Question 1

In the long run, unemployment 
I. will be at the natural rate of unemployment.
II. is made up of structural and frictional unemployment.
III. could be made up of structural, frictional, and cyclical unemployment.

Accepted Answer

A)   I, II, and III
B)   I and III only
C)   I and II only
D)   I onlyE) A) and C)
F) None of the above

Question 2

For a given labor force, an increase in real GDP implies a decrease in unemployment.

Accepted Answer

A) True 
 B)False

Question 3

A Phillips curve implies

Accepted Answer

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.E) B) and C)
F) None of the above

Question 4

The efficiency-wage theory holds that self-correction in an economy will not automatically
Jeliminate a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 5

If workers and firms adjust their expectations of future prices in a higher price level, the
Jshort-run aggregate supply curve shifts to the right.

Accepted Answer

A) True 
 B)False

Question 6

In the 1960s and early 70s, economists believed that the short-run Phillips curve indicated that policymakers could choose the mix of inflation and unemployment they were willing to accept and achieved this with appropriate fiscal and monetary policies.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

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

Question 9

Suppose that rising productivity increases potential output in each period by 4%. What kind of monetary policy would be needed to maintain a zero rate of inflation at full employment?

Accepted Answer

A)   It should keep money supply constant.
B)   It should increase money supply by 4% per period.
C)   It should increase money supply by 4% in the first period and thereafter, hold money supply constant.
D)   It should decrease money supply by 4% each period.E) None of the above
F) A) and C)

Question 10

In the early 1970s, President Nixon inherited an economy that was operating with an inflationary gap. The Nixon administration rationalized that through a combination of a government spending cuts and the Fed's decreasing the money growth rate, it could successfully

Accepted Answer

A)   reduce inflation, which would then cause unemployment to fall.
B)   get the economy to slide down along the Phillips curve, thereby trading off a reduction in inflation for an increase in unemployment.
C)   halt any increases in the price level by increasing productivity which would then return the economy to its potential output.
D)   get the economy to slide up along the Phillips curve, thereby trading an increase in unemployment for deflation.E) A) and B)
F) B) and C)

Question 11

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

Accepted Answer

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

Question 12

Figure 16-8 
-Refer to Figure 16-8. The movement from point 4 to point 5 is consistent with which Jsegment in the diagram below?

Accepted Answer

A)   Segment A to D
B)   Segment A to B
C)   Segment B to C
D)   Segment C to DE) A) and B)
F) A) and C)

Question 13

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

Accepted Answer

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

Question 14

In general, the duration of job search will be shorter if

Accepted Answer

A)   less job-market information is available.
B)   it is more costly to obtain job-search information.
C)   there are fewer employment agencies.
D)   unemployment compensation benefits decrease.E) A) and B)
F) All of the above

Question 15

In general, economists believe that the Phillips curve is

Accepted Answer

A)   downward sloping with a steeper slope in the long run than in the short run.
B)   downward sloping with a steeper slope in the short run than in the long run.
C)   downward sloping in the short run but vertical in the long run.
D)   could be horizontal in the short run but always vertical in the long run.E) A) and B)
F) B) and D)

Question 16

Consider the following statement: "President Nixon 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-unemploymentphase.

Accepted Answer

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

Question 17

Use the theory behind the equation of exchange to demonstrate that "inflation is always and everywhere a monetary phenomenon."

Accepted Answer

The equation of exchange is a fundamenta...

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

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.E) A) and C)
F) None of the above

Question 20

In a recovery phase,

Accepted Answer

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

Exam 16: Inflation and Unemployment

Figure 16-8 -Refer to Figure 16-8. The movement from point 4 to point 5 is consistent with which Jsegment in the diagram below?

Correct AnswerverifiedShow Answer

In the early 1970s, President Nixon inherited an economy that was operating with an inflationary gap. The Nixon administration rationalized that through a combination of a government spending cuts and the Fed's decreasing the money growth rate, it could successfully

Correct AnswerverifiedShow Answer

Suppose that rising productivity increases potential output in each period by 4%. What kind of monetary policy would be needed to maintain a zero rate of inflation at full employment?

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

In general, the duration of job search will be shorter if

Correct AnswerverifiedShow Answer

In the 1960s and early 70s, economists believed that the short-run Phillips curve indicated that policymakers could choose the mix of inflation and unemployment they were willing to accept and achieved this with appropriate fiscal and monetary policies.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In general, economists believe that the Phillips curve is

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

If workers and firms adjust their expectations of future prices in a higher price level, the Jshort-run aggregate supply curve shifts to the right.

Correct AnswerverifiedShow Answer

Consider the following statement: "President Nixon 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-unemploymentphase.

Correct AnswerverifiedShow Answer

For a given labor force, an increase in real GDP implies a decrease in unemployment.

Correct AnswerverifiedShow Answer

In a recovery phase,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long run, unemployment I. will be at the natural rate of unemployment. II. is made up of structural and frictional unemployment. III. could be made up of structural, frictional, and cyclical unemployment.

Correct AnswerverifiedShow Answer

The efficiency-wage theory holds that self-correction in an economy will not automatically Jeliminate a recessionary gap.

Correct AnswerverifiedShow Answer

Use the theory behind the equation of exchange to demonstrate that "inflation is always and everywhere a monetary phenomenon."

Correct AnswerAnswered by ExamLex AIThe equation of exchange is a fundamenta...View AnswerShow Answer

A Phillips curve implies

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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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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The equation of exchange is a fundamenta...
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