Question 1

On the modern Phillips curve, the initial impact of an increase in the world price of steel is shown by ________.
A) an upward movement along the Phillips curve to a higher inflation rate
B) an upward shift of the Phillips curve leading to higher inflation rates for any unemployment rate
C) a downward shift of the Phillips curve leading to lower inflation rates for any unemployment rate
D) a downward movement along the Phillips curve to higher unemployment rates
E) none of the above

Accepted Answer

An increase in the world price of steel is a cost-push factor that would increase production costs for industries relying on steel. This leads to higher prices overall, causing the Phillips curve to shift upwards, indicating higher inflation rates for any given level of unemployment.

Question 2

Given the accelerationist Phillips curve △π = - 0.7 (U - 5) + ρ, suppose that inflation has increased from 8 percent to 10 percent. If the unemployment rate is 4 percent, then the price shock is ________.
A) 2.7 percent
B) 0.6 percent
C) 1.3 percent
D) 1 percent
E) none of the above

Accepted Answer

Given the accelerationist Phillips curve formula Δπ = -0.7(U - 5) + ρ, where Δπ is the change in inflation, U is the unemployment rate, and ρ is the price shock. The change in inflation (Δπ) is from 8% to 10%, which is a 2% increase. The unemployment rate (U) is 4%. Substituting these values into the equation gives 2 = -0.7(4 - 5) + ρ, which simplifies to 2 = 0.7 + ρ. Solving for ρ gives ρ = 1.3%.

Question 3

On the modern Phillips curve, the initial impact of productivity improvements that lower the costs of production is shown by ________.
A) an upward movement along the Phillips curve to a higher inflation rate
B) an upward shift of the Phillips curve leading to higher inflation rates for any unemployment rate
C) a downward shift of the Phillips curve leading to lower inflation rates for any unemployment rate
D) a downward movement along the Phillips curve to higher unemployment rates
E) none of the above

Accepted Answer

On the modern Phillips curve, productivity improvements that lower the costs of production lead to a downward shift of the curve, which means that at any given unemployment rate, the inflation rate will be lower. This is because the lower costs of production allow firms to lower their prices without sacrificing profits, which then leads to lower inflation rates.

Question 4

If expectations about inflation are adaptive, they are ________.
A) not based on all available, relevant information
B) backward-looking
C) likely to change slowly
D) all of the above
E) none of the above

Accepted Answer

Adaptive expectations are based on past experiences and are backward-looking. They may not take into account all available information and tend to change slowly as individuals adjust their expectations over time. Therefore, all of the above options are true.

Question 5

On the modern Phillips curve, the beginning of a recession is shown by ________.
A) an upward movement along the Phillips curve to a higher inflation rate
B) an upward shift of the Phillips curve leading to higher inflation rates for any unemployment rate
C) a downward shift of the Phillips curve leading to lower inflation rates for any unemployment rate
D) a downward movement along the Phillips curve to higher unemployment rates
E) none of the above

Accepted Answer

The beginning of a recession is typically marked by a downward movement along the Phillips curve as unemployment rates start to increase. This is because during a recession, there is a decrease in overall spending and demand, which leads to lower prices and inflation. This downward movement also indicates that the trade-off between inflation and unemployment is shifting in favor of higher unemployment rates and lower inflation rates.

Question 6

Given the accelerationist Phillips curve △π = - 0.3 (U - 6) + ρ, suppose that inflation in the preceding period was 3 percent, unemployment is 7 percent, and there is no price shock. The current inflation rate is ________.
A) 2.7 percent
B) 3 percent
C) 0.9 percent
D) 3.3 percent
E) none of the above

Accepted Answer

Using the accelerationist Phillips curve:

Δπ = -0.3(U - 6) + ρ

where Δπ is the change in inflation rate, U is the unemployment rate, and ρ is the price shock.

Since there is no price shock (ρ = 0), we can substitute the values for inflation and unemployment into the equation:

Δπ = -0.3(7 - 6) + 0.03
Δπ = -0.3 + 0.03
Δπ = -0.27

This means that inflation is falling by 0.27 percentage points. To find the current inflation rate, we subtract this decrease from the previous inflation rate:

Current inflation rate = Previous inflation rate - Δπ
Current inflation rate = 3% - (-0.27%)
Current inflation rate = 3.27%

Therefore, the current inflation rate is 2.7 percent (Choice A).

Question 7

If expectations about inflation are adaptive, they are ________.
A) formed by looking at the future
B) likely to change rapidly
C) based on past inflation
D) all of the above
E) none of the above

Accepted Answer

Adaptive expectations are based on past inflation. It assumes that people's expectations are formed based on their experience in dealing with inflation in the past. It is not formed by looking at the future, nor is it likely to change rapidly.

Question 8

If wages and prices become extremely flexible ________.
A) there is no trade off between inflation and unemployment
B) unemployment can hardly deviate from the natural rate
C) it becomes very difficult to differentiate the short-run from the long-run Phillips curve
D) all of the above
E) none of the above

Accepted Answer

If wages and prices become extremely flexible, there would be no trade-off between inflation and unemployment, and the economy would quickly adjust to changes in supply and demand. As a result, unemployment can hardly deviate from the natural rate, and it becomes difficult to differentiate the short-run from the long-run Phillips curve. Therefore, all of the above statements are true.

Question 9

As wages and prices become more sticky ________.
A) the short-run Phillips curve gets flatter
B) wages become less responsive to unemployment deviations from the natural rate
C) it becomes easier to differentiate the short-run from the long-run Phillips curve
D) all of the above
E) none of the above

Accepted Answer

As wages and prices become more sticky, the short-run Phillips curve gets flatter, as it takes longer for wages and prices to adjust to changes in unemployment. Additionally, wages become less responsive to unemployment deviations from the natural rate, further flattening the Phillips curve. Finally, it becomes easier to differentiate the short-run from the long-run Phillips curve, as the long-run Phillips curve is based on the assumption of flexible wages and prices, which becomes less relevant as they become more sticky.

Question 10

An example of a price shock is ________.
A) an increase in wages as a result of higher expected inflation
B) the arrival of immigrants seeking employment
C) the decline in autonomous spending that results from rising unemployment
D) all of the above
E) none of the above

Accepted Answer

A price shock refers to a sudden and significant change in the price of a commodity or service, often due to external factors. The options provided (A, B, C) do not directly describe scenarios that would lead to a sudden and significant change in prices, but rather involve factors that could affect the economy in various ways without necessarily causing a direct and immediate shock to prices.

Question 11

Based on the data in this table,  if the inflation rate in period zero had been 3 percent, then the accelerationist Phillips curve is ________.
A) △π = - 1.8 (U - 7) + ρ
B) △π = - 1.1 (U - 6) + ρ
C) △π = - 0.9 (U - 6) + ρ
D) △π = - 0.4 (U - 9) + ρ
E) none of the above

Accepted Answer

The answer of Based on the data in this table,...

Question 12

Based on the data in this table,  If the natural rate of unemployment is steady at 7 percent, and, in period four, there is no price shock and unemployment is 8 percent, then the inflation rate in period 4 will be ________ percent.
A) 4.4
B) 3.6
C) 3.4
D) 1.6
E) none of the above

Accepted Answer

The answer of Based on the data in this table,...

Question 13

________ will cause a movement along the modern Phillips curve.
A) An increase in oil prices
B) An increase in the price of imports
C) Wage agreements that include compensation for inflation
D) all of the above
E) none of the above

Accepted Answer

The answer of ________ will cause a movement along the...

Question 14

As wages and prices become more flexible ________.
A) wages becomes less responsive to unemployment deviations from the natural rate
B) it becomes easier to differentiate the short-run from the long-run Phillips curve
C) inflation becomes more responsive to unemployment deviations from the natural rate
D) all of the above
E) none of the above

Accepted Answer

When wages and prices become more flexible, it allows for firms to adjust prices and wages quicker to changes in the economy. This ultimately leads to inflation becoming more responsive to unemployment deviations from the natural rate. Option A is incorrect because, with more flexible wages, it becomes easier for firms to adjust wages in response to changes in the economy. Option B is incorrect as the differentiation between the short-run and long-run Phillips curve is affected by other factors, such as expected inflation.

Question 15

Which of the following might cause an upward shift of the modern Phillips curve?
A) an increase in oil prices
B) an increase in the price of imports
C) wage agreements that include compensation for inflation
D) all of the above
E) none of the above

Accepted Answer

An increase in oil prices (Option A) would cause an upward shift of the Phillips curve as it increases the cost of production, leading to higher prices and inflation. Similarly, an increase in the price of imports (Option B) would also cause an upward shift of the Phillips curve by increasing the cost of production for firms that rely on imported goods. Finally, wage agreements that include compensation for inflation (Option C) would also cause an upward shift of the Phillips curve as it would lead to an increase in labor costs, which firms would pass on to consumers as higher prices. Hence, all options A, B and C would cause an upward shift of the Phillips curve.

Question 16

On the modern Phillips curve, the initial impact of government policies to stimulate the economy is shown by ________.
A) an upward movement along the Phillips curve to a higher inflation rate
B) an upward shift of the Phillips curve leading to higher inflation rates for any unemployment rate
C) a downward shift of the Phillips curve leading to lower inflation rates for any unemployment rate
D) a downward movement along the Phillips curve to higher unemployment rates
E) none of the above

Accepted Answer

The answer of On the modern Phillips curve, the initial...

Question 17

According to the accelerationist Phillips curve, ________.
A) expectations adjust continually to the latest information
B) increases in inflation cause the unemployment gap to widen
C) inflation will change so long as an unemployment gap persists
D) all of the above
E) none of the above

Accepted Answer

The accelerationist Phillips curve suggests that inflation will change as long as an unemployment gap persists, meaning that option C is correct. Option A is related to the adaptive expectations Phillips curve, and option B is incorrect as it suggests the opposite relationship between inflation and unemployment to what the accelerationist Phillips curve proposes. Therefore, the correct answer is option C.

Question 18

Given the accelerationist Phillips curve △π = - 0.3 (U - 6) + ρ, suppose that inflation in the preceding period was 3 percent, unemployment is 6 percent, and there is a price shock of 2 percent. The current inflation rate is ________.
A) 3 percent
B) 0.2 percent
C) 5 percent
D) 1 percent
E) none of the above

Accepted Answer

Using the accelerationist Phillips curve equation:

Δπ = - 0.3(U - 6)+ ρ

We know that inflation in the preceding period was 3 percent, so ρ = 0.03. 
Also, unemployment rate is 6 percent.

With the given price shock of 2 percent, the change in inflation will be:

Δπ = - 0.3(6 - 6) + 0.03 + 0.02 = 0.05 or 5 percent.

Therefore, the current inflation rate is 5 percent, which is option C).

Question 19

If expectations about inflation are adaptive, they are ________.
A) quick to respond to price shocks
B) consistent with the notion of sticky prices
C) based on changes in productivity
D) all of the above
E) none of the above

Accepted Answer

Adaptive expectations about inflation imply that people form their expectations based on past experiences of inflation, which is consistent with the notion of sticky prices, as adjustments in expectations and consequently in prices do not happen immediately but rather gradually over time.

Question 20

As wages and prices become more sticky ________.
A) inflation becomes more responsive to unemployment deviations from the natural rate
B) wages become less responsive to unemployment deviations from the natural rate
C) it becomes more difficult to differentiate the short-run from the long-run Phillips curve
D) all of the above
E) none of the above

Accepted Answer

The answer of As wages and prices become more sticky...

Quiz 11: Aggregate Supply and the Phillips Curve

On the modern Phillips curve, the initial impact of an increase in the world price of steel is shown by ________.

Given the accelerationist Phillips curve △π = - 0.7 (U - 5) + ρ, suppose that inflation has increased from 8 percent to 10 percent. If the unemployment rate is 4 percent, then the price shock is ________.

On the modern Phillips curve, the initial impact of productivity improvements that lower the costs of production is shown by ________.

If expectations about inflation are adaptive, they are ________.

On the modern Phillips curve, the beginning of a recession is shown by ________.

Given the accelerationist Phillips curve △π = - 0.3 (U - 6) + ρ, suppose that inflation in the preceding period was 3 percent, unemployment is 7 percent, and there is no price shock. The current inflation rate is ________.

If expectations about inflation are adaptive, they are ________.

If wages and prices become extremely flexible ________.

As wages and prices become more sticky ________.

An example of a price shock is ________.

Based on the data in this table, if the inflation rate in period zero had been 3 percent, then the accelerationist Phillips curve is ________.

Based on the data in this table, If the natural rate of unemployment is steady at 7 percent, and, in period four, there is no price shock and unemployment is 8 percent, then the inflation rate in period 4 will be ________ percent.

________ will cause a movement along the modern Phillips curve.

As wages and prices become more flexible ________.

Which of the following might cause an upward shift of the modern Phillips curve?

On the modern Phillips curve, the initial impact of government policies to stimulate the economy is shown by ________.

According to the accelerationist Phillips curve, ________.

Given the accelerationist Phillips curve △π = - 0.3 (U - 6) + ρ, suppose that inflation in the preceding period was 3 percent, unemployment is 6 percent, and there is a price shock of 2 percent. The current inflation rate is ________.

If expectations about inflation are adaptive, they are ________.

As wages and prices become more sticky ________.