Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

What are three phases of inflation-unemployment cycles?

Accepted Answer

A)   An expansionary phase, a full-employment phase, and a contractionary phase
B)   A Phillips phase, a stagflation phase, and a growth phase
C)   A Phillips phase, a stagflation phase, and a recovery phase
D)   An expansionary phase, a stagflation phase, and a recovery phaseE) B) and C)
F) A) and D)

Question 3

Use the following to answer questions .
Exhibit: Aggregate Demand Shifts and Expectations 
-(Exhibit: Aggregate Demand Shifts and Expectations)  Suppose the economy was operating at point e in period 1. Expansionary fiscal and monetary policies adopted in period 1 resulted in a movement to point g in period 3. When workers and firms adjust their expectations in a higher price level and act on these expectations, the economy moves from a

Accepted Answer

A)   expansionary phase to a recovery phase.
B)   Phillips phase to a stagflation phase.
C)   Phillips phase to a recovery phase.
D)   stagflation phase to a recovery phase.E) B) and C)
F) A) and C)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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) All of the above

Question 6

Consider the following statement: "President X expressed concern about reports of rising inflation but insisted the economy is on the right course. He pointed to recent reductions in unemployment as evidence that his economic policies are working." Identify the stage of the inflation-unemployment relationship.

Accepted Answer

A)   The stagflation phase
B)   The recovery phase
C)   The Phillips phase
D)   The contraction phaseE) C) and D)
F) A) and B)

Question 7

Use the following to answer questions .
Exhibit: Inflation and Unemployment 2 
-(Exhibit: Inflation and Unemployment 2)  The figure shows the three inflation-unemployment
Phases. What are these three phases, moving clockwise from point A?

Accepted Answer

A)   Phillips phase, recovery phase, stagflation phase
B)   Recovery phase, stagflation phase, Phillips phase
C)   Phillips phase, stagflation phase, recovery phase
D)   Stagflation phase, recovery phase, Phillips phaseE) B) and C)
F) None of the above

Question 8

Sustained inflation over many years is most likely due to increases in the money supply in excess of increases in potential output.

Accepted Answer

A) True 
 B)False

Question 9

The efficiency-wage theory predicts that

Accepted Answer

A)   profit-maximizing firms will maintain the wage level at a rate too low to achieve full employment in the labor market.
B)   wage rigidities will be eliminated even in the short-run.
C)   firms will maintain the wage level at a rate too high to achieve full employment in the labor market.
D)   the labor market clears at a wage rate above equilibrium.E) C) and D)
F) A) and D)

Question 10

In a Phillips phase, the short-run aggregate supply curve shifts to the right.

Accepted Answer

A) True 
 B)False

Question 11

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 3 to point 4 is consistent with which
Segment 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) B) and C)
F) C) and D)

Question 12

Use the following to answer questions .
Exhibit: Inflation and Unemployment 2 
-(Exhibit: Inflation and Unemployment 2)  Which of the following movements represents a Phillips phase?

Accepted Answer

A)   The movement from A to B
B)   The movement from B to C
C)   The movement from C to D
D)   The movement from B to AE) A) and B)
F) None of the above

Question 13

The theory that holds that firms may try to increase productivity by paying a wage in excess of the market-clearing wage is called the

Accepted Answer

A)   efficiency-wage theory.
B)   reservation wage theory.
C)   excess wage theory.
D)   wage-inflation theory.E) A) and C)
F) B) and C)

Question 14

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) A) and B)
F) All of the above

Question 15

The Phillips phase of the inflation-unemployment relationship drives the price level

Accepted Answer

A)   below what workers and firms expected causing nominal wages to fall below their expected level.
B)   below what workers and firms expected causing real wages to rise above their expected level.
C)   above what workers and firms expected causing nominal wages to rise above their expected level.
D)   above what workers and firms expected causing real wages to fall below their expected level.E) C) and D)
F) All of the above

Question 16

Which of the following statements is true of the U.S. experience with regards to the Phillips curve hypothesis?
I. Annual observations of inflation and unemployment from 1961 to 2015 seem consistent with a Phillips curve.
II. A Phillips curve relationship best fits observations of inflation and unemployment in the 1960s.
III. The Phillips curve relationship in the inflation and unemployment data began to disintegrate in the 1970s.

Accepted Answer

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

Question 17

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) None of the above
F) All of the above

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Suppose the full-employment level of real GDP is increasing at a rate of 4% per period. If policymakers are committed to keeping the long-run inflation rate at 3% per period, then what is the targeted money growth rate, assuming constant velocity?

Accepted Answer

A)   7%
B)   4%
C)   1%
D)   -1%E) B) and C)
F) A) and D)

Question 20

Efficiency wages cause unemployment because

Accepted Answer

A)   firms pay wages that are below the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied.
B)   firms pay wages that are below the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied.
C)   firms pay wages that are above the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied.
D)   firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied.E) All of the above
F) B) and C)

Exam 16: Inflation and Unemployment

Suppose the full-employment level of real GDP is increasing at a rate of 4% per period. If policymakers are committed to keeping the long-run inflation rate at 3% per period, then what is the targeted money growth rate, assuming constant velocity?

Correct Answer
verified

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

Correct Answer
verified

What are three phases of inflation-unemployment cycles?

Correct Answer
verified

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

Correct Answer
verified

The theory that holds that firms may try to increase productivity by paying a wage in excess of the market-clearing wage is called the

Correct Answer
verified

Efficiency wages cause unemployment because

Correct Answer
verified

Use the following to answer questions . Exhibit: Inflation and Unemployment 2 -(Exhibit: Inflation and Unemployment 2) The figure shows the three inflation-unemployment Phases. What are these three phases, moving clockwise from point A?

Correct Answer
verified

Correct Answer
verified

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

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

Correct Answer
verified

Use the following to answer questions . Exhibit: Inflation and Unemployment 2 -(Exhibit: Inflation and Unemployment 2) Which of the following movements represents a Phillips phase?

Correct Answer
verified

In a Phillips phase, the short-run aggregate supply curve shifts to the right.

Correct Answer
verified

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

Correct Answer
verified

Sustained inflation over many years is most likely due to increases in the money supply in excess of increases in potential output.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The Phillips phase of the inflation-unemployment relationship drives the price level

Correct Answer
verified

The efficiency-wage theory predicts that

Correct Answer
verified

Correct Answer
verified

Exam 16: Inflation and Unemployment

Suppose the full-employment level of real GDP is increasing at a rate of 4% per period. If policymakers are committed to keeping the long-run inflation rate at 3% per period, then what is the targeted money growth rate, assuming constant velocity?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What are three phases of inflation-unemployment cycles?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The theory that holds that firms may try to increase productivity by paying a wage in excess of the market-clearing wage is called the

Correct AnswerverifiedShow Answer

Efficiency wages cause unemployment because

Correct AnswerverifiedShow Answer

Use the following to answer questions . Exhibit: Inflation and Unemployment 2 -(Exhibit: Inflation and Unemployment 2) The figure shows the three inflation-unemployment Phases. What are these three phases, moving clockwise from point A?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

Use the following to answer questions . Exhibit: Inflation and Unemployment 2 -(Exhibit: Inflation and Unemployment 2) Which of the following movements represents a Phillips phase?

Correct AnswerverifiedShow Answer

In a Phillips phase, the short-run aggregate supply curve shifts to the right.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Sustained inflation over many years is most likely due to increases in the money supply in excess of increases in potential output.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Phillips phase of the inflation-unemployment relationship drives the price level

Correct AnswerverifiedShow Answer

The efficiency-wage theory predicts that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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