Question 1

Structural unemployment is best reduced by

Accepted Answer

A)   job training programs to retool workers with new skills.
B)   improved job-market information.
C)   an increasing unemployment compensation benefits.
D)   offering above equilibrium wages to attract workers.

Question 2

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.

Question 3

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 toward an unemployment rate that is closer to the natural rate of unemployment.
B)   up the Phillips curve toward an unemployment rate that is closer to the natural rate of unemployment.
C)   back down the Phillips curve toward an unemployment rate that is further from the natural rate of unemployment.
D)   up the Phillips curve toward an unemployment rate that is further from the natural rate of unemployment.

Question 4

The short-run Phillips curve implies a positive relationship between inflation and unemployment.

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.

Question 6

Figure 16-1 
-Refer to Figure 16-1. Consider point A where inflation is relatively high and unemployment is relatively low. In order to move down the curve toward point B, what fiscal policy measures should the policymakers undertake?

Accepted Answer

A)   Decrease taxes and government spending
B)   Increase taxes and government spending
C)   Increase taxes and decrease government spending
D)   Decrease taxes and increase government spending

Question 7

Figure 16-3
Panel (a)  Panel (b)  P)  is $1,000 billion and the natural rate of unemployment is 5%. In Panel (a) , the aggregate demand curve in Period 1 is AD1. Assume that the price level in Period 1 has risen by 1.5% from the previous period and the unemployment rate is 10%. Thus, in Panel (b)  point F shows an initial rate of inflation of 1.5% and an unemployment rate of 10%. Similarly, point b in Panel (a)  corresponds to point G in Panel (b)  and point d in Panel (a)  corresponds to point H in Panel (b) . -Refer to Figure 16-3. Suppose the economy is operating at point a. If policymakers Undertake expansionary policies in period 1, what happens if there are lags in the application Of policy? A)  The economy may not experience any change in the price level or level of employment. B)  The economy could move past full employment to AD3 and encounter an inflationary gap. C)  The economy could be stuck in a below full-employment equilibrium such as at point b. D)  The economy could experience deflation resulting in a movement along the Phillips phase from point G to point F." class="answers-bank-image d-inline" rel="preload" > P)  is $1,000 billion and the natural rate of unemployment is 5%. In Panel (a) , the aggregate demand curve in Period 1 is AD1. Assume that the price level in Period 1 has risen by 1.5% from the previous period and the unemployment rate is 10%. Thus, in Panel (b)  point F shows an initial rate of inflation of 1.5% and an unemployment rate of 10%. Similarly, point b in Panel (a)  corresponds to point G in Panel (b)  and point d in Panel (a)  corresponds to point H in Panel (b) . -Refer to Figure 16-3. Suppose the economy is operating at point a. If policymakers Undertake expansionary policies in period 1, what happens if there are lags in the application Of policy? A)  The economy may not experience any change in the price level or level of employment. B)  The economy could move past full employment to AD3 and encounter an inflationary gap. C)  The economy could be stuck in a below full-employment equilibrium such as at point b. D)  The economy could experience deflation resulting in a movement along the Phillips phase from point G to point F." class="answers-bank-image d-inline" rel="preload" > Suppose the level of potential output (YP)  is $1,000 billion and the natural rate of unemployment is 5%. In Panel (a) , the aggregate demand curve in Period 1 is AD1. Assume that the price level in Period 1 has risen by 1.5% from the previous period and the unemployment rate is 10%. Thus, in Panel (b)  point F shows an initial rate of inflation of 1.5% and an unemployment rate of 10%. Similarly, point b in Panel (a)  corresponds to point G in Panel (b)  and point d in Panel (a)  corresponds to point H in Panel (b) .
-Refer to Figure 16-3. Suppose the economy is operating at point a. If policymakers
Undertake expansionary policies in period 1, what happens if there are lags in the application
Of policy?

Accepted Answer

A)   The economy may not experience any change in the price level or level of employment.
B)   The economy could move past full employment to AD3 and encounter an inflationary gap.
C)   The economy could be stuck in a below full-employment equilibrium such as at point b.
D)   The economy could experience deflation resulting in a movement along the Phillips phase from point G to point F.

Question 8

In a recovery phase,

Accepted Answer

A)   inflation and unemployment fall.
B)   inflation rises as unemployment falls.
C)   inflation falls as unemployment rises.
D)   inflation and real GDP rise.

Question 9

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 10

If the efficiency wage theory holds,

Accepted Answer

A)   wage rigidity that perpetuates a recessionary gap is transformed from a temporary phenomenon to a permanent feature.
B)   self-correction will automatically eliminate a recessionary gap.
C)   increases in real wages will be required to eliminate a recessionary gap.
D)   increases in nominal wages will be required to close a recessionary gap.

Question 11

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 3% rate. Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?

Accepted Answer

A)   6%
B)   3%
C)   1%
D)   0%

Question 12

The essential feature of a stagflation phase is

Accepted Answer

A)   a shift in the short run aggregate supply curve to the right.
B)   changes in expectations about the price level.
C)   falling unemployment and rising inflation.
D)   a shift of the LRAS curve to the right.

Question 13

Stagflation implies that

Accepted Answer

A)   policymakers can choose to have less unemployment if they are willing to accept a higher rate of inflation.
B)   a tradeoff between inflation and unemployment may not always exist.
C)   any relationship between the inflation and unemployment was purely random.
D)   the relationship predicted by the Phillips curve is stable.

Question 14

Which of the following is a cost of unemployment?
I. output foregone
II. unemployment compensation that must be paid
III. rising inflation that erodes the value of money

Accepted Answer

A)   I, II, and III
B)   I and II
C)   I and III
D)   II and III

Question 15

In the long-run, only a change in the _______ is likely to affect the inflation rate associated
With a particular rate of growth in the money supply.

Accepted Answer

A)   aggregate demand
B)   short-run aggregate supply
C)   rate of economic growth
D)   expectations about the price level

Question 16

Figure 16-7 
-Refer to Figure 16-7. If the economy is at point 4, boosting aggregate demand through
Expansionary policies will most likely lead to

Accepted Answer

A)   a stagflation phase.
B)   a recovery phase.
C)   a Phillips phase.
D)   a contraction phase.

Question 17

A Phillips phase emerges because wages are
flexible and adjust more quickly than anticipated.

Accepted Answer

A) True 
 B)False

Question 18

Consider the following statement: "President Carter 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 phase

Question 19

Prior to the 1970s, the model of choice was the aggregate expenditures model. According to
This model, if the economy was in equilibrium below full employment, then the primary economic problem would be

Accepted Answer

A)   unemployment.
B)   deflation.
C)   financing the government budget deficit.
D)   financing unemployment compensation.

Question 20

During a recovery phase,

Accepted Answer

A)   inflation and unemployment both increase.
B)   inflation and unemployment stay the same.
C)   inflation and unemployment both decrease.
D)   unemployment decreases and inflation increases.

Exam 16: Inflation and Unemployment

Suppose an economy is operating with a recessionary gap. In this case, policymakers would seek to move the economy

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

A Phillips phase emerges because wages are flexible and adjust more quickly than anticipated.

Correct Answer
verified

Correct Answer
verified

If the efficiency wage theory holds,

Correct Answer
verified

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 3% rate. Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?

Correct Answer
verified

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

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 below full employment, then the primary economic problem would be

Correct Answer
verified

Stagflation implies that

Correct Answer
verified

Figure 16-1 -Refer to Figure 16-1. Consider point A where inflation is relatively high and unemployment is relatively low. In order to move down the curve toward point B, what fiscal policy measures should the policymakers undertake?

Correct Answer
verified

Figure 16-7 -Refer to Figure 16-7. If the economy is at point 4, boosting aggregate demand through Expansionary policies will most likely lead to

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

Which of the following is a cost of unemployment? I. output foregone II. unemployment compensation that must be paid III. rising inflation that erodes the value of money

Correct Answer
verified

During a recovery phase,

Correct Answer
verified

The essential feature of a stagflation phase is

Correct Answer
verified

Correct Answer
verified

In a recovery phase,

Correct Answer
verified

In the long-run, only a change in the _______ is likely to affect the inflation rate associated With a particular rate of growth in the money supply.

Correct Answer
verified

The short-run Phillips curve implies a positive relationship between inflation and unemployment.

Correct Answer
verified

Structural unemployment is best reduced by

Correct Answer
verified

Exam 16: Inflation and Unemployment

Suppose an economy is operating with a recessionary gap. In this case, policymakers would seek to move the economy

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

A Phillips phase emerges because wages are flexible and adjust more quickly than anticipated.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the efficiency wage theory holds,

Correct AnswerverifiedShow Answer

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 3% rate. Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?

Correct AnswerverifiedShow Answer

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

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 below full employment, then the primary economic problem would be

Correct AnswerverifiedShow Answer

Stagflation implies that

Correct AnswerverifiedShow Answer

Figure 16-1 -Refer to Figure 16-1. Consider point A where inflation is relatively high and unemployment is relatively low. In order to move down the curve toward point B, what fiscal policy measures should the policymakers undertake?

Correct AnswerverifiedShow Answer

Figure 16-7 -Refer to Figure 16-7. If the economy is at point 4, boosting aggregate demand through Expansionary policies will most likely lead to

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

Which of the following is a cost of unemployment? I. output foregone II. unemployment compensation that must be paid III. rising inflation that erodes the value of money

Correct AnswerverifiedShow Answer

During a recovery phase,

Correct AnswerverifiedShow Answer

The essential feature of a stagflation phase is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a recovery phase,

Correct AnswerverifiedShow Answer

In the long-run, only a change in the _______ is likely to affect the inflation rate associated With a particular rate of growth in the money supply.

Correct AnswerverifiedShow Answer

The short-run Phillips curve implies a positive relationship between inflation and unemployment.

Correct AnswerverifiedShow Answer

Structural unemployment is best reduced by

Correct AnswerverifiedShow Answer

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