Question 1

Burger King is paying $8 an hour to its workers.If the expected inflation rate equals the actual inflation rate and both are 10 percent a year, then to keep the real wage rate constant in a year the money wage rate must

Accepted Answer

To keep the real wage rate constant, the money wage rate needs to increase by the same amount as the inflation rate. If both the expected inflation rate and the actual inflation rate are 10% per year, then the money wage rate needs to increase by 10% in order to maintain the same purchasing power.

Starting with a money wage rate of $8 per hour, a 10% increase would be $0.80, resulting in a new wage rate of $8.80 per hour. Therefore, answer choice A is the correct answer.

Question 2

At full employment, the expected inflation rate is ________.

Accepted Answer

At full employment, the economy is producing at its potential output, which means that the aggregate demand is equal to the potential output. Thus, prices should be relatively stable, meaning that the expected inflation rate is equal to the actual inflation rate.

Question 3

The short-run Phillips curve shows ________ between the unemployment rate and the inflation rate and the long-run Phillips curve shows ________ between the unemployment rate and the inflation rate.

Accepted Answer

The short-run Phillips curve illustrates a negative relationship between unemployment and inflation, suggesting that lower unemployment can lead to higher inflation. In the long run, the Phillips curve is vertical, indicating no trade-off between unemployment and inflation, as the economy adjusts to the natural rate of unemployment.

Question 4

The natural rate hypothesis asserts that

Accepted Answer

The natural rate hypothesis suggests that any changes in unemployment due to inflation are temporary, and the economy will eventually return to the natural rate of unemployment.

Question 5

The natural rate hypothesis states that when the inflation rate _______, in the short run the unemployment rate ________ and in the long run the unemployment rate ________.

Accepted Answer

According to the natural rate hypothesis, when the inflation rate rises, in the short run the unemployment rate decreases (due to firms hiring more workers to meet increased demand), but in the long run, the unemployment rate returns to the natural unemployment rate, as inflation expectations adjust and wages and prices adjust accordingly. Similarly, when the inflation rate falls, in the short run the unemployment rate increases (due to firms reducing production and laying off workers), but in the long run, the unemployment rate returns to the natural unemployment rate. Therefore, choice A is the best answer.

Question 6

The short-run Phillips curve is ________ and the long-run Phillips curve is ________.

Accepted Answer

The short-run Phillips curve is downward sloping, indicating an inverse relationship between inflation and unemployment. In the long run, the Phillips curve is vertical, suggesting no trade-off between inflation and unemployment.

Question 7

In the long run, there is

Accepted Answer

This is known as the Phillips Curve, which presents an inverse relationship between unemployment and inflation in the short run. However, in the long run, the Phillips Curve is a vertical line, meaning there is no tradeoff between unemployment and inflation in the long run. This is because in the long run, expected inflation adjusts to changes in actual inflation, which means that any decrease in unemployment through expansionary policies will be offset by an increase in inflation. Therefore, the best choice is D, no tradeoff between unemployment and inflation.

Question 8

$$\begin{array} { c c } 
\begin{array} { c } 
\text { Price level } \
( 2005 = 100 )
\end{array} & \begin{array} { c } 
\text { Unemployment rate } \
\text { (percentage) }
\end{array} \
\hline 102 & 7 \
103 & 6 \
105 & 5 \
108 & 4 \
112 & 3 \
\hline
\end{array}$$
-Based on the above table, if the current price level is 100 and the unemployment rate is 4 percent, then the

Accepted Answer

The answer of \[\begin{array} { c c } 
\begin{array} {...

Question 9

$$\begin{array} { c c } 
\begin{array} { c } 
\text { Price level } \
( 2005 = 100 )
\end{array} & \begin{array} { c } 
\text { Unemployment rate } \
\text { (percentage) }
\end{array} \
\hline 102 & 7 \
103 & 6 \
105 & 5 \
108 & 4 \
112 & 3 \
\hline
\end{array}$$
-Based on the above table, if the current price level is 100 and the natural unemployment rate is 5 percent, what is the expected inflation rate?

Accepted Answer

The natural unemployment rate refers to the rate of unemployment that exists when there is no cyclical unemployment. Therefore, it represents the economy's long-run equilibrium unemployment rate.
According to the table, when the price level is 105 (which is a 5% increase from 100), the unemployment rate is 5%. This means that the economy is operating at its natural unemployment rate at a price level of 105. Therefore, we can assume that a price level of 100 is also consistent with the natural unemployment rate of 5%.
If the price level increases from 100 to 105, we can see from the table that the unemployment rate remains constant at 5%. Therefore, the expected inflation rate would be 5%.

Question 10

The expected inflation rate is the inflation rate that people forecast and use to help set

Accepted Answer

The expected inflation rate is a key determinant of the money wage rate, as workers will demand higher wages in anticipation of higher prices. As a result, employers may adjust wages to reflect these expectations, leading to changes in the overall price level.

Question 11

Along the long-run Phillips curve the unemployment rate ________ and the inflation rate ________.

Accepted Answer

Along the long-run Phillips curve, the unemployment rate is equal to the natural unemployment rate, which is the rate at which the economy operates at full employment. However, the inflation rate can take on any value, depending on various factors such as monetary policy, productivity growth, and supply shocks. Therefore, option A is correct.

Question 12

Comparing the short-run Phillips curve and the long-run Phillips curve, we see that there is

Accepted Answer

The short-run Phillips curve shows a tradeoff between inflation and unemployment in the short run, but in the long run, the Phillips curve is vertical and there is no tradeoff between inflation and unemployment, which means there is a natural rate of unemployment where the economy is at its potential output level. Therefore, only the short-run Phillips curve shows a tradeoff between inflation and unemployment, whereas, in the long run, there is only one level of unemployment, which is the natural rate of unemployment.

Question 13

The long-run Phillips curve applies when the economy is at full employment, so the long-run Phillips curve is ________ which demonstrates that changes in the inflation rate ________ effect on unemployment.

Accepted Answer

The long-run Phillips curve is vertical, indicating that changes in inflation have no effect on unemployment when the economy is at full employment. This is due to the fact that any short-term decrease in unemployment that is achieved by increasing inflation is only temporary, as people adjust their expectations of inflation and the natural rate of unemployment returns to its equilibrium level. Therefore, in the long run, only changes in the natural rate of unemployment can affect the level of unemployment.

Question 14

-In the figure above, the natural unemployment rate is

Accepted Answer

The natural unemployment rate is typically considered to be around 4 percent, which is the level of unemployment expected in a healthy economy without cyclical unemployment.

Question 15

In order to keep the real wage rate constant, the

Accepted Answer

To keep the real wage rate constant, the money wage rate must increase by the same amount as the inflation rate to offset the rise in prices and maintain purchasing power.

Question 16

-In the figure above, the natural unemployment rate is

Accepted Answer

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

Question 17

The short-run Phillips curve shows only a short-run tradeoff between the unemployment rate and the inflation rate because in the long run the

Accepted Answer

In the long run, the unemployment rate returns to the natural unemployment rate because wages and prices adjust to changes in the economy. Therefore, there is no long-run tradeoff between the inflation rate and the unemployment rate, and the short-run Phillips curve becomes vertical.

Question 18

The short-run Phillips curve is downward sloping because

Accepted Answer

The short-run Phillips curve shows a negative relationship between unemployment and inflation, indicating that an increase in aggregate demand can lead to a temporary decrease in unemployment but also to an increase in the inflation rate. The unemployment rate can be above or below the natural unemployment rate in the short run, which is why the short-run Phillips curve is downward sloping.

Question 19

-In the figure above, the expected inflation rate is

Accepted Answer

The answer of 
-In the figure above, the expected inflation...

Question 20

-In the figure above, the expected inflation rate is

Accepted Answer

The answer of 
-In the figure above, the expected inflation...

Quiz 15: The Short-Run Policy Tradeoff

Burger King is paying $8 an hour to its workers.If the expected inflation rate equals the actual inflation rate and both are 10 percent a year, then to keep the real wage rate constant in a year the money wage rate must

At full employment, the expected inflation rate is ________.

The short-run Phillips curve shows between the unemployment rate and the inflation rate and the long-run Phillips curve shows between the unemployment rate and the inflation rate.

The natural rate hypothesis asserts that

The natural rate hypothesis states that when the inflation rate _, in the short run the unemployment rate and in the long run the unemployment rate __.

The short-run Phillips curve is and the long-run Phillips curve is .

In the long run, there is

The expected inflation rate is the inflation rate that people forecast and use to help set

Along the long-run Phillips curve the unemployment rate and the inflation rate .

Comparing the short-run Phillips curve and the long-run Phillips curve, we see that there is

The long-run Phillips curve applies when the economy is at full employment, so the long-run Phillips curve is which demonstrates that changes in the inflation rate effect on unemployment.

-In the figure above, the natural unemployment rate is

In order to keep the real wage rate constant, the

-In the figure above, the natural unemployment rate is

The short-run Phillips curve shows only a short-run tradeoff between the unemployment rate and the inflation rate because in the long run the

The short-run Phillips curve is downward sloping because

-In the figure above, the expected inflation rate is

-In the figure above, the expected inflation rate is