Question 1

If the actual rate of inflation exceeds the expected rate of inflation,the actual real wage is greater than the expected real wage and unemployment falls.

Accepted Answer

If the actual rate of inflation exceeds the expected rate of inflation, the actual real wage is lower than the expected real wage because prices are rising faster than wages. This can lead to a reduction in purchasing power and a decrease in demand for labor, potentially leading to an increase in unemployment.

Question 2

The unemployment rate that exists when the economy is at potential GDP is called

Accepted Answer

The natural rate of unemployment is the rate of unemployment that exists when the economy is at its potential GDP. This rate includes frictional and structural unemployment, but not cyclical unemployment, which is a result of fluctuations in the business cycle.

Question 3

The natural rate of unemployment is the rate that exists when the economy is producing at potential GDP.

Accepted Answer

The natural rate of unemployment is the rate of unemployment that exists when the economy is producing at its potential GDP. This is because all resources are being fully utilized and there is no cyclical unemployment.

Question 4

If the Phillips curve represents a "________ relationship," then the trade-off between unemployment and inflation is permanent.

Accepted Answer

The Phillips curve represents a "structural relationship" when it suggests that the trade-off between unemployment and inflation is permanent, implying that the economy's underlying structure supports this ongoing trade-off.

Question 5

If actual inflation is greater than expected inflation,what is the relationship between the actual real wage and the expected real wage?

Accepted Answer

If actual inflation is greater than expected inflation, then the cost of living has increased more than what was anticipated. This means that the purchasing power of wages has decreased more than expected, resulting in a lower actual real wage compared to the expected real wage.

Question 6

Shondra's real wage in 2016 is $18.50.If the price level is 106,what is Shondra's nominal wage?

Accepted Answer

The answer of Shondra's real wage in 2016 is $18.50.If...

Question 7

In an effort to discover whether or not workers understand inflation,economist Robert Shiller conducted a survey.When asked about the effect of general inflation on their wages or salary,the most popular response coming from workers was,

Accepted Answer

The answer of In an effort to discover whether or...

Question 8

Workers at a local mining company are paid $25.60 per hour,and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.

Accepted Answer

The answer of Workers at a local mining company are...

Question 9

Robert Shiller posed the following question to workers: "Imagine that next year the inflation rate unexpectedly doubles.How long would it probably take,in these times,before your income is increased enough so that you can afford the same things as you do today?" Shiller found that ________ percent of the workers he interviewed reported that it would take several years to restore the purchasing power of their wages or that this power would never be restored.

Accepted Answer

The answer of Robert Shiller posed the following question to...

Question 10

In the 1960s,many economists and policymakers believed the trade-off between inflation and unemployment was permanent.

Accepted Answer

This idea was known as the Phillips curve and it suggested that as unemployment decreased, inflation would increase and vice versa. However, this relationship became less clear in the 1970s when stagflation occurred, where high inflation and high unemployment existed at the same time.

Question 11

A relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods is called a ________ relationship.

Accepted Answer

A structural relationship is one that is based on the fundamental behavior of consumers and firms and remains unchanged over time, even though it may be subject to short-term fluctuations. This is opposed to a cyclical relationship, which is characterized by periodic swings in economic activity, or a dynamic relationship, which is subject to frequent and unpredictable change. A frictional relationship may refer to temporary obstacles or inefficiencies in the economy, but it is not a commonly used term in economics to describe a long-term relationship.

Question 12

All other factors held constant,increased growth in aggregate demand will

Accepted Answer

Increased growth in aggregate demand will lead to higher demand for goods and services, which will increase prices and therefore inflation. This also leads to increased demand for labor, reducing unemployment. However, as the economy moves to a higher point on the short-run Phillips curve, there may be a trade-off between inflation and unemployment in the long run. Therefore, all of the above options are correct.

Question 13

If workers and firms expect that inflation will be 5 percent next year,and real wages are not changing over time,by how much will nominal wages increase?

Accepted Answer

Nominal wages are expected to increase by the same percentage as the expected inflation rate, which is 5 percent.

Question 14

If changes in inflation are higher than expected,

Accepted Answer

The answer of If changes in inflation are higher than...

Question 15

A study conducted by Robert Shiller,a Yale Economist,found that a large majority of the public thinks that increases in inflation will not quickly lead to an increase in wages.

Accepted Answer

The study conducted by Robert Shiller found that a large majority of the public thinks that increases in inflation will not quickly lead to an increase in wages.

Question 16

If actual inflation is greater than expected inflation,

Accepted Answer

If actual inflation is greater than expected inflation, it means that prices are rising faster than anticipated. This negatively impacts real wages, as workers' purchasing power decreases, leading to a fall in real wages.

Question 17

Ceteris paribus,in the short run following a decrease in the rate of growth in aggregate demand,we would expect to see an increase in the rate of unemployment and a decrease in the rate of inflation.

Accepted Answer

This is because a decrease in aggregate demand leads to a decrease in output and therefore a decrease in employment, as firms reduce their production levels. At the same time, a decrease in aggregate demand reduces the pressure on prices, leading to a decrease in the rate of inflation.

Question 18

Alejandro expects the price level to rise from 105 this year to 108 next year.If the price level rises to 110 next year instead of 108,which of the following will occur?

Accepted Answer

Alejandro's real wage is calculated by dividing his nominal wage by the price level. If the price level rises to 110 instead of the expected 108, the real wage will fall because the cost of living will increase faster than his nominal wage.

Question 19

The price level in the economy between 2014 and 2015 rose from 100 to 110.Between 2015 and 2016,the price level rose from 110 to 121.How does the short-run Phillips curve predict the unemployment rate will change as a result?

Accepted Answer

The answer of The price level in the economy between...

Question 20

An increase in the inflation rate increases employment only if the increase in inflation is unexpected.

Accepted Answer

An increase in inflation usually leads to a decrease in employment, not an increase. This is because inflation reduces the purchasing power of money, leading to increased costs for businesses and a decrease in consumer spending. Therefore, an increase in the inflation rate is generally negative for employment. Additionally, whether the increase in inflation is expected or unexpected may affect its impact on the economy, but it does not change the fact that inflation typically has a negative effect on employment.

Quiz 17: Inflation,unemployment,and Federal Reserve Policy