Quiz 539

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Quiz 539

Related: Economics, Microeconomics

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Quiz 539

1. The short-run relationship between inflation and unemployment is often called
a. the Classical Dichotomy.
b. Money Neutrality.
c. the Phillips curve.
d. None of the above is correct.

2. Economist A.W. Phillips found a negative correlation between
a. output and unemployment.
b. unemployment and the interest rate.
c. output and the interest rate.
d. wage inflation and unemployment.

3. The economist A.W. Phillips published a famous article in 1958 in which he showed a
a. negative correlation between the rate of unemployment and the rate of inflation.
b. positive correlation between the rate of unemployment and the rate of inflation.
c. negative correlation between the rate of unemployment and the rate of interest.
d. positive correlation between the rate of unemployment and the rate of interest

4. A.W. Phillips found a
a. positive relation between unemployment and inflation in the United Kingdom.
b. positive relation between unemployment and inflation in the United States.
c. negative relation between unemployment and inflation in the United States.
d. negative relation between unemployment and inflation in the United Kingdom.

5. A. W. Phillips’ findings were based on data
a. from 1861-1957 for the United Kingdom.
b. from 1861-1957 for the United States.
c. mostly from the post-World War II period in the United Kingdom.
d. mostly from the post-World War II period in the United States.

6. In his famous article published in an economics journal in 1958, A.W. Phillips
a. used data for the United States to show a negative relationship between the rate of change of the U.S. consumer price index and the U.S. unemployment rate.
b. used data for the United States to show a negative relationship between the rate of change of wages in the U.S. and the U.S. unemployment rate.
c. used data for the United Kingdom to show a negative relationship between the rate of change of the U.K. consumer price index and the U.K. unemployment rate.
d. used data for the United Kingdom to show a negative relationship between the rate of change of wages in the U.K. and the U.K. unemployment rate.

7. A.W. Phillips’s discovery of a particular relationship between unemployment and inflation for the United Kingdom
a. could not be extended to other countries, despite many researchers’ attempts to provide that extension.
b. was quickly extended to other countries by researchers.
c. was extended to only one other country — the United States.
d. was harshly criticized by the American economists Paul Samuelson and Robert Solow on the grounds that Phillips’s study was fundamentally flawed.

8. Samuelson and Solow argued that when unemployment is high, there is
a. upward pressure on wages and prices.
b. upward pressure on wages and downward pressure on prices.
c. upward pressure on prices and downward pressure on wages.
d. downward pressure on wages and prices.

9. Samuelson and Solow reasoned that when aggregate demand was high, unemployment was
a. low, so there was upward pressure on wages and prices.
b. low, so there was downward pressure on wages and prices.
c. high, so there was upward pressure on wages and prices.
d. high, so there was downward pressure on wages and prices.

10. Samuelson and Solow reasoned that when aggregate demand was low, unemployment was
a. high, so there was upward pressure on wages and prices.
b. high, so there was downward pressure on wages and prices.
c. low, so there was upward pressure on wages and prices.
d. low, so there was downward pressure on wages and prices.

11. Samuelson and Solow believed that the Phillips curve
a. implied that low unemployment was associated with low inflation.
b. indicated that the aggregate supply and aggregate demand model was incorrect.
c. offered policymakers a menu of possible economic outcomes from which to choose.
d. All of the above are correct.

12. Samuelson and Solow argued that when unemployment is high,
a. aggregate demand is high, which puts upward pressure on wages and prices.
b. aggregate demand is high, which puts downward pressure on wages and prices.
c. aggregate demand is low, which puts upward pressure on wages and prices.
d. aggregate demand is low, which puts downward pressure on wages and prices.

13. Samuelson and Solow argued that a combination of low unemployment and low inflation
a. was impossible given the historical data as summarized by the Phillips curve.
b. could be achieved with an “appropriate” fiscal policy.
c. could be achieved with an “appropriate” monetary policy.
d. could be achieved with an “appropriate” mix of monetary and fiscal policies.

14. According to the Phillips curve, policymakers could reduce both inflation and unemployment by
a. increasing the money supply.
b. increasing government expenditures.
c. raising taxes.
d. None of the above is correct.

15. According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they
a. decreased the money supply.
b. increased government expenditures.
c. decreased taxes.
d. None of the above is correct.

16. According to the Phillips curve, policymakers can reduce inflation by
a. contracting aggregate demand. This contraction results in a temporarily higher unemployment rate.
b. contracting aggregate demand. This contraction results in a temporarily lower unemployment rate.
c. expanding aggregate demand. This expansion results in a temporarily lower unemployment rate.
d. expanding aggregate demand. This expansion results in a temporarily higher unemployment rate.

17. The short-run Phillips curve shows the combinations of
a. unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.
b. unemployment and inflation that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve.
c. real GDP and the price level that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve.
d. None of the above is correct.

18. When aggregate demand shifts rightward along the short-run aggregate-supply curve, inflation
a. increases and unemployment increases.
b. increases and unemployment decreases.
c. decreases and unemployment increases.
d. decreases and unemployment decreases.

19. When aggregate demand shifts right along the short-run aggregate supply curve, unemployment
a. falls, so there are upward pressures on wages and prices.
b. falls, so there are downward pressures on wages and prices.
c. rises, so there are upward pressures on wages and prices.
d. rises, so there are downward pressures on wages and prices.

20. There is a
a. short-run tradeoff between inflation and unemployment.
b. short-run tradeoff between the actual unemployment rate and the natural rate of unemployment.
c. long-run tradeoff between inflation and unemployment.
d. long-run tradeoff between the actual unemployment rate and the natural rate of unemployment.

21. In the short run, policy that changes aggregate demand changes
a. both unemployment and the price level.
b. neither unemployment nor the price level.
c. only unemployment.
d. only the price level.

22. If policymakers decrease aggregate demand, then in the short run the price level
a. falls and unemployment rises.
b. and unemployment fall.
c. and unemployment rise.
d. rises and unemployment falls.

23. If policymakers increase aggregate demand, then in the short run the price level
a. falls and unemployment rises.
b. and unemployment fall.
c. and unemployment rise.
d. rises and unemployment falls.

24. Unemployment would decrease and prices would increase if
a. aggregate demand shifted right.
b. aggregate demand shifted left.
c. aggregate supply shifted right.
d. aggregate supply shifted left.

25. If the government raises government expenditures, then in the short run prices
a. rise and unemployment falls.
b. fall and unemployment rises.
c. and unemployment rise.
d. and unemployment fall.

26. If the central bank decreases the money supply, then in the short run prices
a. rise and unemployment falls.
b. fall and unemployment rises.
c. and unemployment rise.
d. and unemployment fall.

27. If the central bank increases the money supply, then in the short run prices
a. rise and unemployment falls.
b. fall and unemployment rises.
c. and unemployment rise.
d. and unemployment fall.

28. If the central bank increases the money supply, in the short run, output
a. rises so unemployment rises.
b. rises so unemployment falls.
c. falls so unemployment rises.
d. falls so unemployment falls.

29. If a central bank decreases the money supply, then
a. prices, output, and unemployment rise.
b. prices and output rise and unemployment falls.
c. prices rise and output and unemployment fall.
d. prices and output fall and unemployment rises.

30. Suppose that the money supply increases. In the short run, this increases prices according to
a. both the short-run Phillips curve and the aggregate demand and aggregate supply model.
b. neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
c. the short-run Phillips curve, but not according to the aggregate demand and aggregate supply model.
d. the aggregate demand and aggregate supply model but not according to the short-run Phillips curve.

31. Suppose that the money supply decreases. In the short run, this increases prices according to
a. both the short-run Phillips curve and the aggregate demand and aggregate supply model.
b. neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
c. the short-run Phillips curve, but not according to the aggregate demand and aggregate supply model.
d. the aggregate demand and aggregate supply model but not according to the short-run Phillips curve.

32. Suppose that the money supply increases. In the short run this decreases unemployment according to
a. both the short-run Phillips curve and the aggregate demand and aggregate supply model.
b. neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
c. the short-run Phillips curve, but not according to the aggregate demand and supply model.
d. the aggregate demand and aggregate supply model, but not according to the short-run Phillips curve.

33. In the long run, policy that changes aggregate demand changes
a. both unemployment and the price level.
b. neither unemployment nor the price level.
c. only unemployment.
d. only the price level.

34. If policymakers expand aggregate demand, then in the long run
a. prices will be higher and unemployment will be lower.
b. prices will be higher and unemployment will be unchanged.
c. prices and unemployment will be unchanged.
d. None of the above is correct.

35. If policymakers decrease aggregate demand, then in the long run
a. prices will be lower and unemployment will be higher.
b. prices will be lower and unemployment will be unchanged.
c. prices and unemployment will be unchanged.
d. None of the above is correct.

36. In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run this change should have
a. reduced inflation and unemployment.
b. raised inflation and unemployment.
c. reduce inflation and raised unemployment.
d. raised inflation and reduced unemployment.

37. According to the short-run Phillips curve, if the central bank increases the money supply, then
a. inflation and unemployment will both fall.
b. inflation and unemployment will both rise.
c. inflation will fall and unemployment will rise.
d. inflation will rise and unemployment will fall.

38. The economy will move to a point on the short-run Phillips curve where unemployment is higher if
a. the inflation rate decreases.
b. the government increases its expenditures.
c. the Fed increases the money supply.
d. None of the above is correct.

39. If the short-run Phillips curve were stable, which of the following would be unusual?
a. an increase in government spending and a fall in unemployment
b. an increase in inflation and a decrease in output
c. a decrease in the inflation rate and a rise in the unemployment rate
d. a decrease in the money supply and a rise in the unemployment rate.

40. Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?
a. Teresa reads in the newspaper that the central bank recently raised the money supply.
b. Jackie gets fewer job offers.
c. Miguel makes larger increases in the prices at his health food store.
d. Julie’s nominal wage increase is larger.

41. The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead
a. to a lower unemployment rate and a lower inflation rate than policy B.
b. to a lower unemployment rate and a higher inflation rate than policy B.
c. to a higher unemployment rate and lower inflation rate than policy B.
d. to a higher unemployment rate and higher inflation rate than policy B.

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate.

42. Refer to Figure 35-1. What is measured along the horizontal axis of the left-hand graph?
a. the wage rate
b. the inflation rate
c. employment
d. output

43. Refer to Figure 35-1. What is measured along the vertical axis of the right-hand graph?
a. the interest rate
b. the inflation rate
c. the wage rate
d. the growth rate of the nominal money supply

44. Refer to Figure 35-1. Assuming the price level in the previous year was 100, point F on the right-hand graph corresponds to
a. point A on the left-hand graph.
b. point B on the left-hand graph.
c. point C on the left-hand graph.
d. point D on the left-hand graph.

45. Refer to Figure 35-1. Assuming the price level in the previous year was 100, point G on the right-hand graph corresponds to
a. point A on the left-hand graph.
b. point B on the left-hand graph.
c. point C on the left-hand graph.
d. point D on the left-hand graph.

46. Refer to Figure 35-1. Suppose points F and G on the right-hand graph represent two possible outcomes for an imaginary economy in the year 2012, and those two points correspond to points B and C, respectively, on the left-hand graph. Then it is apparent that the price index equaled
a. 130 in 2011.
b. 115 in 2011.
c. 110 in 2011.
d. 100 in 2011.

47. Refer to Figure 35-1. Suppose points F and G on the right-hand graph represent two possible outcomes for an imaginary economy in the year 2012, and those two points correspond to points B and C, respectively, on the left-hand graph. Also suppose we know that the price index equaled 120 in 2011. Then the numbers 115 and 130 on the vertical axis of the left-hand graph would have to be replaced by
a. 155 and 175, respectively.
b. 138 and 156, respectively.
c. 137.5 and 154.75, respectively.
d. 135 and 150, respectively.

48. Refer to Figure 35-1. The curve that is depicted on the right-hand graph offers policymakers a “menu” of combinations
a. that applies both in the short run and in the long run.
b. that is relevant to choices involving fiscal policy, but not to choices involving monetary policy.
c. of inflation and unemployment.
d. All of the above are correct.

Figure 35-2
Use the pair of diagrams below to answer the following questions.

49. Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in the money supply growth rate moves the economy to
a. A and 1
b. B and 2
c. C and 3
d. None of the above is correct.

50. Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to
a. B and 2.
b. B and 3.
c. B and 3.
d. None of the above is correct.

51. Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in taxes moves the economy to
a. D and 2.
b. D and 3.
c. back to C and 1.
d. None of the above is correct.

52. Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in aggregate demand moves the economy to
a. A and 2.
b. D and 3.
c. E and 3.
d. None of the above is correct.

53. Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in the money supply moves the economy to
a. E and 1.
b. D and 2.
c. D and 3.
d. None of the above is correct.

54. Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in government expenditures moves the economy to
a. D and 2
b. D and 3.
c. E and 3.
d. None of the above is correct.

55. Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to
a. B and 2.
b. D and 3.
c. E and 2.
d. None of the above is correct.

Figure 35-3. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate.

56. Refer to Figure 35-3. What is measured along the vertical axis of the left-hand graph?
a. the wage rate
b. the inflation rate
c. the price level
d. the change in output from one year to the next

57. Refer to Figure 35-3. What is measured along the vertical axis of the right-hand graph?
a. the interest rate
b. the inflation rate
c. the government’s budget deficit as a percent of GDP
d. the growth rate of the nominal money supply

58. Refer to Figure 35-3. Assume the figure depicts possible outcomes for the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was
a. 144.
b. 150.
c. 152.
d. 156.

59. Refer to Figure 35-3. Assume the figure charts possible outcomes for the year 2018. In 2018, the economy is at point B on the left-hand graph, which corresponds to point B on the right-hand graph. Also, point A on the left-hand graph corresponds to A on the right-hand graph. The price level in the year 2018 is
a. 155.56.
b. 159.00.
c. 163.50.
d. 170.04.

Figure 35-4. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, the price level is measured on the vertical axis; on the right-hand diagram, the inflation rate is measured on the vertical axis.

60. Refer to Figure 35-4. What is measured along the horizontal axis of the left-hand graph?
a. the wage rate
b. the inflation rate
c. output
d. the interest rate

61. Refer to Figure 35-4. What is measured along the horizontal axis of the right-hand graph?
a. the interest rate
b. the price level
c. the government’s budget deficit as a percent of GDP
d. the unemployment rate

62. Refer to Figure 35-4. Assume the figure depicts possible outcomes for the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was
a. 106.
b. 108.
c. 110.
d. 112.

63. Refer to Figure 35-4. Assume the figure charts possible outcomes for the year 2018. In 2018, the economy is at point B on the left-hand graph, which corresponds to point B on the right-hand graph. Also, point A on the left-hand graph corresponds to A on the right-hand graph. The price level in the year 2018 is
a. 117.25.
b. 114.95.
c. 113.12.
d. 111.10.

64. As the aggregate demand curve shifts leftward along a given aggregate supply curve,
a. unemployment and inflation are higher.
b. unemployment and inflation are lower.
c. unemployment is higher and inflation is lower.
d. unemployment is lower and inflation is higher.

65. As the aggregate demand curve shifts rightward along a given aggregate supply curve,
a. unemployment and inflation are higher.
b. unemployment and inflation are lower.
c. unemployment is higher and inflation is lower.
d. unemployment is lower and inflation is higher.

66. From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have
a. raised inflation and unemployment.
b. raised inflation and reduced unemployment.
c. reduced inflation and raised unemployment.
d. reduced inflation and unemployment.

67. In 2009 Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have
a. raised unemployment and inflation.
b. raised unemployment and reduced inflation.
c. reduced unemployment and raised inflation.
d. reduced unemployment and inflation.

68. In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.
a. The change in inflation, but not the change in unemployment is consistent with what a given short-run Phillips curve implies.
b. The change in unemployment, but not the change in inflation is consistent with what a given short-run Phillips curve implies.
c. Both the change in inflation and the change in unemployment are consistent with what a given short-run Phillips curve implies.
d. Neither the change in inflation nor the change in unemployment are consistent with what a given short-run Phillips curve implies.

69. According to the short-run Phillips curve, inflation
a. and unemployment would fall if the policymakers decreased the money supply.
b. would fall and unemployment would rise if policymakers decreased the money supply.
c. and unemployment would fall if the policymakers increased the money supply.
d. would fall and unemployment would rise if policymakers increased the money supply.

70. When aggregate demand shifts left along the short-run aggregate supply curve,
a. unemployment and prices rise.
b. unemployment rises and prices fall.
c. unemployment falls and prices rise.
d. unemployment and prices fall.

71. During the financial crisis Congress and President Obama authorized tax cuts and increases in government spending. According to the Phillips curve, in the short run these policies should have
a. reduced inflation and unemployment.
b. raised inflation and unemployment.
c. reduced inflation and raised unemployment.
d. raised inflation and reduced unemployment.

72. If the central bank increases the money supply, in the short run, the price level
a. and unemployment rise.
b. rises and unemployment falls.
c. falls and unemployment rises.
d. and unemployment fall.

73. If the central bank decreases the money supply, then output
a. and unemployment rises.
b. rises and unemployment falls.
c. falls and unemployment rises.
d. and unemployment falls.

74. As aggregate demand shifts left along the short-run aggregate supply curve,
a. inflation and unemployment are higher.
b. inflation is higher and unemployment is lower.
c. unemployment is higher and inflation is lower.
d. unemployment and inflation are lower.

75. If consumption expenditures fall, then in the short run
a. inflation and unemployment rise.
b. inflation rises and unemployment falls.
c. inflation falls and unemployment rises.
d. inflation and unemployment fall.

76. Which of the following would we not expect if government policy moves the economy up along a given short-run Phillips curve?
a. Mark gets an increase in his nominal wage.
b. Bob gets more job offers.
c. Susan reduces prices at her pizza restaurant.
d. Tom reads that the central bank recently raised the money supply

77. Other things constant, which of the following would reduce unemployment and raise inflation?
a. businesses become more optimistic about the future of the economy
b. because of high growth abroad, net exports rise
c. the government cuts taxes
d. All of the above are correct.

78. If more firms chose to pay efficiency wages, which of the following would shift to the right?
a. both the long-run Phillips curve and the long-run aggregate supply curve
b. the long-run Phillips curve but not the long-run aggregate supply curve
c. the long-run aggregate supply curve but not the long-run Phillips curve
d. neither the long-run Phillips curve nor the long-run aggregate supply curve

79. If consumer confidence rises, then aggregate demand shifts
a. right, making inflation higher than otherwise.
b. right, making inflation lower than otherwise.
c. left, making inflation higher than otherwise.
d. left, making inflation lower than otherwise.

80. If taxes rise, then aggregate demand shifts
a. right, making unemployment higher than otherwise.
b. right, making unemployment lower than otherwise.
c. left, making unemployment higher than otherwise.
d. left, making unemployment lower than otherwise.

81. Which of the following increases inflation and reduces unemployment in the short run?
a. either an increase in government expenditures by itself or an increase in the money supply growth rate by itself
b. an increase in government expenditures, but not an increase in the money supply growth rate
c. an increase in the money supply growth rate, but not an increase in government expenditures
d. neither an increase in government expenditures nor an increase in the money supply

82. Samuelson and Solow argued that
a. high unemployment puts upward pressures on wages and prices.
b. given the historical evidence, a combination of low inflation and low unemployment was not possible.
c. Both A and B are correct.
d. None of the above are correct.

83. If consumer confidence falls, then aggregate demand shifts
a. right, raising the inflation rate above its previous level.
b. right, lowering the inflation rate below its previous level.
c. left, raising the inflation rate above its previous level.
d. left, lowering the inflation rate below its previous level.

84. Suppose Americans become concerned about saving for retirement and, as a result, reduce their current consumption expenditures. Which of the following would you expect to occur as a result of this change?
a. In the short run, unemployment will increase and inflation will fall.
b. In the short run, unemployment will increase and inflation will rise.
c. In the short run, unemployment will decrease and inflation will rise.
d. In the short run, unemployment will decrease and inflation will fall.

85. Suppose that as a result of a stock market boom, consumers become less concerned about saving for retirement and increase their current consumption expenditures. Which of the following would you expect to occur as a result of this change?
a. In the short run, unemployment will increase and inflation will fall.
b. In the short run, unemployment will increase and inflation will rise.
c. In the short run, unemployment will decrease and inflation will rise.
d. In the short run, unemployment will decrease and inflation will fall.

86. Suppose Congress passes an investment tax credit that increases the quantity of investment goods that firms demand at any given interest rate. Which of the following would you expect to occur as a result of this change?
a. In the short run, unemployment will increase and inflation will fall.
b. In the short run, unemployment will increase and inflation will rise.
c. In the short run, unemployment will decrease and inflation will rise.
d. In the short run, unemployment will decrease and inflation will fall.

87. Suppose a recession in Europe reduces U.S. net exports at every price level. Which of the following would you expect to occur in the U.S. as a result of this change?
a. In the short run, unemployment will increase and inflation will fall.
b. In the short run, unemployment will increase and inflation will rise.
c. In the short run, unemployment will decrease and inflation will rise.
d. In the short run, unemployment will decrease and inflation will fall.

88. Suppose Congress decides to reduce government expenditures by reducing its purchases of weapons systems. Which of the following would you expect to occur as a result of this change?
a. The economy will move up and to the left along the short-run Phillips Curve.
b. The economy will move down and to the right along the short-run Phillips Curve.
c. The short-run Phillips Curve will shift to the left.
d. The short-run Phillips Curve will shift to the right.

89. Suppose a middle-class tax cut increases consumption expenditures. Which of the following would you expect to occur as a result of this change?
a. The economy will move up and to the left along the short-run Phillips Curve.
b. The economy will move down and to the right along the short-run Phillips Curve.
c. The short-run Phillips Curve will shift to the left.
d. The short-run Phillips Curve will shift to the right.

Quiz 539