Deck 9: An Introduction to the Short Run

Question 1

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

A) increased oil prices
B) a drought
C) increased military spending
D) a change in the tax code
E) None of these answers are correct.

Answer 1

E

Question 2

The long-run model determines ________ and ________.

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

Answer 2

E

Question 3

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

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

Answer 3

A

Question 4

Current output is defined as:

A) the amount of output when inflation is about 2 percent
B) what an economy produces when it is at capacity
C) the amount of total output at the current level of input utilization
D) the amount of total output if all inputs are utilized at their long-run sustainable levels
E) the amount of output where unemployment is zero

Question 5

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

A) a drought
B) high unemployment
C) increased military spending
D) a change in the tax code
E) political unrest

Question 6

Defining $Y _ { t }$ as current output, $\bar { Y } _ { t }$
As potential output, and $\tilde { Y } _ { t }$
As short-run fluctuations, which of the following equations is correct?

A) $Y _ { t } = \tilde { Y } _ { t } - \bar { Y } _ { t }$
B) $Y _ { t } = \bar { Y } _ { t } + \tilde { Y } _ { t }$
C) $\bar { Y } _ { t } = \tilde { Y } _ { t }$
D) $Y _ { t } = 0$
E) $Y _ { t } = \frac { \tilde { Y } _ { t } } { \bar { Y } _ { t } }$

Question 7

Defining $Y _ { t }$ as current output, $\bar { Y } _ { t }$
As potential output, and $\tilde { Y } _ { t }$
As short-run fluctuations, which of the following equations is correct?

A) $Y _ { t } = \tilde { Y } _ { t } - \bar { Y } _ { t }$
B) $\tilde { Y } _ { t } = Y _ { t } - \bar { Y } _ { t }$
C) $\tilde { Y } _ { t } = \bar { Y } _ { t }$
D) $\bar { Y } _ { t } = 0$
E) $\tilde { Y } _ { t } = \frac { Y _ { t } + \bar { Y } _ { t } } { \bar { Y } _ { t } }$

Question 8

John Maynard Keynes is famous for saying, "In the long run ________."

A) there is no tomorrow
B) we are all dead
C) the only thing we have to fear is fear itself
D) the study of economics will be redundant
E) we will tear down this wall

Question 9

Output fluctuations are defined as:

A) the amount of output where inflation is about 2 percent
B) what an economy produces when it is at capacity
C) the percentage difference between current output and potential output
D) the amount of total output if all inputs were utilized at their long-run sustainable levels
E) the amount of output where unemployment is zero

Question 10

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

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 11

Potential output is defined as:

A) the amount of total output if all inputs were utilized at their long-run, sustainable levels
B) what an economy produces when it is at capacity
C) the current level of output
D) the amount of output where inflation is zero
E) the level of output when unemployment is 10 percent

Question 12

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

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

Question 13

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

A) political unrest
B) a change in the tax code
C) a drought
D) increased military spending
E) None of these answers are correct.

Question 14

The short-run model determines ________ and ________.

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

Question 15

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

A) planned investment expenditures
B) a hurricane
C) increased military spending
D) a change in the tax code
E) new technology

Question 16

One implication of the Keynes quote, "In the long run we are all dead," is:

A) the economy is always in its long-run equilibrium
B) we know with certainty what the long run is
C) the long run is made up of a sequence of short runs
D) there is no difference between the long and short runs
E) there is no short run

Question 17

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

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

Question 18

Defining $Y _ { t }$ as current output, $\bar { Y } _ { t }$
As potential output, and $\tilde { Y } _ { t }$
As short-run fluctuations, which of the following equations does the text use to measure the fluctuations component of output?

A) $\tilde { Y } _ { t } = \frac { Y _ { t } + \bar { Y } _ { t } } { \bar { Y } _ { t } }$
B) $\tilde { Y } _ { t } = Y _ { t } - \bar { Y } _ { t }$
C) $\tilde { Y } _ { t } = \frac { Y _ { t } - \bar { Y } _ { t } } { \bar { Y } _ { t } }$
D) $\tilde { Y } _ { t } = \frac { \bar { Y } _ { t } - Y _ { t } } { \bar { Y } _ { t } }$
E) $\tilde { Y } _ { t } = \frac { \bar { Y } _ { t } - Y _ { t } } { Y _ { t } }$

Question 19

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

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

Question 20

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

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

Question 21

According to the text, which of the following can be used to characterize potential output?
I) Assume a perfectly smooth trend is passing through the quarter-to-quarter movements in the real GDP.
Ii) Take averages of the surrounding actual GDP numbers.
Iii) Gather current data from statistical agencies, such as the Bureau of Economic Analysis.

A) i only
B) ii only
C) ii and iii
D) i and ii
E) iii only

Question 22

If current output is $Y _ { t } = \$ 10$ billion and potential output $\bar { Y } _ { z } = \$ 10.5$
Billion, then the economy is in a ________ and $\tilde { Y } _ { t }$ Is about ________.

A) recession; -4.7 percent
B) boom; 4.7 percent
C) boom; -4.7 percent
D) recession; -5 percent
E) boom; 5 percent

Question 23

According to the Phillips curve, short-term changes in inflation are due to changes in:

A) interest rates
B) unemployment
C) short-term output fluctuations
D) long-term inflation
E) long-term output

Question 24

Defining $Y _ { t}$ as current output, $\bar { Y } _ { t }$
As potential output, and $\tilde { Y } _ { t }$
As short-run fluctuations, how can the equation $\tilde { Y } _ { t } = \left( Y _ { t } - \bar { Y } _ { t } \right) / \bar { Y } _ { t }$
Be best defined?

A) the percentage deviation of current output from potential output
B) the difference between current output and potential output
C) the percentage deviation of potential output from current output
D) the deviation of current output from potential output
E) the difference between potential output and current output

Question 25

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.

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

Question 26

Refer to the following figure when answering the next five questions.
Figure 9.2: U.S. Output Fluctuations 1960-2012
(Source: BEA and CBO, data from Federal Reserve Economic Data, St. Louis Federal Reserve)

-Consider Figure 9.2. In 1989, the U.S. economy experienced an economic ________, and current output was about ________ potential output.

A) boom; 1 percent above
B) recession; 1 percent above
C) boom; 2 percent above
D) This cannot be determined from the information given.
E) None of these answers are correct.

Question 27

The Great Depression stimulated ________ to write ________, which is considered to be the birth of modern macroeconomics.

A) John Hicks; Value and Capital
B) Karl Marx; Das Kapital
C) David Ricardo; Principles of Political Economy and Taxation
D) Milton Friedman and Anna J. Schwartz; A Monetary History of the United States, 1867-1960
E) John Maynard Keyes; The General Theory of Employment, Interest, and Money

Question 28

Refer to the following figure when answering the next five questions.
Figure 9.2: U.S. Output Fluctuations 1960-2012
(Source: BEA and CBO, data from Federal Reserve Economic Data, St. Louis Federal Reserve)

-Consider Figure 9.2, which represents $\tilde { Y } _ { t }$ . In approximately what years did the U.S. economy experience its longest economic downturn, using the text's definition?

A) 1990-1997
B) 1974-1978
C) 1980-1988
D) 1957-1963
E) 2008-2012

Question 29

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.

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

Question 30

Which is responsible for dating business cycles?

A) Business Cycle Committee of the National Bureau of Economic Research
B) Business Cycle Committee of the Department of Treasury
C) Department of Treasury
D) Commerce Department
E) Board of Governors of the Federal Reserve System

Question 31

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.

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

Question 32

Refer to the following figure when answering
Figure 9.1: Output versus Time


-Considering Figure 9.1:

A) area a is where current output is less than potential output, and area b is where current output is greater than potential output
B) area a is where current output is greater than potential output, and area b is where current output is less than potential output
C) point c is where economic fluctuations are zero, and at point b, the economy is in a boom
D) at point c, current output equals the short-term fluctuations
E) area a is where current output is greater than potential output, and at point c, the economy is in a boom

Question 33

Which is responsible for dating business cycles?

A) Congressional Budget Office
B) Business Cycle Committee of the National Bureau of Economic Research
C) President's Council of Economic Advisors
D) New York City Federal Reserve Bank president
E) Board of Governors of the Federal Reserve System

Question 34

According to the text, which of the following can be used to approximate potential output?
I) Assume a perfectly smooth trend is passing through the quarter-to-quarter movements in the real GDP.
Ii) Survey leading economists.
Iii) Gather current data from statistical agencies, such as the Bureau of Economic Analysis.

A) i only
B) ii only
C) ii and iii
D) i and ii
E) iii only

Question 35

When the U.S. economy bottomed out during the Great Depression, the unemployment rate hit about ________ percent in ________.

A) 9; 1977
B) 10; 1929
C) 25; 1933
D) 10; 2010
E) 10.5; 1982

Question 36

Refer to the following figure when answering the next five questions.
Figure 9.2: U.S. Output Fluctuations 1960-2012
(Source: BEA and CBO, data from Federal Reserve Economic Data, St. Louis Federal Reserve)

-Consider Figure 9.2, which represents $\tilde { Y } _ { t }$ . In approximately what years did the U.S. economy experience its longest economic expansion?

A) 1964-1970
B) 1978-1980
C) 1996-2001
D) 1972-1974
E) This cannot be determined from the information given.

Question 37

Refer to the following figure when answering the next five questions.
Figure 9.2: U.S. Output Fluctuations 1960-2012
(Source: BEA and CBO, data from Federal Reserve Economic Data, St. Louis Federal Reserve)

-Consider Figure 9.2. The line represents short-run fluctuations, $\tilde { Y } _ { t }$ . Since 1960, the largest boom was in about ________ and the deepest recession was in about ________.

A) 1983; 1965
B) 1974; 1976
C) 2000; 1983
D) 1966; 1983
E) The economy always produces at its potential.

Question 38

Refer to the following figure when answering
Figure 9.1: Output versus Time


-Consider Figure 9.1. The dashed line is potential output and the solid line is current output; therefore:

A) areas a and b are booms
B) area b represents an economic boom, and area a is a recession
C) the economy is in neither a recession nor a boom in areas a and b
D) area a represents an economic boom, and area b is a recession
E) areas a and b are expansions

Question 39

If current output is $Y _ { t } = \$ 12$ billion and potential output $\bar { Y } _ { t } = \$ 11.25$
Billion, then the economy is in a ________ and $\tilde { Y } _ { t }$ Is about ________.

A) boom; $- 6.7$ percent
B) recession; $- 6.7$ percent
C) recession; $- 6.2$ percent
D) boom; 6.7 percent
E) None of these answers are correct.

Question 40

Refer to the following figure when answering the next five questions.
Figure 9.2: U.S. Output Fluctuations 1960-2012
(Source: BEA and CBO, data from Federal Reserve Economic Data, St. Louis Federal Reserve)

-Consider Figure 9.2. In approximately which of the following years was current output equal to potential output?

A) 1966, 1974, 1979, 2000, and 2004
B) 1961, 1975, 1983, 2002, and 2009
C) 1964, 1980, 1991, 2001, and 2008
D) 1961, 1975, 1979, 2000, and 2008
E) 1966, 1974, 1983, 2002, and 2010

Question 41

The short-run model is built on which of the following?
I) The economy is constantly being hit by "shocks."
Ii) Economic policy has no impact on output.
Iii) There is trade-off between output and inflation.

A) i only
B) i and iii
C) ii and iii
D) ii only
E) i, ii, and iii

Question 42

If $\Delta \pi > 0$ , the macroeconomy is:

A) in a recession
B) in an expansion
C) at its potential level of output
D) Not enough information is given.
E) None of these answers are correct.

Question 43

If $\tilde { Y } _ { t } < 0$ , the macroeconomy is:

A) in an expansionary gap
B) at its potential level of output
C) in a recessionary gap
D) None of these answers are correct
E) Not enough information is given.

Question 44

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

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 45

If $\tilde { Y } _ { t } > 0$ , the macroeconomy is:

A) in a recession
B) in an expansion
C) at its potential level of output
D) Not enough information is given.
E) None of these answers are correct.

Question 46

Okun's law shows the ________ relationship between ________ and ________.

A) negative; the unemployment gap; economic fluctuations
B) positive; the unemployment gap; economic fluctuations
C) negative; the unemployment gap; inflation
D) positive; the unemployment gap; inflation
E) negative; inflation; economic fluctuations

Question 47

In 1979, the inflation rate reached about 14 percent. The Federal Reserve ________ interest rates, sending the economy into a(n) ________. When doing so, the Federal Reserve knew this would be the case because of the ________.

A) raised; expansion; Phillips curve
B) raised; recession; Phillips curve
C) raised; recession; Okun relationship
D) lowered; recession; Phillips curve
E) lowered; expansion; Phillips curve

Question 48

If $\Delta \pi = 0$ , the macroeconomy is:

A) in an expansion
B) in a recession
C) at its potential level of output
D) Not enough information is given.
E) None of these answers are correct.

Question 49

Refer to the following figure when answering
Figure 9.3: Phillips Curve

-Consider the Phillips curve at $\tilde { Y } _ { t } = 0$ in Figure 9.3. The economy is:

A) booming
B) inflationary
C) at its potential output
D) in recession
E) Not enough information is given to determine.

Question 50

If $\tilde { Y } _ { t } = 0$ , the macroeconomy is:

A) at its potential level of output
B) in a recessionary gap
C) in an expansionary gap
D) Not enough information is given.
E) None of these answers are correct.

Question 51

Generally speaking, the rate of inflation ________ during a recession.

A) stays the same
B) falls
C) rises
D) falls, then rises
E) None of these answers are correct.

Question 52

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

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 53

The Phillips curve in the text shows the ________ relationship between ________ and ________.

A) positive; inflation; unemployment
B) positive; inflation; short-term economic fluctuations
C) positive; the change in inflation; short-term economic fluctuations
D) negative; inflation; unemployment
E) negative; the change in inflation; unemployment

Question 54

The Phillips curve in the text shows the ________ relationship between ________ and ________.

A) positive; the change in inflation; short-term economic fluctuations
B) negative; the change in inflation; short-term economic fluctuations
C) positive; inflation; unemployment
D) negative; inflation; unemployment
E) negative; the change in inflation; unemployment

Question 55

If $\Delta \pi < 0$ , the macroeconomy is:

A) in a recession
B) in an expansion
C) at its potential level of output
D) Not enough information is given.
E) None of these answers are correct.

Question 56

Refer to the following figure when answering
Figure 9.3: Phillips Curve

-Consider the Phillips curve at $\tilde { Y } _ { t , 1 }$ in Figure 9.3.Which of the following is true?

A) The economy is booming.
B) The economy is deflationary.
C) The economy is at potential output.
D) The economy is in recession.
E) Unemployment is above the natural level.

Question 57

In 1979, the inflation rate reached about 14 percent, due in part to ________. The Board of Governors of the Federal Reserve under ________ decided to ________ interest rates, sending the economy into a ________.

A) a fall in oil prices; Volcker; raise; recession
B) an increase in consumer spending; Volcker; lower; recession
C) an increase in oil prices; Volcker; raise; recession
D) an increase in oil prices; Volcker; lower; boom
E) a fall in oil prices; Greenspan; raise; recession

Question 58

According to the text, the slope of the Phillips curve in the United States is about ________. Thus, if the change in inflation is 1 percent, the gap would be ________ percent.

A) 1/4; 0.25
B) 1/3; 3
C) 1/2; 2
D) 2; 0.5
E) 1/4; 4

Question 59

Refer to the following figure when answering
Figure 9.3: Phillips Curve

-Consider the Phillips curve at $\tilde { Y } _ { t , 2 }$ in Figure 9.3. The economy is:

A) booming
B) inflationary
C) in recession
D) at potential output
E) Not enough information is given to determine.

Question 60

According to the text, the slope of the Phillips curve in the United States is about ________. Thus, if the gap is 6 percent, the change in inflation would be ________ percent.

A) 1/4; 1.5
B) 1/3; 2
C) 1/4; 24
D) 1/2; 3
E) 1/2; 12

Question 61

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 1998 to 2000 was a period of:

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

Question 62

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:

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

Question 63

The relationship between actual output in an economy, the long-run component, and the short-run component is given as: Long-run trend = Current output + Short-run fluctuations.

Question 64

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:

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

Question 65

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

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

Question 66

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 ________.

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 67

In the text, Okun's law is given as:

A) $u - \bar { u } = - 2 \times \frac { \tilde { Y } } { \bar { Y } }$
B) $\frac { u } { \bar { u } } = - 1 / 2 \times ( \tilde { Y } - \bar { Y } )$
C) $u = - 2 \bar { Y }$
D) $\bar { u } - u = - 2 \times \tilde { y }$
E) $u - \bar { u } = - 1 / 2 \times \tilde { Y }$

Question 68

You are a staff economist with the Federal Reserve. The chairman says to you, "The rate of change in inflation is too high and I think the Phillips curve is horizontal. What should we do to reduce these inflationary increases?" How do you respond?

A) "Because the Phillips curve is flat, we can do nothing to change the rate of inflation, as it does not respond to changes in output."
B) "Because the Phillips curve is flat, we need to increase interest rates a lot, as the change in inflation is not very responsive to changes in output."
C) "Because the Phillips curve is flat, we need to decrease interest rates a lot, as the change in inflation is not very responsive to changes in output."
D) "Because the Phillips curve is flat, we need to increase interest rates a lot, as the change in inflation is infinitely responsive to changes in output."
E) "You are not giving me enough information."

Question 69

You are a staff economist with the Federal Reserve. The chairman says to you, "The rate of change in inflation is too high, and I don't think the Phillips curve is very steep. What should we do to reduce these inflationary increases?" What do you respond?

A) "Because the Phillips curve is relatively flat, we need to increase interest rates a lot, as the change in inflation is not very responsive to changes in output."
B) "Because the Phillips curve is relatively flat, we need to decrease interest rates a lot, as the change in inflation is not very responsive to changes in output."
C) "Because the Phillips curve is relatively flat, we need to increase interest rates only a little, as the change in inflation is very responsive to changes in output."
D) "Because the Phillips curve is relatively flat, we need to increase interest rates only a little, as the change in inflation is not very responsive to changes in output."
E) "Because the Phillips curve is relatively flat, we can do nothing to interest rates, as the change in inflation does not respond to changes in output."

Question 70

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 2009 to 2010 was a period of:

A) recession
B) expansion
C) stagnation
D) macroeconomic equilibrium
E) Not enough information is given.

Question 71

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 2001 to 2002 was a period of:

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

Question 72

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

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

Question 73

The relationship between actual output in an economy, the long-run component, and the short-run component is given as: Current output = Long-run trend + Short-run fluctuations.

Question 74

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:

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

Question 75

According to Okun's law, if the Federal Reserve wants to reduce unemployment, it should ________ interest rates, which would ________ output.

A) reduce; reduce
B) increase; increase
C) reduce; increase
D) reduce; not change
E) not change; increase

Question 76

According to Okun's law, if the Federal Reserve wants to increase unemployment, it should ________ interest rates, which would ________ output.

A) increase; increase
B) increase; reduce
C) reduce; reduce
D) reduce; not change
E) not change; increase

Question 77

Defining u as the unemployment rate and $\bar { u }$ as the natural rate of unemployment, we can write Okun's law as the following equation:

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

Question 78

Defining $Y _ { t }$ as current output, $\bar { Y } _ { t }$ as potential output, and $\tilde { Y } _ { t }$ as short-run fluctuations, the relationship between the three can be written as $Y _ { t } = \tilde { Y } _ { t } - \bar { Y } _ { t }$ .

Question 79

Taken together, the Phillips curve and Okun's law imply there is a short-term ________ relationship between ________ and inflation.

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

Question 80

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

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) $\tilde { Y } = - 2 \times u$