Question 1

Hyperinflation in developing countries is typically the result of:

Accepted Answer

A)  low interest rates.
B)  an economic recession.
C)  high income tax rates.
D)  large government fiscal deficits.
E)  large trade deficits.F) A) and D)
G) D) and E)

Question 2

Wages are said to be "sticky downwards" because this promotes good work effort and ensures that workers and firms share the same goals of efficient production and profit maximization.

Accepted Answer

A) True 
 B)False

Question 3

According to the rational expectations view:

Accepted Answer

A)  the economy will never deviate from the natural rate of unemployment for any anticipated policy.
B)  the long-run inflation rate is equal to zero.
C)  expected inflation is always less than actual inflation.
D)  people use only past information to form expectations about future inflation rates.
E)  announced money-growth policies are quite effective in reducing unemployment below its natural rate.F) A) and E)
G) C) and D)

Question 4

If the public expects the incumbent administration to stimulate the economy shortly before an election:

Accepted Answer

A)  the unemployment rate will fall at the cost of higher inflation.
B)  the economy will move up the short-run Phillips curve.
C)  lower inflation will prevail, and the rate of unemployment will remain unchanged.
D)  the economy will immediately move up the long-run Phillips curve.
E)  neither inflation nor the unemployment rate will change.F) A) and E)
G) A) and D)

Question 5

If the short-run Phillips curve shifts to the right, we can conclude that:

Accepted Answer

A)  the tradeoff between inflation and unemployment has improved over time.
B)  the tradeoff between inflation and unemployment has worsened over time.
C)  the inflation rate associated with any given level of unemployment has declined.
D)  the unemployment rate has fallen for any given inflation rate.
E)  the tradeoff between inflation and unemployment has remained unchanged.F) A) and D)
G) D) and E)

Question 6

Suppose that the Fed announces a low-money-growth policy to control inflation and workers sign low-wage contracts as a result.If instead, the Fed had implemented a high-money-growth policy, which of the following would not occur?

Accepted Answer

A)  The unemployment rate would increase
B)  The Fed's stated policy would be time inconsistent
C)  The unemployment rate would be less than the natural rate
D)  The Fed would not achieve credibility through its actions
E)  The rate of inflation would be higher than expectedF) B) and E)
G) A) and D) A

Question 7

A recessionary real shock will:

Accepted Answer

A)  shift the aggregate demand curve to the left and reduce real GDP.
B)  shift the aggregate demand curve to the right and increase real GDP.
C)  shift the aggregate supply curve to the left and increase real GDP.
D)  shift the aggregate supply curve to the left and reduce real GDP.
E)  shift the aggregate supply curve to the right and increase real GDP.F) A) and B)
G) D) and E)

Question 8

Suppose that the economy has witnessed an 8 percent increase in its money supply over the last few years and the Fed now announces a plan to increase the money supply by 4 percent per year.What will be the public response, assuming that the Fed has a reputation for always implementing its announced plans?

Accepted Answer

A)  High-wage contracts will prevail, and the economy will experience lower inflation at the cost of higher unemployment.
B)  High-wage contracts will prevail, and the economy will experience lower unemployment at the cost of higher inflation.
C)  Low-wage contracts will emerge, and the economy will experience lower inflation with no change in the unemployment rate.
D)  Low-wage contracts will emerge and the economy will experience higher unemployment with no change in the inflation rate.
E)  Low-wage contracts will emerge, and the economy will experience lower inflation at the cost of higher unemployment.F) C) and D)
G) All of the above C

Question 9

The long-run Phillips curve corresponds to the vertical region of the aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 10

Wage contracts force businesses to adjust wages rather than employment in response to an unexpected change in aggregate demand.

Accepted Answer

A) True 
 B)False  False

Question 11

Following a decline in the inflation rate, once long-term wage contracts are renegotiated and all prices in the economy adjust to their new equilibrium:

Accepted Answer

A)  the economy will move up the short-run Phillips curve.
B)  the short-run Phillips curve will shift to the left.
C)  the economy will return to the vertical Phillips curve.
D)  the aggregate supply curve will shift to the right.
E)  the aggregate demand curve will shift to the right.F) C) and D)
G) C) and E)

Question 12

A time-inconsistent monetary policy is one that:

Accepted Answer

A)  is set by congressional decree.
B)  is based on monetary targets established by law.
C)  changes over time as economic conditions change.
D)  follows a zero percent inflation rate.
E)  does not adapt to changing economic conditions.F) C) and D)
G) B) and E)

Question 13

The key feature due to which unexpected inflation decreases the unemployment rate is that:

Accepted Answer

A)  expectations are formed irrationally.
B)  reservation wages of workers are fixed.
C)  workers behave irrationally.
D)  firms are greedy.
E)  government policy is time consistent.F) B) and E)
G) A) and E)

Question 14

Suppose workers do not believe the Fed will implement its announced monetary policy plans and the Fed wants to achieve low unemployment.In this situation the Fed would be best off:

Accepted Answer

A)  implementing a policy of high money growth.
B)  announcing and implementing a policy of low money growth.
C)  announcing a policy of high money growth and implementing a policy of low money growth.
D)  following a policy that forces the actual inflation rate below the expected inflation rate.
E)  promoting a low rate of inflation and adjusting actual policy plans to economic conditions.F) All of the above
G) B) and D)

Question 15

The figure given below represents the short run and long run Phillips curve. Figure 14.4  Refer to Figure 14.4.A movement from point A to point C would be associated with an:

Accepted Answer

A)  outward shift of both the aggregate demand and the aggregate supply curve.
B)  outward shift of the aggregate supply curve and an inward shift of the aggregate demand curve.
C)  outward shift of the aggregate demand curve and an inward shift of the aggregate supply curve.
D)  outward shift of the aggregate demand curve but no change in the aggregate supply curve.
E)  inward shift of both the aggregate demand and the aggregate supply curveF) A) and C)
G) B) and E)

Question 16

The long run Phillips curve assumes that every unemployed worker who is looking for a job has a constant reservation wage.

Accepted Answer

A) True 
 B)False

Question 17

If the percentage increase in nominal wage rates is less than the percentage increase in the price level, then:

Accepted Answer

A)  real wage rate rises and the unemployment rate falls.
B)  both real wage rate and the unemployment rate rises.
C)  both real wage rate and the unemployment rate falls.
D)  real wage rate rises and the unemployment rate remains unchanged.
E)  both real wage rate and the unemployment rate remains unchanged.F) A) and B)
G) A) and C)

Question 18

If workers realize that an increase in nominal wage rates does not necessarily constitute a rise in real wages, then we would expect:

Accepted Answer

A)  an increase in employment.
B)  a decrease in employment.
C)  a downward movement along the Philips curve.
D)  a rightward shift of the Phillips curve.
E)  a leftward shift of the Phillips curve.F) B) and C)
G) A) and E)

Question 19

The reservation wage is the minimum wage rate that an unemployed worker must receive before employment is accepted.

Accepted Answer

A) True 
 B)False

Question 20

A look at macroeconomic data across countries reveals that when economies experience recessions, unemployment rates rise, but wages fall very little, if at all.Which of the following is most likely to support the above observation?

Accepted Answer

A)  Wages are determined by the interaction of the forces of labor demand and supply.
B)  The demand for labor is derived demand and hence does not fall during recessions.
C)  The labor market usually exhibits perfectly competition.
D)  The labor supply curve becomes perfectly inelastic during recessions.
E)  Long term labor contracts make the wage rates sticky downwards.F) None of the above
G) C) and D)

Exam 23: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Hyperinflation in developing countries is typically the result of:

Correct Answer
verified

Wages are said to be "sticky downwards" because this promotes good work effort and ensures that workers and firms share the same goals of efficient production and profit maximization.

Correct Answer
verified

According to the rational expectations view:

Correct Answer
verified

If the public expects the incumbent administration to stimulate the economy shortly before an election:

Correct Answer
verified

If the short-run Phillips curve shifts to the right, we can conclude that:

Correct Answer
verified

Suppose that the Fed announces a low-money-growth policy to control inflation and workers sign low-wage contracts as a result.If instead, the Fed had implemented a high-money-growth policy, which of the following would not occur?

Correct Answer
verified
A

A recessionary real shock will:

Correct Answer
verified

Correct Answer
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C

The long-run Phillips curve corresponds to the vertical region of the aggregate supply curve.

Correct Answer
verified

Wage contracts force businesses to adjust wages rather than employment in response to an unexpected change in aggregate demand.

Correct Answer
verified
False

Following a decline in the inflation rate, once long-term wage contracts are renegotiated and all prices in the economy adjust to their new equilibrium:

Correct Answer
verified

A time-inconsistent monetary policy is one that:

Correct Answer
verified

The key feature due to which unexpected inflation decreases the unemployment rate is that:

Correct Answer
verified

Suppose workers do not believe the Fed will implement its announced monetary policy plans and the Fed wants to achieve low unemployment.In this situation the Fed would be best off:

Correct Answer
verified

The figure given below represents the short run and long run Phillips curve. Figure 14.4 Refer to Figure 14.4.A movement from point A to point C would be associated with an:

Correct Answer
verified

The long run Phillips curve assumes that every unemployed worker who is looking for a job has a constant reservation wage.

Correct Answer
verified

If the percentage increase in nominal wage rates is less than the percentage increase in the price level, then:

Correct Answer
verified

If workers realize that an increase in nominal wage rates does not necessarily constitute a rise in real wages, then we would expect:

Correct Answer
verified

The reservation wage is the minimum wage rate that an unemployed worker must receive before employment is accepted.

Correct Answer
verified

A look at macroeconomic data across countries reveals that when economies experience recessions, unemployment rates rise, but wages fall very little, if at all.Which of the following is most likely to support the above observation?

Correct Answer
verified

Exam 23: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Hyperinflation in developing countries is typically the result of:

Correct AnswerverifiedShow Answer

Wages are said to be "sticky downwards" because this promotes good work effort and ensures that workers and firms share the same goals of efficient production and profit maximization.

Correct AnswerverifiedShow Answer

According to the rational expectations view:

Correct AnswerverifiedShow Answer

If the public expects the incumbent administration to stimulate the economy shortly before an election:

Correct AnswerverifiedShow Answer

If the short-run Phillips curve shifts to the right, we can conclude that:

Correct AnswerverifiedShow Answer

Suppose that the Fed announces a low-money-growth policy to control inflation and workers sign low-wage contracts as a result.If instead, the Fed had implemented a high-money-growth policy, which of the following would not occur?

Correct AnswerverifiedA

A recessionary real shock will:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedC

The long-run Phillips curve corresponds to the vertical region of the aggregate supply curve.

Correct AnswerverifiedShow Answer

Wage contracts force businesses to adjust wages rather than employment in response to an unexpected change in aggregate demand.

Correct AnswerverifiedFalse

Following a decline in the inflation rate, once long-term wage contracts are renegotiated and all prices in the economy adjust to their new equilibrium:

Correct AnswerverifiedShow Answer

A time-inconsistent monetary policy is one that:

Correct AnswerverifiedShow Answer

The key feature due to which unexpected inflation decreases the unemployment rate is that:

Correct AnswerverifiedShow Answer

Suppose workers do not believe the Fed will implement its announced monetary policy plans and the Fed wants to achieve low unemployment.In this situation the Fed would be best off:

Correct AnswerverifiedShow Answer

The figure given below represents the short run and long run Phillips curve. Figure 14.4 Refer to Figure 14.4.A movement from point A to point C would be associated with an:

Correct AnswerverifiedShow Answer

The long run Phillips curve assumes that every unemployed worker who is looking for a job has a constant reservation wage.

Correct AnswerverifiedShow Answer

If the percentage increase in nominal wage rates is less than the percentage increase in the price level, then:

Correct AnswerverifiedShow Answer

If workers realize that an increase in nominal wage rates does not necessarily constitute a rise in real wages, then we would expect:

Correct AnswerverifiedShow Answer

The reservation wage is the minimum wage rate that an unemployed worker must receive before employment is accepted.

Correct AnswerverifiedShow Answer

A look at macroeconomic data across countries reveals that when economies experience recessions, unemployment rates rise, but wages fall very little, if at all.Which of the following is most likely to support the above observation?

Correct AnswerverifiedShow Answer

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A

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C

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False

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