Question 1

If inflationary expectations are quite sluggish (that is, they do not adapt quickly) , then the short-run Phillips curve will

Accepted Answer

A)  be vertical.
B)  be horizontal.
C)  slope downward.
D)  slope upward.E) A) and C)
F) None of the above

Question 2

The economy's self-correcting mechanism

Accepted Answer

A)  tends to push unemployment toward a specific point called the natural rate of unemployment.
B)  works better at correcting inflationary gaps than recessionary gaps.
C)  cannot work if the Phillips curve is vertical.
D)  ensures that the economy will not have to endure a long period of high unemployment.E) All of the above
F) None of the above

Question 3

In 2010, dissenters were worried that the effects of policies to reduce unemployment would create the conditions for

Accepted Answer

A)  higher long-term inflation.
B)  a more horizontal Phillips curve.
C)  higher long-term unemployment.
D)  larger budget surpluses and, thus, higher interest rates.E) B) and D)
F) B) and C)

Question 4

Rational expectations are forecasts that, although not necessarily correct, are the best that can be made given the available information.

Accepted Answer

A) True 
 B)False

Question 5

If people have ________________, an announced monetary contraction by the Fed that is credible could reduce inflation with little or no increase in inflation.

Accepted Answer

A)  rational expectations
B)  irrational expectations
C)  no expectations
D)  None of the above is correct.E) A) and C)
F) A) and B)

Question 6

The origin of the Phillips curve is the idea that an increase in

Accepted Answer

A)  AD will lead to more inflation and more unemployment.
B)  AD will lead to more inflation and lower unemployment.
C)  AS will lead to lower inflation and lower unemployment.
D)  AS will lead to less inflation and higher unemployment.E) B) and D)
F) A) and B)

Question 7

An increase in AD will trigger less inflation under which of the following conditions?

Accepted Answer

A)  AD is relatively steep.
B)  AD is relatively flat.
C)  AS is relatively steep.
D)  AS is relatively flat.E) A) and B)
F) None of the above

Question 8

Some of the promising approaches to reducing the natural rate of unemployment have to do with education, training, and job placement.What implementation problems do you anticipate?

Accepted Answer

Training and placement programs sometime...

Question 9

If aggregate demand had grown faster than it did from 2009 to 2010, then the U.S.economy would have experienced

Accepted Answer

A)  higher unemployment and higher inflation.
B)  lower unemployment and lower inflation.
C)  higher unemployment and lower inflation.
D)  lower unemployment and higher inflation.E) C) and D)
F) None of the above

Question 10

One reason that the Phillips curve "broke down" is that it

Accepted Answer

A)  is unable to explain short-run movements in inflation and unemployment, but does a better job of explaining long-run movements.
B)  assumes a quick-acting self-correcting mechanism, and the economy has a very slow self-correcting mechanism.
C)  is a statistical relationship, and some of the points are not sustainable in the long run.
D)  cannot explain demand-side inflation, and it collapsed when demand-side inflation was predominant in the 1970s.E) A) and B)
F) A) and C)

Question 11

If actual inflation differs from expected inflation, what is the slope of the aggregate supply curve?

Accepted Answer

A)  The slope is horizontal in the short and long run.
B)  The slope is vertical in the short and long run.
C)  The slope is vertical in the short run and upward sloping in the long run.
D)  The slope is upward sloping in the short run and vertical in the long run.E) B) and C)
F) A) and B)

Question 12

If the aggregate supply curve is vertical, then the short-run Phillips curve will

Accepted Answer

A)  be horizontal.
B)  also be vertical.
C)  slope upward.
D)  slope downward.E) None of the above
F) All of the above

Question 13

To make rational forecasts, your predictions do not have to be correct all of the time.

Accepted Answer

A) True 
 B)False

Question 14

Opponents of indexing fear that it will lead to a(n)

Accepted Answer

A)  acceleration of inflation.
B)  abrupt reduction of the money supply.
C)  shortfall of tax revenues, and increased budget deficits.
D)  unfair wealth transfer to debtors.E) A) and B)
F) None of the above

Question 15

One way in which the Phillips curve is misinterpreted is to think of it as

Accepted Answer

A)  a model of economic activity that explains changes in unemployment and inflation by changes in aggregate demand.
B)  a statistical relationship between inflation and unemployment.
C)  depicting a number of alternative equilibrium points the economy could achieve.
D)  All of these responses are correct.E) A) and B)
F) A) and C)

Question 16

According to the theory of rational expectations, errors in predicting inflation will

Accepted Answer

A)  be biased upward more often than not.
B)  be purely random.
C)  tend to be biased downward when inflation is rising and tend to be biased upward when inflation is falling.
D)  tend to be biased upward when inflation is rising and tend to be biased downward when inflation is falling.E) B) and D)
F) A) and B)

Question 17

If economic fluctuations originate on the supply side,

Accepted Answer

A)  there will be no relationship between unemployment and inflation.
B)  real wage increases will be necessary to eliminate unemployment.
C)  inflation and unemployment will be negatively related.
D)  inflation and unemployment will be positively related.E) B) and C)
F) A) and B)

Question 18

Demand-side inflation is normally accompanied by

Accepted Answer

A)  falling real GDP, while supply-side inflation may be accompanied by rising real GDP.
B)  falling real GDP; the same is true of supply-side inflation.
C)  rising real GDP, while supply-side inflation may be accompanied by falling real GDP.
D)  rising real GDP; the same is true of supply-side inflation.E) A) and B)
F) C) and D)

Question 19

Indexing seeks to reduce the social costs of inflation.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following observations concerning the Phillips curve is not true?

Accepted Answer

A)  They are normally upward-sloping.
B)  They are more commonly constructed for price inflation.
C)  They depict the inverse relation between wage inflation and unemployment.
D)  They depict the rate of unemployment on the horizontal axis.E) B) and C)
F) A) and B)

Exam 33: The Trade-Off Between Inflation and Unemployment

If economic fluctuations originate on the supply side,

Correct AnswerverifiedShow Answer

The origin of the Phillips curve is the idea that an increase in

Correct AnswerverifiedShow Answer

If inflationary expectations are quite sluggish (that is, they do not adapt quickly) , then the short-run Phillips curve will

Correct AnswerverifiedShow Answer

Which of the following observations concerning the Phillips curve is not true?

Correct AnswerverifiedShow Answer

An increase in AD will trigger less inflation under which of the following conditions?

Correct AnswerverifiedShow Answer

The economy's self-correcting mechanism

Correct AnswerverifiedShow Answer

One reason that the Phillips curve "broke down" is that it

Correct AnswerverifiedShow Answer

Indexing seeks to reduce the social costs of inflation.

Correct AnswerverifiedShow Answer

Demand-side inflation is normally accompanied by

Correct AnswerverifiedShow Answer

To make rational forecasts, your predictions do not have to be correct all of the time.

Correct AnswerverifiedShow Answer

If aggregate demand had grown faster than it did from 2009 to 2010, then the U.S.economy would have experienced

Correct AnswerverifiedShow Answer

Opponents of indexing fear that it will lead to a(n)

Correct AnswerverifiedShow Answer

If people have ________________, an announced monetary contraction by the Fed that is credible could reduce inflation with little or no increase in inflation.

Correct AnswerverifiedShow Answer

Rational expectations are forecasts that, although not necessarily correct, are the best that can be made given the available information.

Correct AnswerverifiedShow Answer

Some of the promising approaches to reducing the natural rate of unemployment have to do with education, training, and job placement.What implementation problems do you anticipate?

Correct AnswerverifiedTraining and placement programs sometime...View AnswerShow Answer

According to the theory of rational expectations, errors in predicting inflation will

Correct AnswerverifiedShow Answer

One way in which the Phillips curve is misinterpreted is to think of it as

Correct AnswerverifiedShow Answer

If the aggregate supply curve is vertical, then the short-run Phillips curve will

Correct AnswerverifiedShow Answer

If actual inflation differs from expected inflation, what is the slope of the aggregate supply curve?

Correct AnswerverifiedShow Answer

In 2010, dissenters were worried that the effects of policies to reduce unemployment would create the conditions for

Correct AnswerverifiedShow Answer

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Training and placement programs sometime...
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