Question 1

Consider the following statement: "President X expressed satisfaction with last year's economic performance. He said that with inflation and unemployment heading down, the nation 'is on the right course'. " Identify the stage of the inflation-unemployment phase.
A) the stagflation phase
B) the recovery phase
C) the Phillips phase
D) the growth phase

Accepted Answer

The statement suggests that inflation and unemployment are both decreasing, which indicates a positive trend in the economy. This aligns with the recovery phase, which is characterized by decreasing unemployment and inflation. The other choices do not accurately describe the current state of the economy as indicated by the statement.

Question 2

Use the following to answer questions .
Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases 
-(Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases) The movement from point 3 to point 4 is consistent with which
Segment in the diagram below? 
A) Segment A to D
B) Segment A to B
C) Segment B to C
D) Segment C to D

Accepted Answer

The movement from point 3 to point 4 involves a decrease in aggregate demand and a movement along the short-run aggregate supply curve, which is consistent with Segment B to C in the diagram.

Question 3

Using the equation of exchange, if velocity is stable in the long run, the inflation rate, (%∆P)
Can be expressed as
A) %∆P = %∆M ÷ %∆Y
B) %∆P = %∆M + %∆Y
C) %∆P = %∆M * %∆Y
D) %∆P = %∆M - %∆Y

Accepted Answer

The equation of exchange is MV = PY. If velocity (V) is stable, then %∆M = %∆P + %∆Y, which rearranges to %∆P = %∆M - %∆Y.

Question 4

Consider the following statement: "President X expressed concern about reports of rising inflation but insisted the economy is on the right course. He pointed to recent reductions in unemployment as evidence that his economic policies are working." Which of the following could have caused this phenomenon?
A) Increase in government spending that shifted the aggregate demand curve to the right.
B) Increase in money supply which lowered interest rates and shifted the short-run aggregate supply curve to the right.
C) Economic agents revising their expectations about the price level resulting in the short-run aggregate supply curve shifting to the left.
D) Expansionary fiscal and monetary policies that shifted the long-run aggregate supply curve to the right.

Accepted Answer

The answer of Consider the following statement: "President X expressed...

Question 5

Using the equation of exchange, the rate of money growth can be expressed as
A) %∆M * %∆V = (%∆P * %∆Y) ÷ %∆V
B) %∆M = (%∆P + %∆Y) ÷ %∆V
C) %∆M = %∆P + %∆Y - %∆V
D) M * V = P* Y

Accepted Answer

The answer of Using the equation of exchange, the rate...

Question 6

Which of the following affect the values of inflation and unemployment?
I. changes in government spending
II. expectations about the price level
III. changes in nominal wages
IV. changes in money supply
A) I and IV only
B) I, II, and IV only
C) II and III only
D) I, II, III, and IV

Accepted Answer

All of the options can affect both inflation and unemployment. Government spending can stimulate demand in the short run, potentially leading to inflation, while changes in money supply can directly affect inflation. Expectations about the price level can influence the behavior of both consumers and producers, affecting both inflation and employment. Changes in nominal wages can also influence both inflation and employment levels.

Question 7

In early in 1994, the Federal Reserve shifted to a contractionary policy although the economy
Was still in a recessionary gap left over from the 1990-1991 recession. Which of the
Following best explains this move?
A) The Fed was concerned that the budget deficit would increase.
B) The Fed had failed to take into account the lag in monetary policy.
C) The Fed was taking explicit account of the lag in monetary policy.
D) The Fed wanted to avert a potential housing market crisis.

Accepted Answer

The Fed was taking explicit account of the lag in monetary policy. The Fed recognized that it takes time for monetary policy to have an effect on the economy and wanted to start the contractionary policy early to prevent inflationary pressures from building up.

Question 8

Use the following to answer questions .
Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases 
-(Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases) The movement from point 4 to point 5 is consistent with which
Segment in the diagram below? 
A) Segment A to D
B) Segment A to B
C) Segment B to C
D) Segment C to D

Accepted Answer

The answer of Use the following to answer questions .
Exhibit:...

Question 9

Use the following to answer questions .
Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases 
-(Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases) The movement from point 4 to point 5 is consistent with which inflation-unemployment phase?
A) Phillips phase because inflation is increasing while unemployment is falling
B) recovery phase because although inflation has risen, unemployment has fallen
C) growth phase because the economy is producing above its potential output
D) recovery phase because inflation and unemployment have fallen

Accepted Answer

The answer of Use the following to answer questions .
Exhibit:...

Question 10

Use the following to answer questions .
Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases 
-(Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases) The recessionary gap at point 4 was created
A) during the Phillips phase that occurred when the economy moved from point 3 to point 4.
B) when policymakers pursued expansionary policies to move the economy from point 3 to point 4.
C) during the stagflation phase that occurred when the economy moved from point 3 to point 4.
D) during the recovery phase when economic agents revised their price expectations in higher prices.

Accepted Answer

The recessionary gap at point 4 was created during the stagflation phase, which typically involves high inflation and unemployment, leading to a decrease in aggregate demand or supply, moving the economy from point 3 to point 4.

Question 11

Which of the following determines the rate of inflation in the long run?
I. the rate of money growth
II. changes in expectations about the price level
III. the rate of economic growth
IV. changes in government spending
A) I and II only
B) I and III only
C) I, II, and III only
D) I, II, III, and IV

Accepted Answer

In the long run, the rate of inflation is primarily determined by the rate of economic growth (as increased economic activity puts upward pressure on prices) and the rate of money growth (as a larger money supply leads to more spending and higher prices). Changes in expectations about the price level and changes in government spending can have short-term effects on inflation but do not have as much of a long-term impact.

Question 12

Consider the following statement: "President X expressed satisfaction with last year's economic performance. He said that with inflation and unemployment heading down, the nation 'is on the right course.'" Which of the following could have caused this phenomenon?
A) Economic agents revising their expectations about the price level resulting in the short-run aggregate supply curve shifting to the left.
B) Expansionary fiscal and monetary policies that shifted the aggregate demand curve to the right.
C) Increase in money supply which lowered interest rates and shifted the short-run aggregate supply curve to the right.
D) Expansionary fiscal and monetary policies that shifted the long-run aggregate supply curve to the right.

Accepted Answer

Expansionary fiscal and monetary policies that shifted the aggregate demand curve to the right could have caused inflation and unemployment to decrease, resulting in President X expressing satisfaction with last year's economic performance.

Question 13

Consider the following statement: "President X expressed concern about reports of rising inflation but insisted the economy is on the right course. He pointed to recent reductions in unemployment as evidence that his economic policies are working." Identify the stage of the inflation-unemployment relationship.
A) The stagflation phase
B) The recovery phase
C) The Phillips phase
D) The contraction phase

Accepted Answer

The answer of Consider the following statement: "President X expressed...

Question 14

In a recovery phase,
A) the inflation rate rises.
B) although the price level rises, the inflation rate falls.
C) the price level falls.
D) the price level and the inflation rate fall.

Accepted Answer

In a recovery phase, there is an increase in aggregate demand and output, which leads to a rise in prices. However, this rise in prices is not necessarily indicative of inflation, as inflation is a sustained increase in the overall price level. Therefore, although prices may rise in a recovery phase, the inflation rate can actually fall as long as the rate of increase in prices is lower than in previous periods.

Question 15

Which of the following statements is true?
A) The aggregate demand-aggregate supply model attempts to explain the equilibrium level of real GDP and the price level.
B) The aggregate demand-aggregate supply model gives us inflation and the various levels of real GDP.
C) The inflation-unemployment relationships attempt to explain the equilibrium level of real GDP.
D) The inflation-unemployment phases are based on movements up and down the Phillips curve.

Accepted Answer

The answer of Which of the following statements is true?
A)...

Question 16

In the equation of exchange, if velocity is stable,
A) %∆V = 0.
B) %∆V = 1.
C) %∆V is a positive constant value > 0.
D) %∆V = infinity.

Accepted Answer

If velocity is stable, then there is no change in the percentage change in velocity over time. Therefore, %∆V = 0.

Question 17

Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (Y_P) in the long run? A) If %∆M = %∆ Y_P , then %∆P = %∆M. B) If %∆M > %∆ Y_P , then %∆P > 0. C) If %∆M > %∆ Y_P , then %∆P > %∆M. D) If %∆M = %∆ Y_P , then %∆P < 0.

Accepted Answer

According to the equation of exchange, MV = PY, where M is the money supply, V is velocity, P is the price level, and Y is the real output. Assuming velocity is stable, if the economy moves to its potential output in the long run, then Y is equal to Y_P. Therefore, we can rewrite the equation of exchange as %∆M + %∆V = %∆P + %∆Y_P. Since velocity is assumed to be stable, %∆V equals zero. Therefore, %∆P is equal to %∆M minus %∆Y_P. This means that if %∆M is greater than %∆Y_P, then %∆P is positive, indicating inflation. Hence, the correct prediction is B: If %∆M > %∆ Y_P , then %∆P > 0.

Question 18

Since 1979 when inflation soared into the double-digit, the Federal Reserve's policies
A) have been focused on moving the economy to its potential output.
B) have clearly shown a reduced tolerance for inflation.
C) were concentrated on bringing the price of oil down.
D) have moved toward restraining growth in financial markets.

Accepted Answer

The statement mentions that since 1979 when inflation soared into the double-digit, the Federal Reserve's policies have "clearly shown a reduced tolerance for inflation." This suggests that the Federal Reserve's policies have focused on combating inflation rather than the other options listed.

Question 19

In the United States, through most of the 1990s, the unemployment rate and the inflation rate generally fell. With which phase of the inflation-unemployment relationship does this conform to?
A) Phillips phase
B) Growth phase
C) Stagflation phase
D) Recovery phase

Accepted Answer

The falling unemployment rate and inflation rate in the 1990s conform to the Recovery phase of the inflation-unemployment relationship, as the economy was recovering from the recession of the early 1990s. In this phase, unemployment falls while inflation remains low as the economy grows and expands.

Question 20

In the long run, sustained inflation is due to
A) a one-time increase in money growth.
B) a continuous increase in the money growth rate.
C) a continuous increase in aggregate demand.
D) the rising price of oil.

Accepted Answer

Sustained inflation is caused by a continuous increase in the money growth rate. This is because as the money supply expands, there is more money chasing the same amount of goods and services, leading to an increase in prices.

Quiz 16: Inflation and Unemployment

Consider the following statement: "President X expressed satisfaction with last year's economic performance. He said that with inflation and unemployment heading down, the nation 'is on the right course'. " Identify the stage of the inflation-unemployment phase.

Using the equation of exchange, if velocity is stable in the long run, the inflation rate, (%∆P) Can be expressed as

Using the equation of exchange, the rate of money growth can be expressed as

Which of the following affect the values of inflation and unemployment? I. changes in government spending II. expectations about the price level III. changes in nominal wages IV. changes in money supply

In early in 1994, the Federal Reserve shifted to a contractionary policy although the economy Was still in a recessionary gap left over from the 1990-1991 recession. Which of the Following best explains this move?

Use the following to answer questions . Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases -(Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases) The recessionary gap at point 4 was created

Which of the following determines the rate of inflation in the long run? I. the rate of money growth II. changes in expectations about the price level III. the rate of economic growth IV. changes in government spending

Consider the following statement: "President X expressed satisfaction with last year's economic performance. He said that with inflation and unemployment heading down, the nation 'is on the right course.'" Which of the following could have caused this phenomenon?

In a recovery phase,

Which of the following statements is true?

In the equation of exchange, if velocity is stable,

Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (YP) in the long run?

Since 1979 when inflation soared into the double-digit, the Federal Reserve's policies

In the United States, through most of the 1990s, the unemployment rate and the inflation rate generally fell. With which phase of the inflation-unemployment relationship does this conform to?

In the long run, sustained inflation is due to

Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (Y_P) in the long run?