Question 1

A decrease in AS 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) All of the above
F) C) and D)

Question 2

Demand-side inflation is usually accompanied by increasing real GDP, while supply-side inflation is usually accompanied by falling real GDP.

Accepted Answer

A) True 
 B)False

Question 3

Based on the evidence, most economists believe that the self-correcting mechanism operates

Accepted Answer

A)  slowly with prices, but quickly with wages.
B)  slowly with wages, but quickly with prices.
C)  very slowly with wages.
D)  efficiently, so that stabilization policy is not necessary.E) A) and D)
F) A) and C)

Question 4

If expectations are "rational," can the Fed control unemployment?

Accepted Answer

A)  Yes, provided it announces policy in advance.
B)  Yes, if it affects the aggregate demand curve.
C)  No, because aggregate supply is vertical even in the short run.
D)  No, because only fiscal policy can affect unemployment.E) All of the above
F) B) and C)

Question 5

A decrease in the price of foreign oil will affect the U.S.economy by

Accepted Answer

A)  increasing aggregate demand.
B)  decreasing aggregate demand.
C)  increasing aggregate supply.
D)  decreasing aggregate supply.E) B) and C)
F) All of the above

Question 6

Rational expectations are the theory according to which people optimally use all the information they have, including information about government policies, when forecasting the future.

Accepted Answer

A) True 
 B)False

Question 7

Figure 33-5
​ 
-The data illustrated in Figure 33-5 would be most representative of which of the following decades?

Accepted Answer

A)  The 1960s
B)  The 1970s
C)  The 1980s
D)  The 1990sE) A) and D)
F) C) and D)

Question 8

In the 1960s and early 1970s, many economists and policymakers thought the Phillips curve was

Accepted Answer

A)  interesting, but had no theory behind it.
B)  invalid and of no use to policymakers.
C)  of no interest in making macroeconomic policy.
D)  a "menu" of possible choices available to policymakers.E) B) and C)
F) None of the above

Question 9

If workers can see inflation coming, and if they receive compensation for it, then inflation does not erode real wages.

Accepted Answer

A) True 
 B)False

Question 10

In the 1990s, the United States benefited from a series of favorable supply shocks.This caused a(n)

Accepted Answer

A)  increase in inflation and unemployment.
B)  decrease in inflation and unemployment.
C)  increase in inflation and a decrease in unemployment.
D)  decrease in inflation and an increase in unemployment.E) All of the above
F) A) and B)

Question 11

According to the Phillips curve, in the short run, if policymakers choose an expansionary policy to lower the rate of unemployment, the economy will experience an increase in inflation.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is most likely to result in unemployment?

Accepted Answer

A)  Aggregate demand grows more rapidly than aggregate supply.
B)  Aggregate demand and aggregate supply grow at the same rate.
C)  Aggregate supply grows more rapidly than aggregate demand.
D)  Neither aggregate demand nor aggregate supply grows at all.E) A) and B)
F) B) and D)

Question 13

If the fluctuations in the economy's real growth rate from year to year are caused primarily by variations in the rate at which aggregate demand increases, then data would show the most rapid inflation occurs when

Accepted Answer

A)  unemployment is the highest, and the lowest inflation occurs when unemployment is the lowest.
B)  AS grows most rapidly, and the lowest inflation occurs when AS grows most slowly.
C)  AD rises most slowly, and the lowest inflation occurs when AD rises most rapidly.
D)  output grows most rapidly and the lowest inflation when output grows most slowly.E) A) and B)
F) A) and C)

Question 14

When inflation comes from the supply side, inflation and unemployment are positively correlated.Does this mean that monetary and fiscal policymakers can escape the trade-off between inflation and unemployment?

Accepted Answer

No.Shifts of the aggregate supply curve ...

Question 15

If fluctuations in economic activity emanate from the supply side, higher rates of inflation will be associated with higher rates of unemployment, and lower rates of inflation will be associated with lower rates of unemployment.

Accepted Answer

A) True 
 B)False

Question 16

The economy's self-correcting mechanism ensures that neither recessionary nor inflationary gaps will be eliminated eventually.

Accepted Answer

A) True 
 B)False

Question 17

The main reason why the economy's aggregate supply curve slopes upward is that

Accepted Answer

A)  as the price level rises, businesses incur additional costs.
B)  businesses typically purchase labor and other inputs under long-term contracts that fix the cost of the input in money terms.
C)  as the price level rises, workers have higher real wages to spend for additional consumer goods.
D)  All of these responses are correct.E) All of the above
F) C) and D)

Question 18

Fighting inflation by slowing the growth of aggregate demand is

Accepted Answer

A)  endorsed by most politicians.
B)  a convenient way to reduce inflation.
C)  unpopular with politicians.
D)  always easily accepted by firms and workers.E) B) and C)
F) A) and B)

Question 19

Figure 33-3
​ 
-Given the situation in graph (1)  in Figure 33-3, what can be expected to change in graph (1)  when the economy's self-correcting mechanism operates?

Accepted Answer

A)  Aggregate demand increases.
B)  Aggregate demand decreases.
C)  Aggregate supply increases.
D)  Aggregate supply decreases.E) B) and C)
F) A) and D)

Question 20

Figure 33-8
​ 
-In Figure 33-8, policymakers can choose which of the following points as sustainable inflation-unemployment combinations?

Accepted Answer

A)  Only E
B)  A or B
C)  A, B, C, D, E
D)  B, E, CE) B) and D)
F) All of the above

Exam 33: The Trade-Off Between Inflation and Unemployment

Demand-side inflation is usually accompanied by increasing real GDP, while supply-side inflation is usually accompanied by falling real GDP.

Correct AnswerverifiedShow Answer

According to the Phillips curve, in the short run, if policymakers choose an expansionary policy to lower the rate of unemployment, the economy will experience an increase in inflation.

Correct AnswerverifiedShow Answer

Figure 33-3 ​ -Given the situation in graph (1) in Figure 33-3, what can be expected to change in graph (1) when the economy's self-correcting mechanism operates?

Correct AnswerverifiedShow Answer

The economy's self-correcting mechanism ensures that neither recessionary nor inflationary gaps will be eliminated eventually.

Correct AnswerverifiedShow Answer

In the 1990s, the United States benefited from a series of favorable supply shocks.This caused a(n)

Correct AnswerverifiedShow Answer

Fighting inflation by slowing the growth of aggregate demand is

Correct AnswerverifiedShow Answer

Figure 33-5 ​ -The data illustrated in Figure 33-5 would be most representative of which of the following decades?

Correct AnswerverifiedShow Answer

When inflation comes from the supply side, inflation and unemployment are positively correlated.Does this mean that monetary and fiscal policymakers can escape the trade-off between inflation and unemployment?

Correct AnswerverifiedNo.Shifts of the aggregate supply curve ...View AnswerShow Answer

If fluctuations in economic activity emanate from the supply side, higher rates of inflation will be associated with higher rates of unemployment, and lower rates of inflation will be associated with lower rates of unemployment.

Correct AnswerverifiedShow Answer

A decrease in the price of foreign oil will affect the U.S.economy by

Correct AnswerverifiedShow Answer

If workers can see inflation coming, and if they receive compensation for it, then inflation does not erode real wages.

Correct AnswerverifiedShow Answer

Figure 33-8 ​ -In Figure 33-8, policymakers can choose which of the following points as sustainable inflation-unemployment combinations?

Correct AnswerverifiedShow Answer

Which of the following is most likely to result in unemployment?

Correct AnswerverifiedShow Answer

A decrease in AS will trigger less inflation under which of the following conditions?

Correct AnswerverifiedShow Answer

In the 1960s and early 1970s, many economists and policymakers thought the Phillips curve was

Correct AnswerverifiedShow Answer

If expectations are "rational," can the Fed control unemployment?

Correct AnswerverifiedShow Answer

Rational expectations are the theory according to which people optimally use all the information they have, including information about government policies, when forecasting the future.

Correct AnswerverifiedShow Answer

If the fluctuations in the economy's real growth rate from year to year are caused primarily by variations in the rate at which aggregate demand increases, then data would show the most rapid inflation occurs when

Correct AnswerverifiedShow Answer

Based on the evidence, most economists believe that the self-correcting mechanism operates

Correct AnswerverifiedShow Answer

The main reason why the economy's aggregate supply curve slopes upward is that

Correct AnswerverifiedShow Answer

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Figure 33-3 -Given the situation in graph (1) in Figure 33-3, what can be expected to change in graph (1) when the economy's self-correcting mechanism operates?

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Figure 33-5 -The data illustrated in Figure 33-5 would be most representative of which of the following decades?

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No.Shifts of the aggregate supply curve ...
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Figure 33-8 -In Figure 33-8, policymakers can choose which of the following points as sustainable inflation-unemployment combinations?

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