Question 1

If potential output is higher than actual output, then the unemployment rate is:

Accepted Answer

A)   below the natural rate.
B)   above the natural rate.
C)   equal to the natural rate.
D)   zero.E) None of the above
F) B) and C)

Question 2

Use the following to answer questions 
Figure: Classical Model of the Price Level 1 to AD2, according to this classical model, the price level will: A)  not change. B)  increase from P1 to P2. C)  increase from P1 to P3. D)  decrease from P1 to P2." class="answers-bank-image d-inline" rel="preload" >
-(Figure: Classical Model of the Price Level)  Look at the figure Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD1 to AD2, according to this classical model, the price level will:

Accepted Answer

A)   not change.
B)   increase from P1 to P2.
C)   increase from P1 to P3.
D)   decrease from P1 to P2.E) B) and D)
F) B) and C)

Question 3

Seignorage refers to the:

Accepted Answer

A)   problems faced by Social Security as the population ages.
B)   government's right to print money.
C)   problems senior citizens face in retirement.
D)   problems created when the government prints too much money.E) None of the above
F) All of the above

Question 4

Suppose that the unemployment rate rises as the inflation rate declines. This situation is consistent with a movement along the _____ Phillips curve.

Accepted Answer

A)   vertical
B)   horizontal
C)   positively sloped
D)   negatively slopedE) B) and C)
F) C) and D)

Question 5

According to recent estimates of Okun's law, if the unemployment rate FELL by a full percentage point, it would most probably be attributable to a _____ in real GDP.

Accepted Answer

A)   3% increase
B)   2% increase
C)   1% increase
D)   3% decreaseE) B) and C)
F) B) and D)

Question 6

If the monetary authorities decide to increase the nominal money supply by 10% when the economy is at its full-employment level of output, in the long run the aggregate price level increases by _____ and real GDP _____.

Accepted Answer

A)   10%; increases by 10%
B)   5%; increases by 5%, according to Okun's law
C)   10%; returns to the potential level of output
D)   5%; increases by 20%, given a marginal propensity to consume of 0.5E) A) and B)
F) C) and D)

Question 7

Which of the following accurately portrays the shape of the long-run Phillips curve?

Accepted Answer

A)   a horizontal curve
B)   a vertical curve
C)   an upward-sloping curve
D)   a downward-sloping curveE) A) and B)
F) A) and C)

Question 8

Each point on a Phillips curve is a different combination of:

Accepted Answer

A)   price and quantity.
B)   inflation and unemployment.
C)   the interest rate and investment.
D)   saving and disposable income.E) A) and C)
F) C) and D)

Question 9

The classical model of the price level is associated with:

Accepted Answer

A)   John Maynard Keynes.
B)   economists who followed Keynes's work.
C)   economists who came before Adam Smith.
D)   economists who came after Adam Smith but before Keynes.E) A) and B)
F) A) and C)

Question 10

If an administration pursues expansionary policy before an election to bring down unemployment, it can:

Accepted Answer

A)   produce inflation only if the real interest rate is zero to begin with.
B)   lower people's expectations about inflation through a sense of false complacency.
C)   produce inflation if the targeted rate of unemployment is too low.
D)   produce disinflation if the expansionary monetary policy is unanticipated.E) All of the above
F) B) and C)

Question 11

In the long run, an increase in the money supply:

Accepted Answer

A)   will increase real GDP and the price level.
B)   causes people to hold onto large sums of money.
C)   results in no change in real GDP.
D)   encourages people to save more money.E) A) and B)
F) None of the above

Question 12

If the Fed reduces the inflation rate from 5% to 3%, it is:

Accepted Answer

A)   following a policy rule.
B)   engaging in disinflation.
C)   increasing employment.
D)   raising economic growth.E) A) and B)
F) B) and C)

Question 13

When an economy has debt deflation:

Accepted Answer

A)   aggregate demand increases, since the real debt burden is reduced.
B)   aggregate demand is not affected, since real variables are not affected.
C)   aggregate demand decreases as borrowers' real debts increase, which leads to less spending.
D)   the economy moves quickly to its potential output.E) B) and C)
F) None of the above

Question 14

In the classical model of the price level, there is NO distinction between the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 15

Zimbabwe's economic instability was caused primarily by:

Accepted Answer

A)   its joining the Coalition of the Willing in the Iraq war.
B)   its attempts to join the European Union.
C)   the government's seizure of the country's farms, which disrupted production.
D)   its high tariffs on imported goods.E) None of the above
F) A) and B)

Question 16

Use the following to answer questions 
Figure: AD-AS 2; AD1; E2 to E1; rise very quickly; SRAS1; SRAS2; E2 to E3 B)  SRAS1 ; SRAS2 ; E2 to E3; stay the same; AD2; AD1; E2 to E1 C)  SRAS2; SRAS1; E3 to E2; stay the same; AD2; AD1; E2 to E1 D)  AD1; AD2; E1 to E2; rise very quickly; SRAS1; SRAS2; from E2 to E3" class="answers-bank-image d-inline" rel="preload" >
-(Figure: AD-AS)  Refer to the figure AD-AS. If our economy is at equilibrium and the Fed uses expansionary monetary policy, _____ will shift to _____ and the economy will move from _____. Then nominal wages will _____ and _____ will shift to _____. The economy will move from _____.

Accepted Answer

A)   AD2; AD1; E2 to E1; rise very quickly; SRAS1; SRAS2; E2 to E3
B)   SRAS1 ; SRAS2 ; E2 to E3; stay the same; AD2; AD1; E2 to E1
C)   SRAS2; SRAS1; E3 to E2; stay the same; AD2; AD1; E2 to E1
D)   AD1; AD2; E1 to E2; rise very quickly; SRAS1; SRAS2; from E2 to E3E) All of the above
F) B) and C)

Question 17

The classical model of the price level:

Accepted Answer

A)   holds that the short run is distinct from the long run.
B)   holds that the economy is always producing at some point on the LRAS.
C)   works best when an economy has low levels of inflation.
D)   does not consider the effects of the real quantity of money.E) A) and B)
F) All of the above

Question 18

During an inflationary gap:

Accepted Answer

A)   the unemployment rate is less than the natural rate of unemployment.
B)   actual output is less than potential output.
C)   the unemployment rate is equal to the natural rate of unemployment.
D)   wages and prices must fall to restore the economy to its potential output.E) B) and D)
F) B) and C)

Question 19

The long-run Phillips curve is:

Accepted Answer

A)   the same as the short-run Phillips curve.
B)   negatively sloped, showing an inverse relationship between unemployment and inflation.
C)   vertical at the nonaccelerating inflation rate of unemployment (NAIRU) .
D)   unrelated to the NAIRU.E) None of the above
F) All of the above

Question 20

The measure used by the Fed that excludes food and energy prices is the:

Accepted Answer

A)   consumer price index.
B)   wholesale price index.
C)   core inflation rate.
D)   federal funds rate.E) B) and C)
F) None of the above

Exam 28: Inflation, Disinflation, and Deflation

Zimbabwe's economic instability was caused primarily by:

Correct Answer
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When an economy has debt deflation:

Correct Answer
verified

Which of the following accurately portrays the shape of the long-run Phillips curve?

Correct Answer
verified

In the classical model of the price level, there is NO distinction between the short run and the long run.

Correct Answer
verified

If an administration pursues expansionary policy before an election to bring down unemployment, it can:

Correct Answer
verified

The measure used by the Fed that excludes food and energy prices is the:

Correct Answer
verified

Correct Answer
verified

The classical model of the price level is associated with:

Correct Answer
verified

If potential output is higher than actual output, then the unemployment rate is:

Correct Answer
verified

Seignorage refers to the:

Correct Answer
verified

In the long run, an increase in the money supply:

Correct Answer
verified

During an inflationary gap:

Correct Answer
verified

Each point on a Phillips curve is a different combination of:

Correct Answer
verified

If the Fed reduces the inflation rate from 5% to 3%, it is:

Correct Answer
verified

Correct Answer
verified

According to recent estimates of Okun's law, if the unemployment rate FELL by a full percentage point, it would most probably be attributable to a _____ in real GDP.

Correct Answer
verified

The long-run Phillips curve is:

Correct Answer
verified

The classical model of the price level:

Correct Answer
verified

Suppose that the unemployment rate rises as the inflation rate declines. This situation is consistent with a movement along the _____ Phillips curve.

Correct Answer
verified

If the monetary authorities decide to increase the nominal money supply by 10% when the economy is at its full-employment level of output, in the long run the aggregate price level increases by _ and real GDP _.

Correct Answer
verified

Exam 28: Inflation, Disinflation, and Deflation

Zimbabwe's economic instability was caused primarily by:

Correct AnswerverifiedShow Answer

When an economy has debt deflation:

Correct AnswerverifiedShow Answer

Which of the following accurately portrays the shape of the long-run Phillips curve?

Correct AnswerverifiedShow Answer

In the classical model of the price level, there is NO distinction between the short run and the long run.

Correct AnswerverifiedShow Answer

If an administration pursues expansionary policy before an election to bring down unemployment, it can:

Correct AnswerverifiedShow Answer

The measure used by the Fed that excludes food and energy prices is the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The classical model of the price level is associated with:

Correct AnswerverifiedShow Answer

If potential output is higher than actual output, then the unemployment rate is:

Correct AnswerverifiedShow Answer

Seignorage refers to the:

Correct AnswerverifiedShow Answer

In the long run, an increase in the money supply:

Correct AnswerverifiedShow Answer

During an inflationary gap:

Correct AnswerverifiedShow Answer

Each point on a Phillips curve is a different combination of:

Correct AnswerverifiedShow Answer

If the Fed reduces the inflation rate from 5% to 3%, it is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to recent estimates of Okun's law, if the unemployment rate FELL by a full percentage point, it would most probably be attributable to a _____ in real GDP.

Correct AnswerverifiedShow Answer

The long-run Phillips curve is:

Correct AnswerverifiedShow Answer

The classical model of the price level:

Correct AnswerverifiedShow Answer

Suppose that the unemployment rate rises as the inflation rate declines. This situation is consistent with a movement along the _____ Phillips curve.

Correct AnswerverifiedShow Answer

If the monetary authorities decide to increase the nominal money supply by 10% when the economy is at its full-employment level of output, in the long run the aggregate price level increases by _____ and real GDP _____.

Correct AnswerverifiedShow Answer

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If the monetary authorities decide to increase the nominal money supply by 10% when the economy is at its full-employment level of output, in the long run the aggregate price level increases by _ and real GDP _.

Correct Answer
verified