Question 1

According to Okun's law, if the unemployment rate is 7 percent and the natural unemployment rate is 5 percent, potential GDP is _{--------------------} than real GDP.

Accepted Answer

Okun's law suggests that for every 1% increase in the unemployment rate above the natural rate, a country's GDP will be roughly an additional 2% lower than its potential GDP. Here, the unemployment rate is 2% above the natural rate, so potential GDP is approximately 4% less than real GDP.

Question 2

According to Okun's Law, if the natural unemployment rate is 5 percent, the actual unemployment rate is 4 percent, and potential GDP is $15 trillion, then actual real GDP is

Accepted Answer

Okun's Law suggests that for every 1% decrease in unemployment rate below the natural rate, GDP increases by about 2%. With a 1% decrease (from 5% to 4%), GDP increases by 2% of $15 trillion, which is $0.3 trillion, making actual GDP $15.3 trillion.

Question 3

The baby boomers born in the 1940s and 1950s began entering the work force in the 1960s and 1970s . This demographic event_{--------------------} the natural unemployment rate, thereby shifting the short-run Phillips curve_{--------------------} and shifting the long-run Phillips curve_{--------------------} .

Accepted Answer

The answer of The baby boomers born in the 1940s...

Question 4

An increase in aggregate demand results in

Accepted Answer

An increase in aggregate demand typically leads to higher real GDP and a higher price level, as more goods and services are demanded, leading to increased production and potentially higher prices. This also tends to lower the unemployment rate as more workers are needed to meet the increased demand.

Question 5

Suppose the natural unemployment rate is 5 percent, the actual unemployment rate is 6 percent, and potential GDP is $5,000 billion. Based on Okun's law, real GDP is equal_{--------------------} to billion.

Accepted Answer

Okun's law suggests that for every 1% increase in the unemployment rate above the natural rate, a country's GDP will be roughly an additional 2% lower than its potential GDP. Here, the unemployment rate is 1% above the natural rate, so GDP is approximately 2% below potential GDP. 2% of $5,000 billion is $100 billion, so real GDP is $5,000 billion - $100 billion = $4,900 billion.

Question 6

If the price level rises from 100 to 110 then the inflation rate is

Accepted Answer

The inflation rate is calculated as the percentage change in the price level. The increase from 100 to 110 is a 10% increase, so the inflation rate is 10.0 percent.

Question 7

Moving along a short-run Phillips curve, a reduction in the unemployment rate is achieved by

Accepted Answer

In the short-run Phillips curve, there is an inverse relationship between inflation and unemployment. To reduce unemployment, inflation must increase, which is represented by moving along the curve.

Question 8

In the figure above, the natural unemployment rate is

Accepted Answer

The answer of 
In the figure above, the natural unemployment...

Question 9

In the United States during the 1970s, the unemployment rate rose from previous years, and the inflation rate increased rapidly. This set of events is best described by saying that the

Accepted Answer

The simultaneous rise in unemployment and inflation during the 1970s in the U.S. is indicative of stagflation, which is best explained by an upward shift in the short-run Phillips curve. This shift reflects higher inflation at each level of unemployment.

Question 10

If the Fed lowers the inflation rate and initially expected inflation does not change, in the short run the unemployment rate_{--------------------} and in the long run the unemployment rate_{--------------------} the natural unemployment rate.

Accepted Answer

In the short run, lowering inflation can lead to higher unemployment due to reduced demand. In the long run, the unemployment rate returns to the natural rate as expectations adjust.

Question 11

The inflation-reduction episode of the early 1980s was an example of an

Accepted Answer

The early 1980s inflation-reduction episode was characterized by the Federal Reserve, under Chairman Paul Volcker, implementing unexpected and aggressive monetary policy measures to reduce inflation, primarily through high interest rates.

Quiz 15: The Short-Run Policy Tradeoff

According to Okun's law, if the unemployment rate is 7 percent and the natural unemployment rate is 5 percent, potential GDP is -------------------- than real GDP.