Question 1

Frictional unemployment exists because

Accepted Answer

Frictional unemployment occurs when workers are in between jobs, either because they are just entering the labor market or because they have left their previous job and are searching for a new one. This type of unemployment is inevitable and natural in any economy, but it can be reduced through measures such as job training programs and improving communication between job seekers and employers. Therefore, the best option is D, as it reflects the fact that frictional unemployment exists because it takes time for people seeking jobs and employers seeking workers to find each other.

Question 2

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?

Accepted Answer

If the money growth rate is less than the growth rate in Y_P, there will be deflation because the supply of money is not keeping up with the increase in potential output, leading to downward pressure on prices.

Question 3

The vertical long-run Phillips curve occurs in the long run because

Accepted Answer

The vertical long-run Phillips curve occurs in the long run because the aggregate supply curve is vertical which means that changes in aggregate demand will not change unemployment. In the long run, changes in the price level do not affect employment or output levels, and the economy tends to return to its potential level of output regardless of changes in aggregate demand. This is due to the fact that in the long run, the economy adjusts to changes in the price level, which means that wage and price rigidities do not prevent changes in aggregate demand to change unemployment. Economic agents are also quick to respond to changes in the price level, and there may be lags in monetary and fiscal policies, but these are not the primary reasons for the vertical long-run Phillips curve.

Question 4

In the long run, unemployment
I. will be at the natural rate of unemployment.
II. is made up of structural and frictional unemployment.
III. could be made up of structural, frictional, and cyclical unemployment.

Accepted Answer

Unemployment in the long run will eventually reach the natural rate of unemployment, which is the rate of unemployment that exists when there is no cyclical unemployment. This natural rate of unemployment is made up of structural and frictional unemployment. However, in the short run, there can be cyclical unemployment caused by economic downturns. Therefore, unemployment in the long run could be made up of structural, frictional, and cyclical unemployment.

Question 5

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 3% rate. Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?

Accepted Answer

The equation of exchange is expressed as MV=PY, where M is the money supply, V is velocity, P is price level, and Y is real GDP. Assuming constant velocity, we can solve for P as follows:

P= MV/Y

If the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 3% rate, then the nominal GDP will grow at a rate of 6% (3% + 3%). However, since we assume that velocity is constant, the inflation rate will be equal to the growth rate of the money supply, which is 3%. Therefore, the answer is D, 0%.

Question 6

In the long run, monetary growth

Accepted Answer

In the long run, monetary growth does not affect the natural rate of unemployment, which is determined by factors such as labor market policies and technology.

Question 7

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?

Accepted Answer

The answer of Which of the following predictions can be...

Question 8

What is a reservation wage?

Accepted Answer

A reservation wage is the lowest wage that an unemployed worker would accept, if it were offered.

Question 9

Which of the following statements is true? Economists generally agree that

Accepted Answer

Economists generally agree that while various factors can influence inflation in the short term, sustained inflation is primarily caused by excessive growth in the money supply relative to economic output.

Question 10

Evidence suggests that in general countries with very high

Accepted Answer

Countries with very high inflation rates often experience very high money growth rates because excessive money supply can lead to inflation.

Question 11

In the long run, unemployment will be at the natural rate. This implies that

Accepted Answer

The natural rate of unemployment refers to the level of unemployment that exists in the economy when it is operating at its potential level of output. At this level, there is no relationship between unemployment and inflation, meaning that changes in unemployment do not lead to changes in inflation. Therefore, the long-run Phillips curve is vertical.

Question 12

In the long-run, only a change in the _______ is likely to affect the inflation rate associated
With a particular rate of growth in the money supply.

Accepted Answer

The answer of In the long-run, only a change in...

Question 13

In general, the duration of job search will be shorter if

Accepted Answer

When unemployment compensation benefits decrease, job seekers are incentivized to find employment more quickly, which can lead to a shorter job search duration.

Question 14

The lowest wage that a worker would accept, if offered a job, is called

Accepted Answer

The reservation wage is the lowest wage that a worker would accept if offered a job. This is because the worker is not willing to work for any amount lower than their reservation wage. Option B, a subsistence wage, refers to a wage that is just enough for a worker to survive on, which may be higher or lower than their reservation wage. Option C, the exploitation wage, refers to a wage that is unfairly low and takes advantage of the worker, while option D, the equilibrium market wage, refers to the wage where the amount of labor supplied and the amount demanded are equal, which may or may not be the same as the reservation wage.

Question 15

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 4% rate. Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?

Accepted Answer

The equation of exchange is MV = PY. With constant velocity (V), if the money supply (M) grows at 4% and real GDP (Y) grows at 3%, the difference (1%) is the long-run inflation rate (P).

Question 16

Suppose that rising productivity increases potential output in each period by 4%. Using the equation of exchange, what kind of monetary policy would be needed to maintain a zero rate of inflation at full employment?

Accepted Answer

To maintain a zero rate of inflation at full employment, the money supply should increase at the same rate as potential output, which is 4% per period, according to the equation of exchange (MV=PY).

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?

Accepted Answer

The equation of exchange states that MV = PY, where M is the money supply, V is velocity, P is the price level, and Y is real output. Assuming that velocity is stable and the economy is at potential output in the long run, we can simplify the equation to M = PY. If the money supply grows at a faster rate than Y, then P must increase (since Y is at its potential level). This means that there will be inflation. Therefore, choice A is the correct prediction. Choice B is incorrect because a slower growth rate in the money supply would lead to a decrease in inflation, but it would not necessarily cause deflation. Choice C is incorrect because if the money supply grows at the same rate as Y, there will not necessarily be deflation. Finally, choice D is incorrect because it assumes that the money supply and real output will grow at the same rate, which may not always be the case.

Question 18

As the duration of job search increases, there will likely be

Accepted Answer

The answer of As the duration of job search increases,...

Question 19

In general, economists believe that the Phillips curve is

Accepted Answer

The Phillips curve shows the inverse relationship between inflation and unemployment in the short run, but in the long run, it is thought to become vertical. This is because over time, workers and firms adjust their expectations of inflation to be consistent with actual inflation, making the relationship between the two variables weaker in the long run. Therefore, option C is the best choice.

Question 20

Suppose the full-employment level of real GDP is increasing at a rate of 4% per period. If policymakers are committed to keeping the long-run inflation rate at 3% per period, then what is the targeted money growth rate, assuming constant velocity?

Accepted Answer

The targeted money growth rate should equal the sum of the real GDP growth rate (4%) and the inflation rate (3%), which is 7%, assuming constant velocity.

Quiz 16: Inflation and Unemployment

Frictional unemployment exists because

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?

The vertical long-run Phillips curve occurs in the long run because

In the long run, unemployment I. will be at the natural rate of unemployment. II. is made up of structural and frictional unemployment. III. could be made up of structural, frictional, and cyclical unemployment.

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 3% rate. Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?

In the long run, monetary growth

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?

What is a reservation wage?

Which of the following statements is true? Economists generally agree that

Evidence suggests that in general countries with very high

In the long run, unemployment will be at the natural rate. This implies that

In the long-run, only a change in the _______ is likely to affect the inflation rate associated With a particular rate of growth in the money supply.

In general, the duration of job search will be shorter if

The lowest wage that a worker would accept, if offered a job, is called

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 4% rate. Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?

Suppose that rising productivity increases potential output in each period by 4%. Using the equation of exchange, what kind of monetary policy would be needed to maintain a zero rate of inflation at full employment?

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?

As the duration of job search increases, there will likely be

In general, economists believe that the Phillips curve is

Suppose the full-employment level of real GDP is increasing at a rate of 4% per period. If policymakers are committed to keeping the long-run inflation rate at 3% per period, then what is the targeted money growth rate, assuming constant velocity?

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?

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?

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?