Question 1

The natural unemployment rate is ________ unemployment rates.

Accepted Answer

The natural unemployment rate is the sum of structural and frictional (also known as mismatch) unemployment rates, reflecting the normal level of unemployment in an economy due to factors other than economic cycles.

Question 2

The "key ingredient" in ending a hyperinflation is to

Accepted Answer

A hyperinflation is often caused by a large and unsustainable budget deficit, which means the government is spending more money than it can afford. To end the hyperinflation, the government must reduce its budget deficit, either by cutting spending or by increasing its revenue through taxes. This will ultimately decrease the demand for money, which will stabilize prices and end the hyperinflation. The other choices are not likely to be effective in ending a hyperinflation. Allowing the money supply to grow more rapidly would only exacerbate inflation, requiring wage contracts to be indexed more frequently would not address the underlying problem of a large budget deficit, and devaluing the currency in the foreign exchange market would only temporarily improve the competitiveness of the country's exports without solving the fundamental problem of a large budget deficit.

Question 3

Higher inflation is particularly damaging to the real value of

Accepted Answer

The answer of Higher inflation is particularly damaging to the...

Question 4

If a rise in anticipated inflation produces for some reason a less-than-equal rise in the nominal interest rate,this ________ the costs of anticipated inflation by ________ saving.

Accepted Answer

If the nominal interest rate rises less than the anticipated inflation, the real interest rate falls, which discourages saving and increases the costs of anticipated inflation.

Question 5

The "nominal" interest rate is the

Accepted Answer

The "nominal" interest rate is the rate of interest before adjusting for inflation, which is the rate actually quoted in financial markets.

Question 6

Investment and saving decisions are assumed by economists to depend on the ________ interest rate.

Accepted Answer

Expected real interest rate is the nominal interest rate minus the expected inflation rate. It is the interest rate that investors and savers care about when making decisions about how much to invest and save.

Question 7

Which of the following would NOT reduce the natural rate of unemployment?

Accepted Answer

The natural rate of unemployment is determined by structural and frictional factors, not by fiscal policies like tax cuts or government spending, nor by wage or price controls.

Question 8

If a worker receives 6 percent higher nominal wages over a year in which inflation is 2 percent,the worker's real wages have

Accepted Answer

Real wages can be calculated by subtracting the inflation rate from the nominal wage increase. In this case, the real wage increase would be 6% - 2% = 4%. Therefore, the worker's real wages have risen by 4%.

Question 9

For inflation to have no real effect on the economy,leaving all decisions and their real outcomes unchanged,five conditions must be met.Which of the following incorrectly states one of those conditions?

Accepted Answer

Inflation of P₀ percent should increase the nominal interest rate by P₀ above the no-inflation nominal rate, not lower it. This is known as Fisher effect.

Question 10

For inflation to have no real effect on the economy,leaving all decisions and their real outcomes unchanged,five conditions must be met.Which of the following incorrectly states one of those conditions?

Accepted Answer

The incorrect statement is D because for inflation to have no real effect, it's necessary that the tax system adjusts for inflation by taxing only real interest income and allowing deductions for the real cost of borrowing, not just the nominal values.

Question 11

The turnover view of unemployment stresses that

Accepted Answer

The turnover view of unemployment emphasizes that there are incentives for workers to refuse jobs, such as waiting for better opportunities or benefits, rather than immediately accepting available positions.

Question 12

If an increase in expected inflation equally raises the nominal interest rate,the expected real interest rate ________ and thus investment demand ________.

Accepted Answer

The Fisher effect posits that an increase in expected inflation leads to a proportional increase in nominal interest rates, leaving the expected real interest rate unchanged. Consequently, investment demand remains unchanged as well.

Question 13

The most basic cause of unemployment in the United States is that

Accepted Answer

The natural rate of unemployment is the rate that exists when the labor market is in equilibrium, with no cyclical unemployment. It is influenced by factors such as demographics, government policies, and technological change, and is considered to be around 4-5% in the United States. Therefore, some level of unemployment is always present, even in a healthy economy.

Question 14

The "expected real" interest rate is the

Accepted Answer

The expected real interest rate is the rate actually quoted in financial markets minus the expected inflation rate. This is because the real interest rate is the nominal interest rate (the rate quoted in financial markets) adjusted for inflation. When the expected inflation rate is subtracted from the nominal interest rate, the resulting number is the expected real interest rate.

Question 15

It is estimated that a 10 percent inflation in the United States would bear a shoe-leather cost of approximately ________ percent of GDP.

Accepted Answer

Shoe-leather costs refer to the costs associated with the time and effort people spend trying to counteract the effects of inflation, such as holding less cash and making more frequent trips to the bank. These costs are relatively small compared to the overall economy, hence the correct answer is 0.25 percent of GDP.

Question 16

Which of the following is NOT one of the "unholy trinity" of events that interact to fuel an explosive hyperinflation?

Accepted Answer

The "unholy trinity" of events that interact to fuel an explosive hyperinflation are supply shocks, monetary accommodation, and frequent wage indexation. Exchange rate appreciation is not one of these events.

Question 17

In the 1980s,the federal government gradually ________ interest-rate ceiling on deposits at commercial banks and thrift institutions,which has ________ the costs of inflation.

Accepted Answer

The word "gradually" implies a process of removal, so A and B can be eliminated as they suggest imposition rather than removal. The phrase "lowered the costs of inflation" suggests that interest rates were lowered, which is consistent with the idea of lifting the interest-rate ceiling. Therefore, the best choice is C - lifted, lowered.

Question 18

The "shoe-leather" cost of a fully anticipated inflation is

Accepted Answer

"Shoe-leather" cost refers to the increased cost of transactions due to people holding less cash and making more frequent trips to the bank to withdraw money, as they try to minimize the loss of purchasing power from inflation.

Question 19

Unemployment due to the normal processes of quitting and searching for jobs is called ________ unemployment.

Accepted Answer

Turnover unemployment is associated with the normal process of workers leaving jobs to find better ones, reflecting the natural movement and dynamics within the labor market.

Question 20

Supply shocks are a potential source of higher inflation,unless the government counters with ________ policy that ________ the money growth rate.

Accepted Answer

Supply shocks can lead to higher inflation as they reduce the supply of goods and services, leading to higher prices. A government can counter this by adopting an extinguishing policy that reduces the money growth rate, thereby reducing inflationary pressures by making less money available in the economy.

Quiz 10: The Goals of Stabilization Policy: Low Inflation and Low Unemployment

The natural unemployment rate is ________ unemployment rates.

The "key ingredient" in ending a hyperinflation is to

Higher inflation is particularly damaging to the real value of

If a rise in anticipated inflation produces for some reason a less-than-equal rise in the nominal interest rate,this the costs of anticipated inflation by saving.

The "nominal" interest rate is the

Investment and saving decisions are assumed by economists to depend on the ________ interest rate.

Which of the following would NOT reduce the natural rate of unemployment?

If a worker receives 6 percent higher nominal wages over a year in which inflation is 2 percent,the worker's real wages have

For inflation to have no real effect on the economy,leaving all decisions and their real outcomes unchanged,five conditions must be met.Which of the following incorrectly states one of those conditions?

For inflation to have no real effect on the economy,leaving all decisions and their real outcomes unchanged,five conditions must be met.Which of the following incorrectly states one of those conditions?

The turnover view of unemployment stresses that

If an increase in expected inflation equally raises the nominal interest rate,the expected real interest rate and thus investment demand .

The most basic cause of unemployment in the United States is that

The "expected real" interest rate is the

It is estimated that a 10 percent inflation in the United States would bear a shoe-leather cost of approximately ________ percent of GDP.

Which of the following is NOT one of the "unholy trinity" of events that interact to fuel an explosive hyperinflation?

In the 1980s,the federal government gradually interest-rate ceiling on deposits at commercial banks and thrift institutions,which has the costs of inflation.

The "shoe-leather" cost of a fully anticipated inflation is

Unemployment due to the normal processes of quitting and searching for jobs is called ________ unemployment.

Supply shocks are a potential source of higher inflation,unless the government counters with policy that the money growth rate.