Question 1

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

Accepted Answer

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

Question 2

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?

Accepted Answer

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.E) B) and C)
F) C) and D)

Question 3

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

Accepted Answer

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.E) C) and D)
F) All of the above C

Question 4

A Phillips phase of the inflation-unemployment relationship occurs when both inflation and
unemployment increase.

Accepted Answer

A) True 
 B)False  False

Question 5

Frictional unemployment exists because

Accepted Answer

A)  the quantity demanded of labor exceeds the quantity supplied at the equilibrium wage rate.
B)  of fluctuations in economic activity.
C)  technological changes make the skills of the workers incompatible with the skills used on the job.
D)  it takes time for people seeking jobs and employers seeking workers to find each other.E) A) and D)
F) B) and D)

Question 6

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

Accepted Answer

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

Question 7

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

Accepted Answer

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.E) All of the above
F) C) and D)

Question 8

Falling inflation means

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 9

The notion that there is a tradeoff between inflation and unemployment is expressed as an
efficiency wage curve.

Accepted Answer

A) True 
 B)False

Question 10

Along an actual (observed) 
Phillips curve,

Accepted Answer

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.E) A) and D)
F) All of the above

Question 11

What is a reservation wage?

Accepted Answer

A)  It is the highest wage that an unemployed worker would accept, if it were offered.
B)  It is the lowest wage that an unemployed worker would accept, if it were offered.
C)  It is the highest wage that an employer will offer a potential worker if there are many candidates vying for the job.
D)  It is the lowest wage that an unemployed worker would accept, excluding any non-pecuniary benefits.E) A) and B)
F) All of the above

Question 12

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

Accepted Answer

A)  I and IV only
B)  I, II, and IV only
C)  II and III only
D)  I, II, III, and IVE) All of the above
F) A) and C)

Question 13

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

Accepted Answer

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.E) A) and B)
F) B) and D)

Question 14

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?

Accepted Answer

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 fallenE) A) and D)
F) B) and C)

Question 15

The essential feature of a stagflation phase is

Accepted Answer

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.E) A) and C)
F) All of the above B

Question 16

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.

Accepted Answer

A)  the stagflation phase
B)  the recovery phase
C)  the Phillips phase
D)  the growth phaseE) A) and B)
F) A) and D)

Question 17

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 (YP) 
In the long run?

Accepted Answer

A)  If %∆M > %∆ YP , then %∆P > %∆M.
B)  If %∆M > %∆ YP , then %∆P > %∆ YP.
C)  If %∆M = %∆ YP , then %∆P = 0.
D)  If %∆M = %∆ YP , then %∆P < 0.E) None of the above
F) B) and D)

Question 18

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?

Accepted Answer

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 eliminatedE) A) and D)
F) All of the above

Question 19

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:

Accepted Answer

A)  1 to 2.
B)  3 to 2.
C)  3 to 4.
D)  4 to 3.E) B) and C)
F) A) and B)

Question 20

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?

Accepted Answer

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.E) A) and B)
F) C) and D)

Exam 16: Inflation and Unemployment

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

Correct Answer
verified

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?

Correct Answer
verified

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

Correct Answer
verified
C

A Phillips phase of the inflation-unemployment relationship occurs when both inflation and unemployment increase.

Correct Answer
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False

Frictional unemployment exists because

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Falling inflation means

Correct Answer
verified

The notion that there is a tradeoff between inflation and unemployment is expressed as an efficiency wage curve.

Correct Answer
verified

Along an actual (observed) Phillips curve,

Correct Answer
verified

What is a reservation wage?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

The essential feature of a stagflation phase is

Correct Answer
verified
B

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.

Correct Answer
verified

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?

Correct Answer
verified

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?

Correct Answer
verified

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:

Correct Answer
verified

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?

Correct Answer
verified

Exam 16: Inflation and Unemployment

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

A Phillips phase of the inflation-unemployment relationship occurs when both inflation and unemployment increase.

Correct AnswerverifiedFalse

Frictional unemployment exists because

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Falling inflation means

Correct AnswerverifiedShow Answer

The notion that there is a tradeoff between inflation and unemployment is expressed as an efficiency wage curve.

Correct AnswerverifiedShow Answer

Along an actual (observed) Phillips curve,

Correct AnswerverifiedShow Answer

What is a reservation wage?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The essential feature of a stagflation phase is

Correct AnswerverifiedB

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.

Correct AnswerverifiedShow Answer

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 (YP) In the long run?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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C

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False

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B

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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?

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