Question 1

The economy starts out at a full-employment equilibrium. Some events then occur that generate a demand-pull inflation. All of the following events except an increase in ________ might start a demand-pull inflation.

Accepted Answer

An increase in the money wage rate would not start a demand-pull inflation; instead, it might lead to cost-push inflation. Demand-pull inflation is typically initiated by an increase in aggregate demand, which can be caused by increases in exports, the quantity of money, government expenditure, or transfer payments.

Question 2

Use the figure below to answer the following questions.
  
Figure 28.2.6
-Refer to Figure 28.2.6. Starting at point A, the initial effect of a demand-pull inflation is a move to point ________. As a demand-pull inflation spiral proceeds, it follows the path ________.

Accepted Answer

The answer of Use the figure below to answer the...

Question 3

Stagflation is the result of

Accepted Answer

Stagflation occurs when there is a decrease in short-run aggregate supply, which leads to an increase in the price level and a decrease in output. This is different from typical inflation, which is caused by an increase in aggregate demand.

Question 4

Deflation is

Accepted Answer

Deflation refers to a persistent and ongoing falling price level. It is characterized by a decrease in the overall level of prices of goods and services in an economy over a period of time, which can lead to a decrease in aggregate demand, and ultimately to negative economic consequences such as recession and unemployment. Deflation is not a one-time event and is distinct from short-term price fluctuations in specific markets. It is not always accompanied by a change in the natural unemployment rate. Deflation can occur in the twenty-first century, and has happened in the past.

Question 5

Suppose OPEC unexpectedly collapses, which leads to a fall in the price of oil. As a result, the price level

Accepted Answer

A fall in oil prices reduces production costs, leading to lower price levels and increased real GDP due to higher aggregate supply.

Question 6

The economy starts out at a full-employment equilibrium. Some events then occur that generate a cost-push inflation. Which of the following events might start a cost-push inflation?

Accepted Answer

An increase in the money wage rate or an increase in the money prices of raw materials can lead to cost-push inflation because producers face increased production costs, which they pass on to consumers in the form of higher prices. This can trigger a cycle of wage-price increases as workers demand higher wages to keep up with the rising cost of living, which in turn prompts further price increases. The other events listed are not likely to initiate cost-push inflation.

Question 7

Deflation ends with

Accepted Answer

Deflation is a decrease in the overall level of prices, which can be caused by a decrease in the quantity of money circulating in the economy. Thus, to end deflation, there needs to be an increase in the quantity of money, which can be achieved by increasing the growth rate of the money stock (e.g. through expansionary monetary policy). This would increase demand in the economy, leading to an increase in prices and a decrease in deflation. Therefore, choice A is the best answer.

Question 8

A forecast that is based on all the relevant information available is

Accepted Answer

A forecast that is based on all the relevant information available is called a rational expectation. This approach is based on the assumption that people make predictions using all available information, including past trends and current economic conditions. While no forecast can be entirely accurate, the rational expectation approach is considered to be the best available prediction method because it takes into account all factors that might affect future outcomes.

Question 9

Use the information below to answer the following question.
Fact 28.2.1 High Food and Energy Prices Here to Stay
On top of rising energy prices, a severe drought, bad harvests, and a poor monsoon season in Asia have sent grain prices soaring. Globally, this is the third major food price shock in five years.
Source: The Telegraph, August 29, 2012
-Consider Fact 28.2.1. The news clip is describing ________ inflation.

Accepted Answer

The news clip describes inflation caused by rising food and energy prices, which are factors that increase the cost of production for goods and services. This is known as cost-push inflation.

Question 10

Deflation occurs when

Accepted Answer

Deflation occurs when the overall demand for goods and services in an economy decreases, which can happen when aggregate demand increases at a persistently slower rate than aggregate supply. This can lead to a decrease in prices and economic activity, and can create a negative feedback loop as businesses reduce production and employment in response to lower demand.

Question 11

An unanticipated deflation does all of the following except

Accepted Answer

Unanticipated deflation increases the real wages of workers with long-term wage contracts because the nominal wages remain the same while the price level falls, increasing the purchasing power of their wages.

Question 12

Use the figure below to answer the following question.
  
Figure 28.2.5
-Refer to Figure 28.2.5. Which one of the graphs in the figure represents an economy experiencing stagflation?

Accepted Answer

The answer of Use the figure below to answer the...

Question 13

Along the short-run Phillips curve, everything remaining the same, the higher the

Accepted Answer

Along the short-run Phillips curve, there is an inverse relationship between the unemployment rate and the inflation rate. As the unemployment rate increases, there is less competition for jobs among workers, leading to lower wages and prices, and thus lower inflation. Conversely, as the unemployment rate decreases, workers are in higher demand, leading to higher wages and prices, and thus higher inflation. The other options are not directly related to the short-run Phillips curve.

Question 14

Use the figure below to answer the following questions.
  
Figure 28.2.6
-Refer to Figure 28.2.6. Starting at point A, the initial effect of a cost-push inflation is a move to point ________. As a cost-push inflation spiral proceeds, it follows the path ________.

Accepted Answer

The answer of Use the figure below to answer the...

Question 15

Suppose that the money prices of raw materials rise. With no action by the Bank of Canada, I. the aggregate demand curve shifts rightward and the price level rises.
II. the aggregate demand curve shifts rightward and the aggregate supply curve shifts leftward.
III. the initial outcome is lower employment and a rise in the price level.

Accepted Answer

The correct answer is III only because when the money prices of raw materials rise, it increases the cost of production for companies, leading to a decrease in aggregate supply (shifts leftward), not an increase in aggregate demand. This results in higher prices and lower employment in the short run, as companies produce less due to higher costs.

Question 16

Choose the statement that is incorrect.

Accepted Answer

Deflation is characterized by a negative inflation rate, meaning the overall price level is falling, not just decreasing at a positive rate.

Question 17

When the price level is rising and, simultaneously, real GDP is decreasing,

Accepted Answer

Stagflation occurs when there is both high inflation and low economic growth, which is what is described in the scenario presented. This typically results in a difficult economic environment, as high inflation reduces purchasing power while low growth limits job opportunities and income.

Question 18

Suppose aggregate demand increases by more than expected. Which of the following does not occur?

Accepted Answer

Stagflation (a situation of both inflation and unemployment) is not necessarily a guaranteed outcome of an increase in aggregate demand. The other options are all possible outcomes of an unexpected increase in aggregate demand.

Question 19

A correctly anticipated increase in the quantity of money

Accepted Answer

A correctly anticipated increase in the quantity of money leads to a proportional increase in the price level, leaving real GDP unchanged in the long run, according to the classical dichotomy and the neutrality of money.

Question 20

Choose the statement that is incorrect.

Accepted Answer

An increase in aggregate supply at a slower rate than aggregate demand would typically lead to inflation, not a fall in the price level.

Quiz 28: The Business Cycle, Inflation, and Deflation

The economy starts out at a full-employment equilibrium. Some events then occur that generate a demand-pull inflation. All of the following events except an increase in ________ might start a demand-pull inflation.

Use the figure below to answer the following questions. Figure 28.2.6 -Refer to Figure 28.2.6. Starting at point A, the initial effect of a demand-pull inflation is a move to point . As a demand-pull inflation spiral proceeds, it follows the path .

Stagflation is the result of

Deflation is

Suppose OPEC unexpectedly collapses, which leads to a fall in the price of oil. As a result, the price level

The economy starts out at a full-employment equilibrium. Some events then occur that generate a cost-push inflation. Which of the following events might start a cost-push inflation?

Deflation ends with

A forecast that is based on all the relevant information available is

Deflation occurs when

An unanticipated deflation does all of the following except

Use the figure below to answer the following question. Figure 28.2.5 -Refer to Figure 28.2.5. Which one of the graphs in the figure represents an economy experiencing stagflation?

Along the short-run Phillips curve, everything remaining the same, the higher the

Use the figure below to answer the following questions. Figure 28.2.6 -Refer to Figure 28.2.6. Starting at point A, the initial effect of a cost-push inflation is a move to point . As a cost-push inflation spiral proceeds, it follows the path .

Choose the statement that is incorrect.

When the price level is rising and, simultaneously, real GDP is decreasing,

Suppose aggregate demand increases by more than expected. Which of the following does not occur?

A correctly anticipated increase in the quantity of money

Choose the statement that is incorrect.

Quiz 28: The Business Cycle, Inflation, and Deflation

The economy starts out at a full-employment equilibrium. Some events then occur that generate a demand-pull inflation. All of the following events except an increase in ________ might start a demand-pull inflation.

Use the figure below to answer the following questions. Figure 28.2.6 -Refer to Figure 28.2.6. Starting at point A, the initial effect of a demand-pull inflation is a move to point ________. As a demand-pull inflation spiral proceeds, it follows the path ________.

Stagflation is the result of

Deflation is

Suppose OPEC unexpectedly collapses, which leads to a fall in the price of oil. As a result, the price level

The economy starts out at a full-employment equilibrium. Some events then occur that generate a cost-push inflation. Which of the following events might start a cost-push inflation?

Deflation ends with

A forecast that is based on all the relevant information available is

Deflation occurs when

An unanticipated deflation does all of the following except

Use the figure below to answer the following question. Figure 28.2.5 -Refer to Figure 28.2.5. Which one of the graphs in the figure represents an economy experiencing stagflation?

Along the short-run Phillips curve, everything remaining the same, the higher the

Use the figure below to answer the following questions. Figure 28.2.6 -Refer to Figure 28.2.6. Starting at point A, the initial effect of a cost-push inflation is a move to point ________. As a cost-push inflation spiral proceeds, it follows the path ________.

Choose the statement that is incorrect.

When the price level is rising and, simultaneously, real GDP is decreasing,

Suppose aggregate demand increases by more than expected. Which of the following does not occur?

A correctly anticipated increase in the quantity of money

Choose the statement that is incorrect.

Use the figure below to answer the following questions. Figure 28.2.6 -Refer to Figure 28.2.6. Starting at point A, the initial effect of a demand-pull inflation is a move to point . As a demand-pull inflation spiral proceeds, it follows the path .

Use the figure below to answer the following questions. Figure 28.2.6 -Refer to Figure 28.2.6. Starting at point A, the initial effect of a cost-push inflation is a move to point . As a cost-push inflation spiral proceeds, it follows the path .