Deck 19: Measuring Economic Performance

Question 1

A completely and accurately anticipated expansionary monetary policy will increase real output in the short run but not in the long run.

Answer 1

False

Question 2

A positive supply shock causes a leftward shift in the SRAS curve.

Answer 2

False

Question 3

When expansionary policy is unanticipated, it leads to a short-run expansion in output and employment.

Answer 3

True

Question 4

According to Milton Friedman, the short-run trade-off between unemployment and inflation comes from unanticipated inflation.

Question 5

Some economists believe that inflation could actually help reduce unemployment in the short-run.

Question 6

Rational expectations theory implies that the more completely the effects of policy makers are foreseen, the smaller their short run effects on real output and unemployment, and the greater their short run effects on the price level.

Question 7

A movement up along a short run Phillips Curve to an unemployment rate below the natural rate of unemployment will tend to shift the Phillips Curve up, once expectations adjust; a movement down along a short run Phillips Curve to an unemployment rate above the natural rate of unemployment will tend to shift the Phillips Curve down once expectations adjust.

Question 8

The Phillips Curve is steeper at higher rates of inflation and lower levels of unemployment.

Question 9

If people expect economic fluctuations to be permanent and caused primarily by supply-side shifts, then the result is likely to be a positive relationship between the inflation rate and the unemployment rate.

Question 10

The short-run Phillips curve is downward sloping but the long-run is a vertical line.

Question 11

Activists believe that monetary and fiscal policy will only work if it comes as a surprise to the public.

Question 12

The natural rate hypothesis states that the economy will self-correct back to the natural rate of unemployment, so that a move along a short run Phillips curve will not be permanent.

Question 13

The natural rate hypothesis suggests that improvements in technology that occur normally during the course of time will lead the economy to the natural rate of unemployment.

Question 14

Decreases in aggregate demand move the economy down the short run aggregate supply and up the Phillips Curve.

Question 15

Critics of the extreme rational expectations theory argue that wages and input prices do not adjust instantaneously.

Question 16

An increase in aggregate demand would move the economy up and to the right along a short run aggregate supply curve and up and to the left along a Phillips Curve.

Question 17

Most macroeconomists believe that both fiscal and monetary policy can shift aggregate demand and that such interventions can be counterproductive.

Question 18

The Phillips curve relationship can also be seen indirectly from the AD/AS model.

Question 19

Rational expectations theory suggests that government or central bank policies designed to change aggregate demand will be effective.

Question 20

Either supply shocks or adjusting inflation expectations can shift the short run Phillips curve.

Question 21

Assuming wages are indexed to inflation, if prices rose by 1.4 percent this month and your last month's wage was $1,000, your wage this month would be $1,014.

Question 22

Critics of inflation targeting will argue that central banks need flexibility.

Question 23

If the Phillips curve was nearly horizontal, a:

A)​substantial increase in inflation would be caused by a decrease in unemployment.
B)​substantial decrease in inflation would be caused by a decrease in unemployment.
C)​substantial decrease in unemployment could be achieved with only a small increase in inflation.
D)​substantial increase in unemployment could be achieved with only a small increase in inflation.

Question 24

Critics of targeting a zero inflation rate believe that achieving zero inflation is almost impossible and the costs are too high.

Question 25

When the economy is already operating at nearly full capacity, further fiscal or monetary stimulus will likely:

A)​soften inflationary pressures in sectors already at capacity, and increasing employment in sectors with excess capacity.
B)​trigger inflationary pressures in sectors already at capacity, and decreasing employment in sectors with excess capacity.
C)​soften inflationary pressures in sectors already at capacity, and decreasing employment in sectors with excess capacity.
D)​trigger inflationary pressures in sectors already at capacity, and increasing employment in sectors with excess capacity.

Question 26

A.H. Phillips developed the Phillips curve concept by looking at the relationship between:

A)​inflation and unemployment.
B)​wages and employment.
C)​wage inflation and monetary policy.
D)​inflation and output.

Question 27

If policy makers expand aggregate demand, they can lower unemployment ____, but only by ____.

A)​temporarily; decreasing inflation
B)​temporarily; increasing inflation
C)​permanently; decreasing inflation
D)​permanently; increasing inflation

Question 28

Rules advocates believe that the central bank should change interest rates in an attempt to fine tune the economy.

Question 29

According to the Phillips curve analysis, if policy makers reduce aggregate demand growth, they can lower inflation, but only at the cost of a:

A)​permanent increase in the natural rate of unemployment.
B)​permanent increase in the actual unemployment rate.
C)​temporary increase in unemployment.
D)​temporary decrease in the natural level of unemployment.

Question 30

Indexing reduces the ability for relative price changes to allocate resources where they are more valuable.

Question 31

Proponents of the monetary growth rule believe that a constant growth rate in the money supply will lead to less uncertainty and greater credibility than with activist policies.

Question 32

The novelty of Phillips' article was his finding of a ____ correlation between ____ and ____.

A)​positive; unemployment; the interest rate
B)​negative; inflation; the exchange rate
C)​negative; unemployment; inflation
D)​positive; the rate of growth of the money supply; inflation

Question 33

If the economy is experiencing lower levels of unemployment, the short-run Phillips curve suggests that ____ additional employment can be purchased at ____ rates of inflation.

A)greater; relatively low
B)​greater; higher
C)lower; lower​
D)​No such employment-inflation relationship is suggested by the Phillips curve.

Question 34

The short-run Phillips curve suggests that ____ rates of unemployment can be traded off for ____ rates of inflation.

A)​lower; higher
B)​greater; relatively high
C)​less; relatively low
D)​less; relatively high

Question 35

At low rates of unemployment the Phillips curve becomes:

A)​quite flat.
B)​unitary elastic.
C)​a positive relationship.
D)​very steep.

Question 36

At lower rates of inflation and higher rates of unemployment, the slope of the Phillips curve is​

A)​very steep.
B)​vertical.
C)​horizontal.
D)​less steep.

Question 37

In the short run, the Phillips Curve indicates a(n):

A)​inverse relationship between inflation and unemployment.
B)​direct relationship between inflation and unemployment.
C)​inverse relationship between GDP and unemployment.
D)​direct relationship between GDP and unemployment.

Question 38

Using Taylor rule, the federal funds rate is increased or decreased according to what is happening to both real GDP and inflation.

Question 39

There is a tendency for inflation rates to fall in countries that use inflation targeting.

Question 40

Stagflation caused by a negative supply shock makes macroeconomic policy very difficult; trying to reduce the size of a recession caused by the shock leads to a higher price level.

Question 41

For the short-run Phillips curve to remain relatively stable, then changes in real GDP must occur primarily as a result of shifts in:

A)​changes in aggregate demand.
B)​changes in real wages caused by changes in the supply of labor.
C)​changes in inflationary expectations.
D)​changes in aggregate supply.

Question 42

Movements up along a particular short run Phillips curve are not consistent with:​

A)​Increases in aggregate demand.
B)​Movements up along the short run aggregate supply curve.
C)​Movements up along the long run aggregate supply curve.
D)​Movements up along a particular short run Phillips curve are consistent with all of the above.

Question 43

Which of the following would move the economy up and to the left along a short run Phillips Curve?

A)​Sales of government securities by the Fed.
B)​Increases in taxes by the federal government.
C)​Reductions in government expenditures on newly produced goods and services.
D)​None of the above

Question 44

A decrease in aggregate demand tends to cause a ____ a short run Phillips curve at first, then cause a ____ in the short run Phillips curve as people adjust their expectations.

A)​Movement up along; upward shift.
B)​Movement up along; downward shift.
C)​Movement down along; upward shift.
D)​Movement down along; downward shift.

Question 45

If the short-run Phillips curve has a very shallow (or flat) slope,

A)​the self-correcting mechanism cannot work.
B)​the structural deficit will grow in a recession.
C)​the structural deficit will fall in a recession.
D)​the inflation costs of reducing unemployment are fairly low.

Question 46

The short-run Phillips curve will tend to shift during any period when:​

A)​aggregate supply changes.
B)​real wages or input prices change because of changes in the supplies of labor or other inputs.
C)​inflationary expectations change.
D)​all of the above

Question 47

Which of the following would move the economy up and to the left along a short run Phillips Curve?

A)​Increases in the discount rate and increases in the interest rate the Fed pays on bank reserves.
B)​Increases in taxes by the federal government combined with reductions in government purchases of goods and services.
C)​Decreases in the fed funds interest rate target adopted by the Fed.
D)​An increase in the expected rate of inflation.

Question 48

Movements up along a particular short run Phillips curve ____ consistent with movements up along a short run aggregate supply curve; movements to the right along a particular short run Phillips curve ____ consistent with movements to the right along a short run aggregate supply curve;​

A)​Are; are
B)​Are; are not
C)​Are not; are
D)​Are not; are not

Question 49

The cost of maintaining unemployment below its natural rate with expansionary government policy is:

A)​increasing inflation.
B)​decreasing inflation.
C)​always a larger federal deficit.
D)​always a smaller federal deficit.

Question 50

Which of the following would shift the short-run Phillips curve?

A)​an negative supply shock
B)​an increase in inflationary expectations
C)​a decrease in inflationary expectations
D)​All of the above.

Question 51

The short-run Phillips curve is based on the assumption of:

A)​a direct relationship between the inflation rate and unemployment.
B)​an inverse relationship between the inflation rate and unemployment.
C)​no relationship between the inflation rate and unemployment.
D)​a permanent trade-off between the inflation rate and unemployment.

Question 52

According to economist Milton Friedman,

A)​the short-term validity of the Phillips curve is questionable.
B)​there might be a short-term trade-off between unemployment and inflation but not a permanent trade-off.
C)​trade-off happens between unemployment and inflation happens in the long run but not in the short run.
D)​the long-run trade-off between unemployment and inflation comes from unanticipated inflation.

Question 53

What does a vertical Phillips curve in the long run imply?

A)​In the long run, the rate of unemployment will converge toward zero.
B)​Higher inflation does not permanently reduce the rate of unemployment.
C)​Higher inflation increases the rate of unemployment.
D)​Higher inflation lowers the rate of unemployment.

Question 54

If the economy has substantial unemployment, then the inflationary costs of expansionary policy are likely to be:

A)​low, and the unemployment gains minimal.
B)​low, and the unemployment gains large.
C)​high, and the unemployment gains minimal.
D)​high, and the unemployment gains large.

Question 55

If the economy is fully employed, then the inflationary costs of expansionary policy are likely to be:

A)​low, and the unemployment gains minimal.
B)​low, and the unemployment gains large.
C)​high, and the unemployment gains minimal.
D)​high, and the unemployment gains large.

Question 56

In the 1960s and early 70s, economists believed that the Phillips curve indicated:

A)​a menu of macroeconomic choices available to policy makers.
B)​that higher levels of employment could be achieved with lower inflation.
C)​that higher inflation was the price for more unemployment.
D)​all of the above.

Question 57

Movements up along a particular short run Phillips curve are not consistent with:

A)​Increases in aggregate demand.
B)​Movements up along the short run aggregate supply curve.
C)​Shifting inflationary expectations.
D)​Movements up along a particular short run Phillips curve are consistent with all of the above.

Question 58

An increase in aggregate demand tends to cause a ____ a short run Phillips curve at first, then cause a ____ in the short run Phillips curve as people adjust their expectations.

A)​Movement up along; upward shift.
B)​Movement up along; downward shift.
C)​Movement down along; upward shift.
D)​Movement down along; downward shift.

Question 59

Which of the following would move the economy down and to the right along a short run Phillips Curve?​

A)​Increases in the required reserve ratio by the Fed.
B)​Increases in taxes by the federal government.
C)​Increases in the interest rate that the Fed pays on bank reserves.
D)​All of the above.

Question 60

If the short-run Phillips curve was a straight line with a very steep slope, the inflation costs of reducing unemployment:

A)​are fairly low.
B)​are fairly high.
C)​depend on the current rate of inflation.
D)​rises as the economy approaches full employment.

Question 61

Which of the following would shift the short-run Phillips curve to the right?

A)​an negative supply shock
B)​an increase in inflationary expectations
C)​a decrease in inflationary expectations
D)​either (a) or (b)

Question 62

If the short-run aggregate supply curve is shifting left:

A)​the short-run Phillips curve is shifting left.
B)​the short-run Phillips curve is shifting right.
C)​the long-run Phillips curve is shifting right.
D)​the long-run Phillips curve is shifting left.

Question 63

Which of the following is true?

A)​Inflation and unemployment rates can both decrease in the short run in response to negative supply shocks.
B)​Inflation and unemployment rates cannot both increase or both decrease in the short run in response to changes in aggregate demand.
C)​Inflation and unemployment rates can both increase in the short run in response to positive supply shocks.
D)​All of the above are true.

Question 64

The short-run Phillips curve always intersects the long-run Phillips curve at:

A)​Zero inflation.
B)​At an accelerating inflation rate.
C)​The expected inflation rate.
D)​The same rate over time.

Question 65

If the inflation rate is decreasing while unemployment is increasing:

A)​the short-run Phillips curve must have shifted right.
B)​the short-run Phillips curve must have shifted left.
C)​it must have involved a movement along the short-run Phillips curve
D)​it would be inconsistent with any possible Phillips curve scenario.

Question 66

The short-run Phillips curve could shift to the left as a result of either ____ or ____.

A)​rising oil prices; increasing inflation expectations
B)​rising wages; falling prices
C)​declining oil prices; falling inflation expectations
D)​falling wages; rising prices

Question 67

If the inflation rate is decreasing while unemployment is decreasing:

A)​the short-run Phillips curve must have shifted right.
B)​the short-run Phillips curve must have shifted left.
C)​it involved a movement along the short-run Phillips curve.
D)​it would be inconsistent with any possible Phillips curve scenario.

Question 68

Which of the following would shift the short-run Phillips curve to the left?

A)​a positive supply shock
B)​an increase in inflationary expectations
C)​an negative supply shock
D)​either (a) or (c)

Question 69

When the short run aggregate supply curve shifts left, it ___ the short-run Phillips curve.

A)​Moves the economy up along
B)​Moves the economy down along
C)​Shifts right
D)​Shifts left

Question 70

When the actual inflation rate exceeds the expected inflation rate due to changes in aggregate demand:

A)​Unemployment is below the natural rate of unemployment.
B)​Unemployment is above the natural rate of unemployment.
C)​Unemployment equals the natural rate of unemployment.
D)​Unemployment could be above, equal to, or below the natural rate of unemployment.

Question 71

When the short run aggregate supply curve shifts right, it ___ the short-run Phillips curve.​

A)​Moves the economy up along
B)​Moves the economy down along
C)​Shifts right
D)​Shifts left

Question 72

Which of the following is true?

A)​Inflation and unemployment rates can both increase in the short run in response to negative supply shocks.
B)​Inflation and unemployment rates cannot both decrease in the short run in response to reduced aggregate demand.
C)​Inflation and unemployment rates can both decrease in the short run in response to positive supply shocks.
D)​All of the above are true.

Question 73

If the short-run aggregate supply curve is shifting right:

A)​the short-run Phillips curve is shifting left.
B)​the short-run Phillips curve is shifting right.
C)​the long-run Phillips curve is shifting right.
D)​the long-run Phillips curve is shifting left.

Question 74

Lower than expected inflation rate:

A)​shifts short-run Phillips curve to the right.
B)​shifts short-run Phillips curve to the left.
C)​shifts both short-run and long-run Phillips curve to the right.
D)​shifts both short-run and long-run Phillips curve to the left.

Question 75

Which of the following is true?​

A)​Inflation and unemployment rates can both increase in the short run in response to positive supply shocks.
B)​Inflation and unemployment rates can both decrease in the short run in response to reduced aggregate demand.
C)​Inflation and unemployment rates can both decrease in the short run in response to negative supply shocks.
D)None of the above.

Question 76

If inflationary expectations are stable and there is no current inflation, the short-run Phillips curve will intersect the long-run Phillips curve at:

A)​a 0 percent unemployment rate.
B)​a 2 percent unemployment rate.
C)​a 4 percent unemployment rate.
D)​the natural rate of unemployment.

Question 77

According to the analysis of the short run and long run Phillips curves in the text, a persistent inflation rate of 10% per year:

A)​Would keep unemployment below the natural rate.
B)​Would keep unemployment above the natural rate.
C)​Would result in unemployment at the natural rate of unemployment.
D)​Is consistent with any of the above scenarios.

Question 78

If the level of unemployment is below the natural rate of unemployment, it would be expected that:

A)​the short-run Phillips curve will shift leftward, as inflationary expectations adjust.
B)​the inflation rate will increase.
C)​the inflation rate will decrease.
D)​the long-run Phillips curve will shift rightward, as inflationary expectations adjust.

Question 79

Higher than expected inflation rate:​

A)​shifts short-run Phillips curve to the right.
B)​shifts long-run Phillips curve to the right.
C)​shifts both short-run and long-run Phillips curve to the right.
D)​shifts short-run Phillips curve to the left.

Question 80

Which of the following is true?​

A)​Inflation and unemployment rates can both increase in the short run in response to positive supply shocks.
B)​Inflation and unemployment rates can both decrease in the short run in response to reduced aggregate demand.
C)​Inflation and unemployment rates can both decrease in the short run in response to positive supply shocks.
D)​The short-run Phillips curve relationship appears to be relatively stable over time.