Deck 12: U.S. Inflation, Unemployment, and Business Cycle

Question 1

Demand pull inflation can be started by

A) a decrease in the quantity of money.
B) a decrease in net exports.
C) an increase in the price of oil
D) an increase in government spending.

Answer 1

D

Question 2

Which of the following could NOT start a demand- pull inflation?

A) increases in oil prices
B) increases in the quantity of money
C) increases in government expenditures
D) increases in net exports

Answer 2

A

Question 3

Which of the following could start a demand- pull inflation?

A) an increase in imports
B) a decrease in the quantity of money
C) an increase in government expenditures
D) an increase in the money prices of raw materials

Answer 3

C

Question 4

Demand- pull inflation starts with

A) an increase in short- run aggregate supply.
B) a decrease in aggregate demand.
C) an increase in aggregate demand.
D) a decrease in short- run aggregate supply.

Question 5

Which of the following is NOT a potential start of a demand- pull inflation?

A) an increase in exports
B) an increase in the money supply
C) an increase in taxes
D) an increase in government expenditure

Question 6

Increases in the quantity of money can start a inflation and an increase in government expenditure can start a inflation.

A) demand- pull; cost- push
B) demand- pull; demand- pull
C) cost- push; cost- push
D) cost- push; demand- pull

Question 7

Demand- pull inflation is an inflation that results from an initial .

A) decrease in aggregate demand
B) increase in natural resource prices
C) increase in wage rates
D) increase in aggregate demand

Question 8

An increase in could start a demand- pull inflation?

A) exports.
B) the quantity of money.
C) government expenditures.
D) All of the above answers are correct.

Question 9

Which of the following could lead to demand- pull inflation?

A) an increase in the quantity of money
B) an increase in the money wage rate
C) a decrease in exports
D) an increase in oil prices

Question 10

Demand- pull inflation can start when

A) the aggregate demand curve shifts rightward.
B) money wage rates rise faster than prices.
C) the short- run aggregate supply curve shifts rightward.
D) money wage rates rise but the price level does not change.

Question 11

Which of the following can start an inflation?

A) a decrease in aggregate supply
B) an increase in aggregate supply
C) an increase in aggregate demand
D) Both answers A and C are correct.

Question 12

Which of the following can start a demand- pull inflation?

A) There is an increase in imports.
B) There is an improvement in technology.
C) There is a decrease in productivity.
D) None of the above could be the initial start of a demand- pull inflation.

Question 13

Inflation can be started by

A) a decrease in aggregate supply or a decrease in aggregate demand.
B) an increase in aggregate supply or a decrease in aggregate demand.
C) a decrease in aggregate supply or an increase in aggregate demand.
D) an increase in aggregate supply or an increase in aggregate demand.

Question 14

Which of the following factors could start a demand- pull inflation ?

A) a decrease in government expenditure
B) a decrease in wage rates
C) an increase in exports
D) an increase in tax rates

Question 15

Demand- pull inflation starts with a shift of the

A) AD curve rightward.
B) AD curve leftward.
C) SAS curve leftward.
D) SAS curve rightward.

Question 16

Demand- pull inflation could start with

A) increases in government expenditures followed by increases in the money wage rate.
B) rises in prices of raw materials followed by expansionary monetary policy.
C) simultaneous expansionary aggregate demand and aggregate supply shifts.
D) expansionary monetary policy followed by decreases in the money wage rate.

Question 17

Demand- pull inflation starts as the

A) AD curve shifts leftward.
B) AD curve shifts rightward.
C) LAS curve shifts leftward.
D) LAS curve shifts rightward.

Question 18

Which of the following is NOT a potential start of a demand- pull inflation?

A) an increase in the money wage rate
B) an increase in exports
C) an increase in the quantity of money
D) an increase in government expenditure

Question 19

Demand- pull inflation starts with

A) an increase in aggregate demand.
B) a decrease in aggregate supply.
C) a decrease in aggregate demand.
D) an increase in aggregate supply.

Question 20

Which of the following is a change that would NOT start a demand- pull inflation?

A) an increase in government expenditures on goods and services
B) an increase in labor productivity
C) an increase in the quantity of money
D) an increase in exports

Question 21

Which of the above figures best shows the start of a demand- pull inflation?

A) Figure A
B) Figure B
C) Figure C
D) Figure D

Question 22

A demand- pull inflation can be described as shifts in the AD curve and shifts in the SAS curve.

A) rightward; leftward
B) leftward; leftward
C) leftward; rightward
D) rightward; rightward

Question 23

In a demand- pull inflation brought about by increases in the quantity of money, real GDP might increase at times because

A) real wages rise.
B) real wages fall.
C) money wages fall.
D) tax rates decline.

Question 24

A demand- pull inflation spiral results when

A) the economy experiences a one- time jump in the price level.
B) aggregate demand increases, the Federal Reserve does not increase the quantity of money, and so the economy corrects the resulting inflationary gap on its own.
C) aggregate demand increases and the economy corrects the resulting inflationary gap, but aggregate demand continues to increase because the Federal Reserve continues to increase the quantity of money.
D) aggregate supply decreases, the Federal Reserve corrects the resulting recessionary gap by increasing the quantity of money and the supply shocks then stop.

Question 25

If an economy at potential GDP experiences a demand shock that shifts the aggregate demand curve rightward, there will be

A) unemployment below the natural rate.
B) upward pressure on money wage rates.
C) an eventual leftward shift in the short- run aggregate supply curve.
D) All of the above answers are correct.

Question 26

In a persisting demand- pull inflation

A) aggregate demand and short- run aggregate supply both decrease.
B) short- run aggregate supply decreases and aggregate demand increases.
C) aggregate demand increases and long- run aggregate supply decreases.
D) None of the above answers are correct.

Question 27

For an economy at full employment, an increase in the quantity of money will lead to which of the following sequences of shifts in aggregate demand and supply curves?

A) decreased aggregate demand, increased short- run aggregate supply, constant long- run aggregate supply
B) increased aggregate demand, increased short- run aggregate supply, increased long- run aggregate supply
C) decreased aggregate demand, decreased short- run aggregate supply, decreased long- run aggregate supply
D) increased aggregate demand, decreased short- run aggregate supply, constant long- run aggregate supply

Question 28

If demand pull inflation occurs when the economy is already at potential GDP, then following the initial increase in aggregate demand, the

A) LAS curve shifts rightward.
B) SAS curve shifts rightward.
C) SAS curve shifts leftward.
D) LAS curve shifts leftward.

Question 29

An initial increase in aggregate demand that is NOT followed by an increase in the quantity of money results in a long- run equilibrium with

A) a higher price level and an increased level of real GDP.
B) a higher price level but the same real GDP.
C) the same price level and a lower level of real GDP.
D) None of the above answers are correct.

Question 30

Initially, demand- pull inflation will

A) increase the price level, but decrease real GDP.
B) increase both the price level and real GDP.
C) increase the price level but not real GDP.
D) shift the aggregate supply curve rightward.

Question 31

In demand- pull inflation, at the start

A) the price level changes but real GDP remains the same.
B) the price level and real GDP both increase.
C) the price level rises and real GDP decreases.
D) None of the above answers is correct.

Question 32

Which of the above figures best shows the start of a demand- pull inflation?

A) Figure A
B) Figure B
C) Figure C
D) Figure D

Question 33

Demand- pull inflation results from continually increasing the quantity of money, which leads to a continually

A) decreasing long- run aggregate supply.
B) increasing aggregate demand.
C) decreasing aggregate demand.
D) increasing aggregate supply.

Question 34

In the above figure, suppose that the economy is at point A when the quantity of money increases. In the short run, the economy will move to point .

A) A, that is, the price level and level of real GDP will not change.
B) B
C) C
D) D

Question 35

In the above figure, suppose that the economy is at point A when foreign countries begin an expansion and buy more U.S.- made goods. In the short run, this change creates a movement to point and an eventual increase in .

A) D; money wage rates
B) B; the natural unemployment rate
C) B; money wage rates
D) D; the natural unemployment rate

Question 36

A demand- pull inflation initially is characterized by

A) decreasing real output and a labor surplus.
B) increasing real output and a labor surplus.
C) increasing real output and a labor shortage.
D) decreasing real output and a labor shortage.

Question 37

If the Fed responds to an initial increase in aggregate demand by increasing the quantity of money,

A) there is the risk of continued inflation.
B) there will be no inflationary gap.
C) money wages will fall to reduce the unemployment.
D) real GDP will begin to decrease more rapidly than if the quantity of money had remained constant.

Question 38

A demand- pull inflation requires persistent increases in

A) government expenditures.
B) the quantity of money.
C) real wages.
D) tax rates.

Question 39

Demand- pull inflation persists because of

A) continuing increases in government expenditures.
B) continuing increases in the quantity of money.
C) continuing increases in aggregate supply.
D) continuing increases in real wage rates.

Question 40

A one- time rise in the price level can turn into a demand- pull inflation when .

A) the money wage rate continues to increase
B) the quantity of money persistently decreases
C) the quantity of money persistently increases
D) taxes consistently increase

Question 41

In a demand- pull inflation, money wage rates rise because

A) a decrease in aggregate demand creates a labor shortage.
B) an increase in aggregate demand creates a labor surplus.
C) a decrease in aggregate demand creates a labor surplus.
D) an increase in aggregate demand creates a labor shortage.

Question 42

In a demand- pull inflation, if the Fed stops expanding the quantity of money,

A) government expenditure will cause the demand- pull inflation to continue.
B) the demand- pull inflation ends.
C) a cost- push inflation will occur.
D) a deflation will occur.

Question 43

In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. The money wage rate will

A) fall because a labor surplus now exists.
B) rise because a labor surplus now exists.
C) fall because a labor shortage now exists.
D) rise because a labor shortage now exists.

Question 44

If the Fed responds to an increase in aggregate demand by increasing the quantity of money,

A) output will begin to decrease more rapidly than otherwise.
B) there will be continued inflation.
C) nothing happens because aggregate demand had already increased.
D) money wage rates will fall to reduce the unemployment.

Question 45

In the above figure, suppose the economy is at point A initially. For real GDP to increase to and
Consistently remain above $12 trillion,
I) the price level must increase to above 90.
II) there must be continued increases in the quantity of money.

A) only I
B) only II
C) Neither I nor II is correct.
D) Both I and II are correct.

Question 46

In the above figure, which path represents a demand- pull inflation?

A) point A to B to D to E to G
B) point A to B to D to F to G
C) point A to C to D to E to G
D) point A to C to D to F to G

Question 47

If the economy is at potential GDP and the Fed increases the quantity of money, then

A) real GDP rises temporarily above potential GDP.
B) real GDP rises permanently above potential GDP.
C) potential GDP and real GDP both decrease.
D) potential GDP rises.

Question 48

The figure above shows the aggregate demand, short- run aggregate supply, and long- run aggregate supply curves for the economy of Tomorrowland. The economy is currently at point A. A demand- pull rise in the price level will initially move the economy to point _ and to point
)

A) C when the wage rate rises; D when aggregate demand increases
B) E; A when aggregate demand changes
C) E when aggregate demand increases; D when the wage rate rises
D) B when aggregate demand decreases; C when the wage rate rises

Question 49

Suppose that a shock causes the aggregate demand curve to shift rightward. If the Fed does nothing,

A) the short- run aggregate supply curve will not shift leftward and there will be continued inflation.
B) output initially will exceed potential GDP, but the economy will return to potential GDP with a higher price level.
C) eventually the short- run aggregate supply curve will shift leftward and there will be continued inflation.
D) the economy will experience a temporary reduction in employment but will eventually return to full employment.

Question 50

In the above figure, the economy initially is at point A and then increases in the quantity of money move the economy to point B the next year and C the year after. The economy has had a

A) positive and decreasing rate of inflation.
B) positive and constant rate of inflation.
C) one- time increase in the price level.
D) positive and increasing rate of inflation.

Question 51

In the above figure, suppose the economy is at point A. The movement from point B to C to D to E
Could result from continual increases in the

A) quantity of money.
B) price of oil.
C) real wage rate.
D) Both answers A and C are correct.

Question 52

In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. At point D, the real wage rate has

A) risen by the same percentage as the price level.
B) decreased.
C) remained constant.
D) increased.

Question 53

To prevent demand- pull inflation

A) real GDP must increase.
B) the natural unemployment rate must increase.
C) firms must refuse to increase wages.
D) the Fed must not let the quantity of money persistently rise.

Question 54

As the money wage rate rises,

A) the long- run aggregate supply curve shifts rightward.
B) the short- run aggregate supply curve shifts leftward.
C) the short- run aggregate supply curve shifts rightward.
D) both the long- run aggregate supply curve and the short- run aggregate supply curve shift leftward.

Question 55

In the above figure, if the economy moves from point A to point E,

A) there may have been demand- pull inflation.
B) money wage rates have increased.
C) there has been economic growth.
D) Both answers A and B are correct.

Question 56

Which monetary policy can be used to reduce demand- pull inflation?

A) increase in taxes on income
B) increase in government expenditure
C) decrease in the quantity of money
D) decrease in taxes on income

Question 57

When the AD and SAS curves intersect at a level of real GDP which exceeds potential GDP and there is no government policy undertaken, which of the following will occur?

A) The SAS curve shifts leftward because the money wage rate rises.
B) The AD curve shifts leftward because the money wage rate rises.
C) The AD curve shifts rightward because the Fed decreases the money supply.
D) The AS curve shifts leftward because the money wage rate falls.

Question 58

In the above figure, the movement from point A to B to C to D to E represents

A) demand- pull inflation resulting from persistent increases in the quantity of money.
B) demand- pull inflation resulting solely from wage responses to excess labor demand.
C) cost- push inflation resulting solely from wage responses to excess labor demand.
D) cost- push inflation resulting from persistent increases in the quantity of money.

Question 59

To stop a demand- pull inflation using monetary policy, you would recommend that the Fed

A) not increase the quantity of money.
B) purchase government bonds in the open market.
C) increase tax rates.
D) increase the quantity of money.

Question 60

During a demand- pull inflation, if the Fed tries to maintain a level of real GDP above potential GDP,

A) the AD curve will shift rightward continuously and SAS curves will shift leftward continuously.
B) the SAS curve will shift leftward continuously and the AD curve will not shift.
C) there will be a one- time shift in the AD and the SAS curves.
D) the AD curve will shift rightward continuously and the SAS curve will not shift.

Question 61

Cost- push inflation starts with a

A) raising GDP and rising unemployment rate.
B) raising GDP and falling unemployment rate.
C) falling GDP and rising unemployment rate.
D) falling GDP and falling unemployment rate.

Question 62

Cost- push inflation can be started by

A) an increase in the money prices of raw materials.
B) a decrease in government expenditures on goods and services.
C) an increase in the quantity of money.
D) a decrease in the money wage rate.

Question 63

The initial factors that can create a cost- push inflation do NOT include

A) increases in the money prices of raw materials.
B) increases in the quantity of money.
C) increases in money wage rates.
D) None of the above answers is correct because all of the above could be the initial cause of a cost- push inflation.

Question 64

In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. If the quantity of money remains constant, the economy will adjust with

A) aggregate demand shifting back to AD₀.
B) short- run aggregate supply shifting leftward to SAS₁.
C) short- run aggregate supply shifting leftward to SAS₂.
D) aggregate demand shifting to AD₂.

Question 65

Cost- push inflation starts with

A) a decrease in aggregate demand.
B) a decrease in short- run aggregate supply.
C) an increase in aggregate demand.
D) an increase in short- run aggregate supply.

Question 66

Cost- push inflation might initially result from

A) an increase in government expenditures.
B) the use of new technology.
C) an increase in the cost of resources.
D) an increase in the quantity of money.

Question 67

A demand- pull inflation occurred in the United States during most of the later part of the

A) 1980s.
B) 1970s.
C) 1990s.
D) 1960s.

Question 68

When a cost- push inflation starts

A) the short- run aggregate supply curve shifts rightward.
B) prices fall even though money wages may rise.
C) real GDP rises faster than the quantity of money.
D) prices rise and real GDP decreases.

Question 69

Initially in a cost- push inflation

A) the price level and real GDP both increase.
B) the price level rises and real GDP decreases.
C) only real GDP changes while the price level remains constant.
D) All of the above answers are correct.

Question 70

Cost- push inflation might start to occur if the

A) money wage rate decreases.
B) quantity of money decreases.
C) money wage rate increases.
D) government increases its expenditure.

Question 71

A leftward shift in the aggregate supply curve

A) increases both the price level and real GDP.
B) occurs when consumer expenditures exceed available output.
C) occurs when the price of a key resource rises.
D) occurs when the Fed increases the quantity of money.

Question 72

Suppose that the money prices of raw materials increase so that short- run aggregate supply decreases. If the Federal Reserve does not respond, the higher money price of raw materials will
I) repeatedly shift the aggregate demand curve rightward and raise the price level.
II) shift the aggregate demand curve rightward and the aggregate supply curve leftward, raising p
III) result initially in lower employment and a higher price level.

A) I only
B) III only
C) both I and II
D) both II and III

Question 73

Cost- push inflation can start with

A) an increase in transfer payments.
B) higher money wage rates.
C) an increase in government expenditures.
D) lower taxes.

Question 74

Cost- push inflation can start with

A) a decrease in the quantity of money.
B) a decrease in investment.
C) an increase in government expenditures.
D) an increase in oil prices.

Question 75

At the start of a cost- push inflation,

A) the short- run aggregate supply curve shifts rightward.
B) prices and unemployment are rising.
C) productivity rises.
D) real GDP increases faster than the quantity of money.

Question 76

Cost- push inflation is an inflation that results from an initial .

A) increase in taxes
B) increase in money wage rates or money prices of raw materials
C) increase in investment
D) decrease in taxes

Question 77

The main sources of cost- push inflation are increases in

A) real wage rates and the cost of raw materials.
B) money wage rates and aggregate demand.
C) aggregate demand and real wage rates.
D) money wage rates and the cost of raw materials.

Question 78

As far as demand- pull inflation goes, the United States

A) has never experienced this type of inflation.
B) experienced this type of inflation during the 1950s.
C) experienced this type of inflation during the 1990s.
D) experienced this type of inflation during the 1960s.

Question 79

Assuming that GDP currently equals potential GDP, a cost- push inflation could result from which of the following?

A) an increase in the nation's capital stock
B) a decrease in tax rates
C) an increase in the labor force
D) a large crop failure that boosts the prices of raw food materials

Question 80

At the start of a cost- push inflation,

A) the price level rises and real GDP does not change.
B) the price level and real GDP both increase.
C) only real GDP changes while the price level remains constant.
D) the price level rises and real GDP decreases.