Question 1

Which of the following statements is true?

Accepted Answer

The aggregate demand-aggregate supply model is used to explain the equilibrium level of real GDP and the price level, not inflation or unemployment directly. The other statements are incorrect.

Question 2

In a recovery phase,

Accepted Answer

In a recovery phase, the economy is growing and becoming more productive, leading to a decrease in unemployment. As there is more economic activity, prices are not expected to rise as much, and hence inflation also falls, resulting in both inflation and unemployment decreasing together.

Question 3

Figure 16-8 
-Refer to Figure 16-8. The movement from point 3 to point 4 is consistent with which
Segment in the diagram below?

Accepted Answer

The movement from point 3 to point 4 goes from segment B to C on the diagram.

Question 4

Figure 16-8 
-Refer to Figure 16-8. The movement from point 4 to point 5 is consistent with which inflation-unemployment phase
?

Accepted Answer

The answer of Figure 16-8 
-Refer to Figure 16-8. The...

Question 5

A recovery phase is explained by

Accepted Answer

A recovery phase is characterized by economic growth and an increase in aggregate demand, which is shown by rightward shifts of the aggregate demand curve in response to expansionary policies.

Question 6

Consider the following statement: "President Nixon expressed satisfaction with last year's economic performance. He said that with inflation and unemployment heading down, the nation 'is on the right course'. " Identify the stage of the inflation-unemploymentphase.

Accepted Answer

The statement mentions that inflation and unemployment are heading down, indicating a positive trend in the economy. This corresponds to the recovery phase, which is characterized by decreasing unemployment and decreasing inflation.

Question 7

Figure 16-7 
-Refer to Figure 16-7. At point 4, if policymakers are concerned about economic performance, they will most likely respond by

Accepted Answer

At point 4 there is a recessionary gap, which means that actual output is below potential output. Policymakers would want to increase aggregate demand in order to bring the economy back to full employment. They can do this by increasing government purchases and the money supply. This would shift the AD curve to the right, increasing output and closing the gap. Increasing taxes or decreasing aggregate demand would only worsen the recessionary gap, and having the Fed sell bonds would decrease the money supply, also worsening the situation.

Question 8

Figure 16-8 
-Refer to Figure 16-8. The movement from point 4 to point 5 is consistent with which
Segment in the diagram below?

Accepted Answer

The movement from point 4 to point 5 is consistent with Segment C to D, as it follows the downward slope and reaches a lower elevation at point 5.

Question 9

Figure 16-8 
-Refer to Figure 16-8. The recessionary gap at point 4 was created

Accepted Answer

The answer of Figure 16-8 
-Refer to Figure 16-8. The...

Question 10

Consider the following statement: "President Nixon expressed satisfaction with last year's economic performance. He said that with inflation and unemployment heading down, the nation 'is on the right course'. " Which of the following could have caused this phenomenon?

Accepted Answer

The statement mentions both inflation and unemployment heading down, which implies a decrease in price levels and an increase in real output. This could have been caused by expansionary fiscal and monetary policies that shifted the aggregate demand curve to the right. Option A does not explain how inflation and unemployment both decreased, while option C only explains a shift in the short-run aggregate supply curve and does not consider the decrease in inflation. Option D is incorrect because expanding the long-run aggregate supply curve would not necessarily cause a decrease in inflation in the short run.

Question 11

Which of the following affect the values of inflation and unemployment?
I. changes in government spending II. expectations about the price level
III. changes in nominal wages IV. changes in money supply

Accepted Answer

All four factors - changes in government spending, expectations about the price level, changes in nominal wages, and changes in money supply - can affect both inflation and unemployment. Government spending can stimulate demand and raise prices, while changes in expectations about the price level can influence consumers' behavior and affect inflation. Changes in nominal wages can affect businesses' production costs and influence their decision to hire or lay off workers, thus affecting unemployment. Changes in money supply can influence interest rates and stimulate or cool down economic activity, affecting both inflation and unemployment.

Question 12

Since 1979 when inflation soared into the double-digit, the Federal Reserve's policies

Accepted Answer

Since 1979, the Federal Reserve has implemented policies that have shown a reduced tolerance for inflation. This is due to the high inflation rates that occurred during that time period, which led to negative economic impacts such as reduced consumer confidence and increased interest rates. The Federal Reserve's primary goal since then has been to maintain price stability and keep inflation low.

Question 13

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." Which of the following could have caused this phenomenon?

Accepted Answer

The answer of Consider the following statement: "President Carter expressed...

Question 14

In a recovery phase,

Accepted Answer

In a recovery phase, the economy is growing and businesses are increasing production. This leads to an increase in the demand for goods and services, which causes prices to rise. However, if the increase in prices is at a slower rate than before, the inflation rate will fall. Therefore, although the price level rises, the inflation rate falls during a recovery phase.

Question 15

In a recovery phase, a falling rate of inflation means
That the price level is

Accepted Answer

In a recovery phase, as the economy starts to grow again, the rate of inflation typically starts to decrease. This means that prices are still increasing, but by smaller and smaller percentages. Therefore, the best choice is C.

Question 16

In early in 1994, the Federal Reserve shifted to a contractionary policy although the economy
Was still in a recessionary gap left over from the 1990-1991 recession. Which of the
Following best explains this move?

Accepted Answer

The Fed was taking explicit account of the lag in monetary policy. This is because there is often a delay between when the Fed changes its monetary policy and when these changes actually affect the economy. Therefore, the Fed may need to anticipate future economic conditions and adjust its policy accordingly, even if the current state of the economy suggests otherwise.

Question 17

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

Point 4 represents a recessionary gap, where aggregate output is below potential output. Expansionary policies aim to increase aggregate demand and bring the economy closer to potential output. Therefore, boosting aggregate demand through expansionary policies will most likely lead to a recovery phase.

Question 18

A recovery phase if

Accepted Answer

A recovery phase occurs when policymakers respond to a recessionary gap by increasing aggregate demand, such as through expansionary fiscal or monetary policies. This leads to an increase in real GDP, employment, and income, and a decrease in the unemployment rate. Prices and wages may remain sticky in the short-run, but they should eventually adjust over time, which could lead to higher nominal wages and prices. However, this is not a necessary condition for a recovery phase to occur. Higher resource prices could actually slow down the recovery by negatively impacting businesses' production costs and profitability.

Question 19

In the United States, through most of the 1990s, the unemployment rate and the inflation rate generally fell. With which phase of the inflation-unemployment relationship does this conform to?

Accepted Answer

The period of falling unemployment and inflation in the United States during the 1990s conforms to the recovery phase of the inflation-unemployment relationship. In this phase, the economy is growing and unemployment is falling while inflation is moderate.

Question 20

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

The answer of Consider the following statement: "President Carter expressed...

Quiz 16: Inflation and Unemployment

Which of the following statements is true?

In a recovery phase,

Figure 16-8 -Refer to Figure 16-8. The movement from point 3 to point 4 is consistent with which Segment in the diagram below?

Figure 16-8 -Refer to Figure 16-8. The movement from point 4 to point 5 is consistent with which inflation-unemployment phase ?

A recovery phase is explained by

Consider the following statement: "President Nixon expressed satisfaction with last year's economic performance. He said that with inflation and unemployment heading down, the nation 'is on the right course'. " Identify the stage of the inflation-unemploymentphase.

Figure 16-7 -Refer to Figure 16-7. At point 4, if policymakers are concerned about economic performance, they will most likely respond by

Figure 16-8 -Refer to Figure 16-8. The movement from point 4 to point 5 is consistent with which Segment in the diagram below?

Figure 16-8 -Refer to Figure 16-8. The recessionary gap at point 4 was created

Consider the following statement: "President Nixon expressed satisfaction with last year's economic performance. He said that with inflation and unemployment heading down, the nation 'is on the right course'. " Which of the following could have caused this phenomenon?

Which of the following affect the values of inflation and unemployment? I. changes in government spending II. expectations about the price level III. changes in nominal wages IV. changes in money supply

Since 1979 when inflation soared into the double-digit, the Federal Reserve's policies

In a recovery phase,

In a recovery phase, a falling rate of inflation means That the price level is

In early in 1994, the Federal Reserve shifted to a contractionary policy although the economy Was still in a recessionary gap left over from the 1990-1991 recession. Which of the Following best explains this move?

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

A recovery phase if

In the United States, through most of the 1990s, the unemployment rate and the inflation rate generally fell. With which phase of the inflation-unemployment relationship does this conform to?