Deck 10: Output,inflation,and Unemployment: Alternative Views

Question 1

In the Keynesian view,

A)the short-run Phillips curve is unstable and money demand is stable.
B)the short-run Phillips curve is vertical but the long-run Phillips curve is downward sloping.
C)the short-run Phillips curve is unstable and money demand is stable.
D)both the short-run and long-run Phillips curves are vertical.
E)none of the above.

Answer 1

C

Question 2

According to the Monetarists,average inflation is higher today than it was a hundred years ago because of

A)the lack of fiscal responsibility.
B)the increased use of stabilization policy.
C)high interest rates,which increase the cost of borrowing.
D)unstable investment demand.
E)unstable money demand.

Answer 2

B

Question 3

Assume that there is a positive supply shock,such as an increase in the productivity of labor.What impact will this have on the short-run and long-run Phillips curve? What will be the observed relationship between inflation and unemployment? Provide a graph of the Phillips curve and AD/AS to illustrate.

Answer 3

An increase in productivity will shift the aggregate supply curve to the right as well as shift both the short-run and long-run Phillips curve upward,resulting in higher inflation and lower unemployment.This runs counter to the traditional Phillips curve relationship between inflation and unemployment.

Question 4

According to the theory of the natural rate of unemployment,can the policymaker "peg" the unemployment rate at some arbitrarily determined target rate? Why or why not? What is the eventual result of attempting such an action?

Question 5

Stagflation can be explained by a

A)shift in the short run Phillips curve to the left.
B)shift in the short run Phillips curve to the right.
C)a movement along the short run Phillips curve to the right.
D)a movement along the short run Phillips curve to the left.

Question 6

In the monetarist view,the long-run Phillips curve is

A)horizontal.
B)downward sloping.
C)downward sloping but steeper than the short-run curve.
D)downward sloping but flatter than the short-run curve.
E)none of the above.

Question 7

In the long run,according to Monetarists

A)the natural rates of output and employment depend on factor supplies.
B)the natural rates of output and employment depend on technology.
C)the influence of the money stock is mainly on the price level and other nominal variables.
D)All of the above

Question 8

The rate of unemployment can be calculated by

A)simply dividing all unemployed persons by all employed persons.
B)subtracting those employed from the total labor force to find the number of unemployed and express this number as a percent of the total labor force.
C)subtract those unemployed from the total labor force and express this number as a percent of the total labor force.
D)dividing all unemployed by the population.

Question 9

Monetarists assume that suppliers of labor

A)always have perfect information about the real wage.
B)base their decisions on the expected real wage.
C)may or may not know the real wage.
D)could not possibly have perfect information.

Question 10

In the Keynesian model,and increase in government spending financed with an increase in taxes will

A)move an economy left along its Phillips curve.
B)shift the Phillips curve to the up.
C)move an economy right along its Phillips curve.
D)shift the Phillips curve down.
E)not affect the Phillips curve.

Question 11

If Keynesians acknowledge that there does exist a vertical aggregate supply curve in the long-run,then,does that invalidate their belief in the use of monetary and fiscal policy to stabilize output? Explain.

Question 12

Use the natural rate Phillips curve to analyze a change in regime at a central bank that is committed to maintaining a lower level of inflation than previous regimes.What will be the short-run impact of such a change in policy? The long-run impact?

Question 13

According to the monetarists,

A)stable growth in the money supply is needed for economic stability.
B)aggregate demand is unstable,mostly because of unstable investment demand.
C)there is a need for fiscal policies to stabilize output.
D)stable money growth is not needed for the economy to be stable.

Question 14

What is meant by "hysteresis?" Is hysteresis consistent with Friedman's natural rate hypothesis?

Question 15

With respect to Friedman's natural rate theory,expansionary monetary policies can

A)move output above the natural rate but leave unemployment at the natural rate in the short-run.
B)only affect inflation and not unemployment in the long-run.
C)leave output at its natural rate with a simultaneous decrease in the natural rate of employment.
D)move output and employment below the natural rate.

Question 16

What is meant by the natural rate of unemployment? Is the natural rate of unemployment a constant value? According to the monetarist view,does expansionary monetary policy lower the natural rate of unemployment temporarily or permanently?

Question 17

Milton Friedman often referred to money as "neutral".What do you think that he meant by this? He also termed the phrase "the natural rate of unemployment".What is natural about the natural rate of unemployment?

Question 18

The short-run Phillips curve shifts when there is a change in

A)technology
B)money demand.
C)the expected price level.
D)the labor force.
E)all of the above.

Question 19

For each Phillips curve,there

A)is no relationship between the short run aggregate supply curve.
B)is many short run aggregate supply curves.
C)is a unique long run aggregate supply curve.
D)is a unique short run aggregate supply curve.

Question 20

Does the Keynesian view of the short-run Phillips curve differ from the monetarist view?

Question 21

The most significant cost to a central bank of reducing unemployment is the costs

A)incurred by printing and distributing new money.
B)of lower output.
C)of higher real wages.
D)of inflation.

Question 22

The following Phillips curve of would be consistent with the _____ model(s). $$\dot { P } = .03 - .25 ( u - .04 )$$

A)Keynesian.
B)monetarist.
C)monetarist and classical.
D)classical.
E)None of the above

Question 23

According to monetarists,the natural rate theory

A)denies the tradeoff between inflation and output.
B)argues that there is a stable tradeoff between inflation and output.
C)shows that activist policies work best.
D)believes that the Phillips curve relationship breaks down when policymakers attempt to use it.

Question 24

Which of the following statements is (are)correct?

A)Both the monetarists and classicists agree that output is completely supply determined,even in the short run
B)The monetarists do not agree with the classical position that monetary policy cannot be used to influence output.
C)According to both the monetarists and the classicists,output is determined by demand side factors in the short run
D)None of the above

Question 25

The Keynesian model

A)assumes a stable,downward sloping Phillips curve in the short run.
B)implies a horizontal Phillips curve in the long run.
C)shows that the Phillips curve is can be downward or upward sloping in the short run.
D)differs from Friedman's analysis pertaining to the vertical long-run Phillips curve.

Question 26

Labor market regulations in European Union countries

A)do not contain limitations on plant closing but do have provisions for mandatory severance pay that may discourage firms from expanding employment.
B)include limitations on plant closing but have no provisions for mandatory severance pay that may discourage firms from expanding employment.
C)neither entail limitations on plant closing nor provisions for mandatory severance pay that may discourage firms from expanding employment.
D)include limitations on plant closing and provisions for mandatory severance pay that may discourage firms from expanding employment.

Question 27

The short-run Phillips curve implied when all changes in aggregate demand are caused by changes in the money supply is

A)upward sloping.
B)downward sloping.
C)horizontal.
D)vertical.
E)None of the above

Question 28

In response to an increase in the population and the labor force,we would expect

A)both the short run and long run Phillips curve to shift to the right.
B)the short run Phillips curve remains unchanged while the long run Phillips curve shifts to the right.
C)the long run Phillips curve remains unchanged while the short run Phillips curve shifts to the right.
D)both the short run and long run Phillips curve to shift to the left.
E)none of the above.

Question 29

According to published data pertaining to unemployment rates in selected European countries,the natural rate of unemployment

A)has been rising over the past three decades.
B)declined sharply over the last three decades.
C)has been lower than in the U.S.in the 1990s.
D)has not changed much over the past three decades.
E)Both a and c

Question 30

According to Monetarists,the natural rate of unemployment in each country will be determined by the structural characteristics of the

A)the productive efficiency of that country.
B)relationship between the actual price level and the expected price level.
C)the monetary policy of that country.
D)Both a and b
E)All of the above

Question 31

In the short run,an increase in the money stock growth rate

A)moves the economy up the short-run Phillips curve.
B)moves the economy down the short-run Phillips curve.
C)shifts the short-run Phillips curve to the right.
D)results in a decline in the natural rate of unemployment and a rise in the inflation rate.
E)both b and d are correct.

Question 32

In the monetarist model,

A)the short run Phillips curve looks similar to the short run Phillips curve in the Keynesian model.
B)stable money growth alone will not produce economic stability because of the unstable behavior of the nonmonetary factors that are important in determining demand.
C)activist fiscal and monetary policies are favored to stabilize aggregate demand.
D)Both a and b
E)all of the above.

Question 33

According to the Keynesian view,the focus of stabilization policies

A)is to keep the economy at its equilibrium level in the face of shocks to aggregate demand.
B)should be to keep the economy at its equilibrium level in the face of shocks to aggregate supply.
C)is on the short run.
D)All of the above

Question 34

If the short run aggregate supply curve is flat,the Phillips curve will be

A)flat
B)steep
C)horizontal
D)upward sloping

Question 35

In the monetarist view,a bond-financed increase in government spending would have a strong effect on real output in

A)both the short run and the long run.
B)the short run but not the long run.
C)the long run but not the short run.
D)neither the short run nor the long run.

Question 36

Which of the following statements is (are)correct? There is agreement between the Keynesians and monetarists that

A)an increase in aggregate demand will increase both output and price in the short run.
B)there is a trade-off between inflation and unemployment in the short run.
C)in the long run,when the expected price level also has time to adjust,output will not be affected by changes in aggregate demand.
D)All of the above
E)None of the above

Question 37

If the government places a new tax on the firing of workers,then we would expect

A)both the short run and long run Phillips curve to shift to the right.
B)both the short run and long run Phillips curve to shift to the left.
C)the long run Phillips curve remains unchanged while the short run Phillips curve shifts to the right.
D)the short run Phillips curve remains unchanged while the long run Phillips curve shifts to the right.
E)none of the above.

Question 38

Assume that the Phillips curve in an economy is $\pi$ = 3 - .5(u - 5),where $\pi$ is the inflation rate and u is the unemployment rate.If unemployment is currently is currently 6 percent,then inflation should be

A)2.0%
B)3.5%
C)2.5%
D)3.0%

Question 39

If the government places a new tax on the hiring of workers,then we would expect

A)both the short run and long run Phillips curve to shift to the right.
B)both the short run and long run Phillips curve to shift to the left.
C)the long run Phillips curve remains unchanged while the short run Phillips curve shifts to the right.
D)the short run Phillips curve remains unchanged while the long run Phillips curve shifts to the right.
E)none of the above.

Question 40

In response to an increase in technology,we would expect

A)both the short run and long run Phillips curve to shift to the right.
B)both the short run and long run Phillips curve to shift to the left.
C)the long run Phillips curve remains unchanged while the short run Phillips curve shifts to the right.
D)the short run Phillips curve remains unchanged while the long run Phillips curve shifts to the right.
E)none of the above.

Question 41

Policies aimed at reducing the natural rate of unemployment are referred to as

A)stabilization policies.
B)structural policies.
C)macroeconomic policies.
D)labor policies.

Question 42

The tradeoff for monetary policy represented by the Phillips curve is

A)lower inflation for lower output.
B)lower inflation for higher unemployment.
C)lower inflation for higher employment.
D)higher expected inflation for higher output.
E)none of the above.

Question 43

The natural rate of unemployment

A)is not the same as the full employment rate of unemployment.
B)is achieved at a zero level of unemployment.
C)is a constant.
D)is that unemployment rate to which the economy tends at the end of every period.
E)none of the above.

Question 44

Which of the following is correct? The natural rate of unemployment

A)is a zero unemployment rate.
B)has been steady at 3 percent over the past decade.
C)is defined by Friedman as that rate of unemployment "in which everyone who wants a job can have a job."
D)is the unemployment rate that exists in the long-run.
E)None of the above

Question 45

According to the theory of hysteresis,a prolonged recession will:

A)decrease the natural rate of unemployment.
B)increase cyclical unemployment.
C)decrease the sacrifice ratio.
D)increase the natural rate of unemployment.

Question 46

The idea that hysteresis plays a role in macroeconomics implies that

A)monetary policy can have an effect on the natural rate of unemployment.
B)workers can overreact to changes in monetary policy.
C)stabilization policy is ineffective and counterproductive.
D)fiscal policy is ineffective and counterproductive.

Question 47

According to the Keynesian model,a decline in the expected price level

A)will increase the inflation rate a central bank must generate to achieve a target level of unemployment.
B)will decrease the inflation rate a central bank must generate to achieve a target level of unemployment.
C)will not affect the inflation rate a central bank must generate to achieve a target level of unemployment.
D)will not impact the effectiveness of monetary policy.

Question 48

The natural rate of unemployment

A)is not the same as the full employment rate of unemployment.
B)is achieved at a zero level of unemployment.
C)is a constant.
D)is that unemployment rate to which the economy tends at the end of every period.
E)none of the above.

Question 49

One would expect a shift down in the Phillips curve if there was a(n)

A)a decrease in aggregate demand.
B)decrease in government spending.
C)decrease in the money supply.
D)a shift in aggregate supply to the left.
E)Any of the above

Question 50

The short-run Phillips curve shifts upward whenever:

A)inflation rises.
B)a negative supply shock occurs.
C)unemployment rises.
D)all of the above.

Question 51

The divergent behavior of unemployment in the United States and Europe,especially in the 1990s,

A)has been ascribed to different structural characteristics of money markets in the two regions.
B)has been attributed to different structural characteristics of labor markets in the two regions.
C)cannot be explained for these two regions.
D)has been explained with different demographic factors in the two regions.

Question 52

Keynesian and classical theories agree that:

A)AS is upward sloping in the short-run.
B)AS is vertical in the long-run.
C)sustained AD shocks can also shift AS in the long-run.
D)all of the above.

Question 53

Which of the following statements is correct?

A)Milton Friedman's theory of the natural rates of unemployment and output has been highly influential since it describes the limits to the trade-off between inflation and unemployment.
B)Milton Friedman's main concern in advancing the concept of the natural rates of output and unemployment was to illustrate a limitation on monetary policy.
C)Milton Friedman's main concern in advancing the concept of natural rates of output and unemployment was to define a limitation on fiscal policy.
D)Both a and b
E)Both a and c

Question 54

The following Phillips curve of would be consistent with the _____ model(s). $$\dot { P } = \dot { P } ^ { e } - .2.5 ( u - .04 )$$

A)Keynesian.
B)monetarist.
C)monetarist and classical.
D)classical.
E)None of the above

Question 55

The natural rate of unemployment

A)exists only when labor supply equals labor demand.
B)exists only if labor supply is greater than labor demand.
C)is known and constant.
D)exists when everyone who wants a job has a job.
E)none of the above.