be paid
III.rising inflation that erodes the value of money

A)I, II, and III
B)I and II
C)I and III
D)II and III

Question 16

Suppose an economy is operating with an inflationary gap.In this case, policymakers would
Seek to move the economy

A)back down the Phillips curve toward an unemployment rate that is closer to the natural rate of unemployment.
B)up the Phillips curve toward an unemployment rate that is closer to the natural rate of unemployment.
C)back down the Phillips curve toward an unemployment rate that is further from the natural rate of unemployment.
D)up the Phillips curve toward an unemployment rate that is further from the natural rate of unemployment.

Question 17

Suppose an economy is operating with an inflationary gap.In this case, policymakers would
Seek to move the economy

A)back down the Phillips curve, trading a reduction in unemployment for an increase in inflation.
B)up the Phillips curve, trading a reduction in unemployment for an increase in inflation.
C)back down the Phillips curve, trading a reduction in inflation for an increase in unemployment.
D)up the Phillips curve, trading a reduction in inflation for an increase in unemployment.

Question 18

Which of the following statements is true of the U.S.experience with regards to the Phillips curve hypothesis?
I.Annual observations of inflation and unemployment from 1961 to 2015 seem consistent with a Phillips curve.
II.A Phillips curve relationship best fits observations of inflation and unemployment in the 1960s.
III.The Phillips curve relationship in the inflation and unemployment data began to disintegrate in the 1970s.

A)I only
B)II only
C)III only
D)II and III only

Question 19

Suppose an economy is operating with a recessionary gap.In this case, policymakers would seek to move the economy

A)back down the Phillips curve, trading a reduction in inflation for an increase in unemployment.
B)up the Phillips curve, trading a reduction in inflation for an increase in unemployment.
C)back down the Phillips curve, trading a reduction in unemployment for an increase in inflation.
D)up the Phillips curve, trading a reduction in unemployment for an increase in inflation.

Question 20

Use the following to answer questions
Exhibit: Inflation and Unemployment 1
(Exhibit: Inflation and Unemployment 1)
Moving from B to A shows a tradeoff of

A)more unemployment for less inflation.
B)less unemployment for more inflation.
C)a fixed amount of unemployment for more inflation.
D)less unemployment for less inflation.

Question 21

Prior to the 1970s, the model of choice was the aggregate expenditures model.According to
This model, if the economy was in equilibrium at an income greater than the full employment level, then the primary economic problem would be

A)excessive bank lending.
B)potential crises in financial markets.
C)inflation.
D)excess aggregate demand.

Question 22

Use the following to answer questions
Exhibit: The Inflation-Unemployment Cycle
(Exhibit: The Inflation-Unemployment Cycle)
If the economy were experiencing a recessionary gap, it would be at the intersection of short-run aggregate supply and aggregate demand at point(s)
:

A)1 only.
B)1 or 2.
C)3 only.
D)4.

Question 23

Use the following to answer questions
Exhibit: The Inflation-Unemployment Cycle
(Exhibit: The Inflation-Unemployment Cycle)
Expansionary policy to counter a recessionary gap would move the economy from point:

A)1 to 2.
B)3 to 2.
C)3 to 4.
D)4 to 3.

Question 24

In the late 1970s, the U.S.economy entered a stagflation phase characterized by

A)unemployment below its natural rate and rising inflation
B)unemployment above its natural rate and rising inflation.
C)unemployment at its natural rate and rising inflation.
D)unemployment above its natural rate and constant inflation.

Question 25

During a stagflation phase,

A)inflation and unemployment both increase.
B)inflation and unemployment stay the same.
C)inflation and unemployment both decrease.
D)unemployment decreases and inflation increases.

Question 26

Use the following to answer questions
Exhibit: Inflation and Unemployment 2
(Exhibit: Inflation and Unemployment 2)
Which of the following represents a stagflation phase?

A)The movement from A to B
B)The movement from B to C
C)The movement from C to D
D)The movement from A to C

Question 27

During a Phillips phase,

A)inflation and unemployment both increase.
B)inflation and unemployment stay the same.
C)inflation and unemployment both decrease.
D)unemployment decreases and inflation increases.

Question 28

Stagflation implies that

A)policymakers can choose to have less unemployment if they are willing to accept a higher rate of inflation.
B)a tradeoff between inflation and unemployment may not always exist.
C)any relationship between the inflation and unemployment was purely random.
D)the relationship predicted by the Phillips curve is stable.

Question 29

Falling inflation means

A)that the price level is falling from one period to the next.
B)that the price level is falling at a decreasing rate.
C)that the price level is falling at an increasing rate.
D)that the price level is increasing at a decreasing rate.

Question 30

Use the following to answer questions
Exhibit: The Inflation-Unemployment Cycle
(Exhibit: The Inflation-Unemployment Cycle)
Expansionary policy to counter a recessionary gap would lead to a:

A)higher price level and higher unemployment level.
B)lower price level and less unemployment.
C)higher price level and less unemployment.
D)lower price level and more employment.

Question 31

A period marked by rising unemployment and high inflation is called a

A)inflationary phase.
B)stagflation phase.
C)Phillips phase.
D)recovery phase.

Question 32

Use the following to answer questions
Exhibit: The Inflation-Unemployment Cycle
(Exhibit: The Inflation-Unemployment Cycle)
Because of lags in the application of expansionary policy to counter a recessionary gap, the economy may:

A)not experience any change in the price level or level of unemployment.
B)move past full employment and enter an inflationary gap situation.
C)fall into deeper recession.
D)experience a fall in the price level as illustrated by the move from point 3 to point 1.

Question 33

During a recovery phase,

A)inflation and unemployment both increase.
B)inflation and unemployment stay the same.
C)inflation and unemployment both decrease.
D)unemployment decreases and inflation increases.

Question 34

A period characterized by declining inflation and unemployment is called a

A)economic growth phase.
B)stagflation phase.
C)recovery phase.
D)Phillips phase.

Question 35

Use the following to answer questions
Exhibit: Inflation and Unemployment 2
(Exhibit: Inflation and Unemployment 2)
The figure shows the three inflation-unemployment
Phases.What are these three phases, moving clockwise from point A?

A)Phillips phase, recovery phase, stagflation phase
B)Recovery phase, stagflation phase, Phillips phase
C)Phillips phase, stagflation phase, recovery phase
D)Stagflation phase, recovery phase, Phillips phase

Question 36

Rising inflation means

A)that the price level is increasing by a given percentage rate.
B)that the prices of all goods and services increase from year to year.
C)that the price level is rising at an increasing rate.
D)that the price level is rising at a variable rate.

Question 37

Use the following to answer questions
Exhibit: Inflation and Unemployment 2
(Exhibit: Inflation and Unemployment 2)
Consider the following statement: "The nation's inflation rate rose to a record high last month, the government reported yesterday.The consumer price index jumped 0.3% in January.Coupled with the announcement earlier this month that unemployment had risen by 0.5 percentage points, the reports suggested that the first month of President Nixon's second term had gotten off to a rocky start." Which of the following movements represents the statement?

A)The movement from A to B
B)The movement from B to C
C)The movement from C to D
D)The movement from C to B

Question 38

Use the following to answer questions
Exhibit: Inflation and Unemployment 2
(Exhibit: Inflation and Unemployment 2)
Which of the following movements represents a Phillips phase?

A)The movement from A to B
B)The movement from B to C
C)The movement from C to D
D)The movement from B to A

Question 39

Use the following to answer questions
Exhibit: Inflation and Unemployment 2
(Exhibit: Inflation and Unemployment 2)
Which of the following movements represents a recovery phase?

A)The movement from A to B
B)The movement from B to C
C)The movement from C to D
D)The movement from C to B

Question 40

Prior to the 1970s, the model of choice was the aggregate expenditures model.According to
This model, if the economy was in equilibrium below full employment, then the primary economic problem would be

A)unemployment.
B)deflation.
C)financing the government budget deficit.
D)financing unemployment compensation.

Question 41

In a recovery phase,

A)inflation and unemployment fall.
B)inflation rises as unemployment falls.
C)inflation falls as unemployment rises.
D)inflation and real GDP rise.

Question 42

Use the following to answer questions
Exhibit: AD-AS and the Inflation-Unemployment Cycle
(Exhibit: AD-AS and the Inflation-Unemployment Cycle)
At point 4, if policymakers are concerned about economic performance, they will most likely respond by

A)increasing government purchases and the money supply.
B)increasing taxes.
C)decreasing aggregate demand.
D)having the Fed sell bonds.

Question 43

Use the following to answer questions
Exhibit: AD-AS and the Inflation-Unemployment Cycle
(Exhibit: AD-AS and the Inflation-Unemployment Cycle)
If the economy is in equilibrium at point 3,

A)it will most likely stay there for an indeterminate period.
B)the SRAS will most likely shift to the left because of firms and workers asking for higher prices and wages.
C)it will move to point 5 because of a shift in the aggregate supply curve from SRAS₁ to SRAS₂.
D)it will move to point 2 because the aggregate demand curve is likely to shift left in response to higher prices.

Question 44

The Phillips phase of the inflation-unemployment relationship emerges because

A)prices and wages are sticky.
B)nominal wages and prices fall.
C)the economy is stuck in an equilibrium below full employment.
D)people fully expect the price increases produced by increases in aggregate demand.

Question 45

The essential feature of a stagflation phase is

A)a shift in the short run aggregate supply curve to the right.
B)changes in expectations about the price level.
C)falling unemployment and rising inflation.
D)a shift of the LRAS curve to the right.

Question 46

Use the following to answer questions
Exhibit: Aggregate Demand Shifts and Expectations
(Exhibit: Aggregate Demand Shifts and Expectations)
Suppose the economy was operating at point e in period 1.Expansionary fiscal and monetary policies adopted in period 1 resulted in a movement to point g in period 3.What happens when workers and firms adjust their expectations in a higher price level and act on these expectations?

A)The aggregate demand curve shifts to the left until it intersects the long-run aggregate supply (LRAS)curve.
B)The short-run aggregate supply (SRAS)curve shifts to the right.
C)The SRAS curve shifts to the left.
D)Both the LRAS and the SRAS curves shift to the right.

Question 47

Use the following to answer questions
Exhibit: Aggregate Demand Shifts and Expectations
(Exhibit: Aggregate Demand Shifts and Expectations)
Suppose the economy was operating at point e in period 1.Expansionary fiscal and monetary policies adopted in period 1 resulted in a movement to point g in period 3.What happens when workers and firms become aware of a rise in the general price to P_g?

A)Workers will agree to take wage cuts and firms will agree to lower prices to ward off inflation.
B)They will revise their expectations of future prices to incorporate the higher price level.
C)Firms with sticky prices will ultimately adjust their prices downward.
D)Firms and workers will agree to renegotiate wage contracts downward.

Question 48

Use the following to answer questions
Exhibit: AD-AS and the Inflation-Unemployment Cycle
(Exhibit: AD-AS and the Inflation-Unemployment Cycle)
At point 4, the economy is experiencing

A)an inflationary gap.
B)a recessionary gap.
C)long-run equilibrium.
D)a recovery.

Question 49

Use the following to answer questions
Exhibit: AD-AS and the Inflation-Unemployment Cycle
(Exhibit: AD-AS and the Inflation-Unemployment Cycle)
Over time, the aggregate supply curve shifts from SRAS₁ to SRAS₂
Because of

A)rising output prices.
B)economic agents adjust their expectations regarding prices and wages downwards.
C)a fall in nominal wages.
D)economic agents adjust their expectations regarding prices and wages upwards.

Question 50

In a stagflation phase, a decrease in short-run aggregate supply will generate

A)an increase in the inflation rate and in the unemployment rate.
B)an increase in the inflation rate and a decrease in the unemployment rate.
C)an increase in the inflation rate with no change in the unemployment rate.
D)a decrease in the inflation rate and an increase in the unemployment rate.

Question 51

Use the following to answer questions
Exhibit: The Inflation-Unemployment Cycle
(Exhibit: The Inflation-Unemployment Cycle)
The shifts of AD from point 1 to 2 to 3 to 4 are characteristic of the _______ phase of the inflation-unemployment cycle.

A)stagflation
B)recovery
C)Phillips
D)advanced

Question 52

The Phillips phase of the inflation-unemployment relationship emerges because

A)prices and wages are flexible.
B)nominal wages and prices fall.
C)of unanticipated increases in the price level produced by increases in aggregate demand.
D)people are reluctant to spend despite expansionary policies pursued by policymakers.

Question 53

The Phillips phase of the inflation-unemployment relationship drives the price level

A)below what workers and firms expected causing nominal wages to fall below their expected level.
B)below what workers and firms expected causing real wages to rise above their expected level.
C)above what workers and firms expected causing nominal wages to rise above their expected level.
D)above what workers and firms expected causing real wages to fall below their expected level.

Question 54

Use the following to answer questions
Exhibit: AD-AS and the Inflation-Unemployment Cycle
(Exhibit: AD-AS and the Inflation-Unemployment Cycle)
The movement from point 3 to point 4 is consistent with which phase
Of the inflation-unemployment relationship?

A)Phillips phase because inflation is increasing while unemployment is falling
B)recovery phase because although inflation has risen, unemployment is closer to its natural rate
C)stagflation phase because inflation and unemployment have risen
D)recovery phase because the inflationary gap has been eliminated

Question 55

Use the following to answer questions
Exhibit: AD-AS and the Inflation-Unemployment Cycle
(Exhibit: AD-AS and the Inflation-Unemployment Cycle)
The movement from

A)point 1 to point 2 is representative of a recovery phase.
B)point 3 to point 4 is representative of a stagflation phase.
C)point 3 to point 2 is representative of a recovery phase.
D)point 4 to point 3 is representative of a Phillips phase.

Question 56

In the short run, if the economy is in a Phillips phase of the inflation-unemployment relationship, an increase in aggregate demand will generate

A)an increase in the price level and an increase in the unemployment rate.
B)an increase in the price level and a decrease in the unemployment rate.
C)an increase in the price level and no change in the unemployment rate.
D)a decrease in the price level and an increase in the unemployment rate.

Question 57

In a recovery phase, a falling rate of inflation means that the price level is

A)falling.
B)falling at an increasing rate.
C)rising by smaller and smaller percentages.
D)falling at a constant rate.

Question 58

The critical feature of a

A)Phillips phase is a change in unemployment and inflation in the same direction.
B)recovery phase is a change in inflation and unemployment in the opposite direction.
C)stagflation phase is a change in nominal wages and expectations.
D)expansion phase is a change in the rate of change in real wages and real GDP.

Question 59

Use the following to answer questions
Exhibit: Aggregate Demand Shifts and Expectations
(Exhibit: Aggregate Demand Shifts and Expectations)
Suppose the economy was operating at point e in period 1.Expansionary fiscal and monetary policies adopted in period 1 resulted in a movement to point g in period 3.When workers and firms adjust their expectations in a higher price level and act on these expectations, the economy moves from a

A)expansionary phase to a recovery phase.
B)Phillips phase to a stagflation phase.
C)Phillips phase to a recovery phase.
D)stagflation phase to a recovery phase.

Question 60

Use the following to answer questions
Exhibit: AD-AS and the Inflation-Unemployment Cycle
(Exhibit: AD-AS and the Inflation-Unemployment Cycle)
Suppose initially the economy was at point 1 and as a result of
Stabilization policies, it is now at point 3.Consequently, there will be pressure for

A)workers to settle for lower nominal wages.
B)firms to decrease prices.
C)workers and firms to incorporate price increases into their expectations.
D)the Fed to buy bonds in the open market.

Question 61

Use the following to answer questions
Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases
(Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases)
The movement from point 4 to point 5 is consistent with which
Segment in the diagram below?

A)Segment A to D
B)Segment A to B
C)Segment B to C
D)Segment C to D

Question 62

Consider the following statement: "President X expressed satisfaction with last year's economic performance.He said that with inflation and unemployment heading down, the nation 'is on the right course'." Identify the stage of the inflation-unemployment phase.

A)the stagflation phase
B)the recovery phase
C)the Phillips phase
D)the growth phase

Question 63

Since 1979 when inflation soared into the double-digit, the Federal Reserve's policies

A)have been focused on moving the economy to its potential output.
B)have clearly shown a reduced tolerance for inflation.
C)were concentrated on bringing the price of oil down.
D)have moved toward restraining growth in financial markets.

Question 64

Which of the following determines the rate of inflation in the long run?
I.the rate of money growth
II.changes in expectations about the price level
III.the rate of economic growth
IV.changes in government spending

A)I and II only
B)I and III only
C)I, II, and III only
D)I, II, III, and IV

Question 65

Use the following to answer questions
Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases
(Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases)
The recessionary gap at point 4 was created

A)during the Phillips phase that occurred when the economy moved from point 3 to point 4.
B)when policymakers pursued expansionary policies to move the economy from point 3 to point 4.
C)during the stagflation phase that occurred when the economy moved from point 3 to point 4.
D)during the recovery phase when economic agents revised their price expectations in higher prices.

Question 66

Use the following to answer questions
Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases
(Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases)
The movement from point 4 to point 5 is consistent with which inflation-unemployment phase?

A)Phillips phase because inflation is increasing while unemployment is falling
B)recovery phase because although inflation has risen, unemployment has fallen
C)growth phase because the economy is producing above its potential output
D)recovery phase because inflation and unemployment have fallen

Question 67

Using the equation of exchange, if velocity is stable in the long run, the inflation rate, (%∆P)
Can be expressed as

A)%∆P = %∆M ÷ %∆Y
B)%∆P = %∆M + %∆Y
C)%∆P = %∆M * %∆Y
D)%∆P = %∆M -%∆Y

Question 68

Which of the following affect the values of inflation and unemployment?
I.changes in government spending II.expectations about the price level
III.changes in nominal wages IV.changes in money supply

A)I and IV only
B)I, II, and IV only
C)II and III only
D)I, II, III, and IV

Question 69

Consider the following statement: "President X expressed satisfaction with last year's economic performance.He said that with inflation and unemployment heading down, the nation 'is on the right course.'" Which of the following could have caused this phenomenon?

A)Economic agents revising their expectations about the price level resulting in the short-run aggregate supply curve shifting to the left.
B)Expansionary fiscal and monetary policies that shifted the aggregate demand curve to the right.
C)Increase in money supply which lowered interest rates and shifted the short-run aggregate supply curve to the right.
D)Expansionary fiscal and monetary policies that shifted the long-run aggregate supply curve to the right.

Question 70

Use the following to answer questions
Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases
(Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases)
The movement from point 3 to point 4 is consistent with which
Segment in the diagram below?

A)Segment A to D
B)Segment A to B
C)Segment B to C
D)Segment C to D

Question 71

In a recovery phase,

A)the inflation rate rises.
B)although the price level rises, the inflation rate falls.
C)the price level falls.
D)the price level and the inflation rate fall.

Question 72

Which of the following statements is true?

A)The aggregate demand-aggregate supply model attempts to explain the equilibrium level of real GDP and the price level.
B)The aggregate demand-aggregate supply model gives us inflation and the various levels of real GDP.
C)The inflation-unemployment relationships attempt to explain the equilibrium level of real GDP.
D)The inflation-unemployment phases are based on movements up and down the Phillips curve.

Question 73

In the United States, through most of the 1990s, the unemployment rate and the inflation rate generally fell.With which phase of the inflation-unemployment relationship does this conform to?

A)Phillips phase
B)Growth phase
C)Stagflation phase
D)Recovery phase

Question 74

Consider the following statement: "President X expressed concern about reports of rising inflation but insisted the economy is on the right course.He pointed to recent reductions in unemployment as evidence that his economic policies are working." Identify the stage of the inflation-unemployment relationship.

A)The stagflation phase
B)The recovery phase
C)The Phillips phase
D)The contraction phase

Question 75

In early in 1994, the Federal Reserve shifted to a contractionary policy although the economy
Was still in a recessionary gap left over from the 1990-1991 recession.Which of the
Following best explains this move?

A)The Fed was concerned that the budget deficit would increase.
B)The Fed had failed to take into account the lag in monetary policy.
C)The Fed was taking explicit account of the lag in monetary policy.
D)The Fed wanted to avert a potential housing market crisis.

Question 76

Using the equation of exchange, the rate of money growth can be expressed as

A)%∆M *%∆V = (%∆P * %∆Y)÷ %∆V
B)%∆M = (%∆P + %∆Y)÷ %∆V
C)%∆M = %∆P + %∆Y - %∆V
D)M * V = P * Y

Question 77

Consider the following statement: "President X expressed concern about reports of rising inflation but insisted the economy is on the right course.He pointed to recent reductions in unemployment as evidence that his economic policies are working." Which of the following could have caused this phenomenon?

A)Increase in government spending that shifted the aggregate demand curve to the right.
B)Increase in money supply which lowered interest rates and shifted the short-run aggregate supply curve to the right.
C)Economic agents revising their expectations about the price level resulting in the short-run aggregate supply curve shifting to the left.
D)Expansionary fiscal and monetary policies that shifted the long-run aggregate supply curve to the right.

Question 78

Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (Y_P)
In the long run?

A)If %∆M = %∆ Y_P , then %∆P = %∆M.
B)If %∆M > %∆ Y_P , then %∆P > 0.
C)If %∆M > %∆ Y_P , then %∆P > %∆M.
D)If %∆M = %∆ Y_P , then %∆P < 0.

Question 79

In the equation of exchange, if velocity is stable,

A)%∆V = 0.
B)%∆V = 1.
C)%∆V is a positive constant value > 0.
D)%∆V = infinity.

Question 80

In the long run, sustained inflation is due to

A)a one-time increase in money growth.
B)a continuous increase in the money growth rate.
C)a continuous increase in aggregate demand.
D)the rising price of oil.