Question 1

Which of the following depends primarily on the growth rate of the money supply?
A) inflation and the natural rate of unemployment
B) inflation but not the natural rate of unemployment
C) the natural rate of unemployment but not inflation
D) neither inflation nor the natural rate of unemployment

Accepted Answer

Inflation depends primarily on the growth rate of the money supply, while the natural rate of unemployment is determined by factors such as demographic trends, labor market institutions, and technology.

Question 2

In the long run,
A) the natural rate of unemployment depends primarily on the level of aggregate demand.
B) inflation depends primarily upon the money supply growth rate.
C) there is a tradeoff between the inflation rate and the natural rate of unemployment.
D) All of the above are correct.

Accepted Answer

In the long run, the natural rate of unemployment is mostly determined by structural factors and institutional characteristics of the labor market, rather than aggregate demand. On the other hand, the quantity theory of money suggests that the inflation rate is mainly influenced by changes in the money supply growth rate. While there may be a short-term tradeoff between inflation and unemployment, the long-run Phillips curve is vertical, implying that there is no permanent tradeoff between these variables. Therefore, only option B is correct.

Question 3

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are
A) downward pressures on prices and wages.
B) downward pressures on prices and upward pressures on wages.
C) upward pressures on prices and downward pressures on wages.
D) upward pressures on prices and wages.

Accepted Answer

In the short run, high unemployment creates a surplus of labor, which puts downward pressure on wages as workers compete for a limited number of jobs. As wages fall, firms may also lower their prices in order to attract consumers with lower prices. This leads to a negative relationship between unemployment and inflation, which is the basis for the slope of the short-run Phillips curve.

Question 4

In the long run, inflation
A) and unemployment are primarily determined by labor market factors.
B) and unemployment are primarily determined by the rate of money supply growth.
C) is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors.
D) is primarily determined by labor market factors while unemployment is primarily determined by the rate of money supply growth.

Accepted Answer

Inflation is primarily determined by the rate of money supply growth because an increase in the money supply tends to increase demand for goods and services, leading to rising prices. On the other hand, unemployment is primarily determined by labor market factors such as the availability of jobs, skills of workers, and labor market regulations.

Question 5

In his famous article published in an economics journal in 1958, A.W. Phillips
A) used data for the United States to show a negative relationship between the rate of change of the U.S. consumer price index and the U.S. unemployment rate.
B) used data for the United States to show a negative relationship between the rate of change of wages in the U.S. and the U.S. unemployment rate.
C) used data for the United Kingdom to show a negative relationship between the rate of change of the U.K. consumer price index and the U.K. unemployment rate.
D) used data for the United Kingdom to show a negative relationship between the rate of change of wages in the U.K. and the U.K. unemployment rate.

Accepted Answer

The answer of In his famous article published in an...

Question 6

The misery index is calculated as the
A) inflation rate plus the unemployment rate.
B) unemployment rate minus the inflation rate.
C) actual inflation rate minus the expected inflation rate.
D) natural unemployment rate times the inflation rate

Accepted Answer

The misery index is calculated by adding the inflation rate and the unemployment rate. It is a measure of economic distress experienced by individuals and households in an economy. Higher inflation rates mean prices are increasing, which can impact the purchasing power of consumers. High unemployment rates mean that there are fewer job opportunities, which can lead to financial insecurity for those without a job. Therefore, a higher misery index indicates greater economic hardship for individuals and households.

Question 7

In the long run, which of the following depends primarily on the growth rate of the money supply?
A) the natural rate of unemployment and the inflation rate
B) the natural rate of unemployment but not the inflation rate
C) the inflation rate but not the natural rate of unemployment
D) neither the natural rate of unemployment nor the inflation rate

Accepted Answer

In the long run, the natural rate of unemployment is determined by factors such as demographics, technology, and institutional factors that are independent of monetary policy. However, the inflation rate in the long run is primarily driven by the growth rate of the money supply. This is because, in the long run, prices and wages adjust to changes in the money supply, and therefore, an increase in the money supply leads to a proportional increase in prices and inflation.

Question 8

The misery index is supposed to measure the
A) social cost of unemployment.
B) health of the economy.
C) lost output associated with a particular unemployment rate.
D) short-run tradeoff between inflation and unemployment.

Accepted Answer

The answer of The misery index is supposed to measure...

Question 9

The economist A.W. Phillips published a famous article in 1958 in which he showed a
A) negative correlation between the rate of unemployment and the rate of inflation.
B) positive correlation between the rate of unemployment and the rate of inflation.
C) negative correlation between the rate of unemployment and the rate of interest.
D) positive correlation between the rate of unemployment and the rate of interest

Accepted Answer

In his 1958 article, A.W. Phillips introduced the concept of the Phillips Curve, which demonstrated a negative correlation between the rate of unemployment and the rate of inflation. This means that as unemployment decreases, inflation tends to increase, and vice versa. This relationship has been subject to criticism and refinements over time, but the concept of the Phillips Curve remains an important pillar of macroeconomic theory.

Question 10

Which of the following statements is correct?
A) In the short run, unemployment and inflation are positively related. In the long run they are largely unrelated problems.
B) Inflation and unemployment are positively related in the short run and in the long run.
C) In the short run, unemployment and inflation are negatively related. In the long run they are largely unrelated problems.
D) Inflation and unemployment are negatively related in the short run and in the long run.

Accepted Answer

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

Question 11

Economist A.W. Phillips found a negative correlation between
A) output and unemployment.
B) unemployment and the interest rate.
C) output and the interest rate.
D) wage inflation and unemployment.

Accepted Answer

A.W. Phillips found a negative correlation between wage inflation and unemployment, meaning as unemployment decreases, wage inflation increases and vice versa. This relationship later became known as the Phillips curve, and became an important concept in macroeconomic theory.

Question 12

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short- run consequence of this contraction?
A) The inflation rate decreases.
B) The level of output decreases.
C) The unemployment rate increases.
D) All of the above are correct.

Accepted Answer

The answer of Suppose policymakers take actions that cause a...

Question 13

One determinant of the natural rate of unemployment is the
A) rate of growth of the money supply.
B) minimum wage rate.
C) expected inflation rate.
D) All of the above are correct.

Accepted Answer

The answer of One determinant of the natural rate of...

Question 14

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?
A) Short-run aggregate supply decreases.
B) The natural rate of unemployment increases.
C) The price level increases more rapidly.
D) The money supply increases less rapidly.

Accepted Answer

When policymakers expand aggregate demand, there is an increase in spending and demand for goods and services, causing an increase in prices in the short run. This is due to the fact that firms cannot increase production immediately, leading to higher prices for the limited available goods and services. Therefore, the cost incurred in the short run when monetary and fiscal policymakers expand aggregate demand is an increase in the rate of inflation.

Question 15

In the long run,
A) the natural rate of unemployment depends primarily on the level of aggregate demand.
B) inflation depends primarily upon the money supply growth rate.
C) there is a tradeoff between the inflation rate and the natural rate of unemployment.
D) All of the above are correct.

Accepted Answer

The answer of In the long run,
A) the natural rate...

Question 16

Closely watched indicators such as the inflation rate and unemployment are released each month by the
A) Bureau of the Budget.
B) Bureau of Labor Statistics.
C) Department of the Treasury.
D) President's Council of Economic Advisors.

Accepted Answer

The Bureau of Labor Statistics releases monthly updates on unemployment and inflation rates. The Bureau of the Budget falls under the executive branch and is mainly responsible for overseeing the budget of the federal government. The Department of the Treasury is involved in fiscal policy, including managing debt and revenue collection, but is not directly responsible for releasing economic indicators. The President's Council of Economic Advisors provides advice to the President on economic policy but does not release economic data.

Question 17

A.W. Phillips found a
A) positive relation between unemployment and inflation in the United Kingdom.
B) positive relation between unemployment and inflation in the United States.
C) negative relation between unemployment and inflation in the United States.
D) negative relation between unemployment and inflation in the United Kingdom.

Accepted Answer

A.W. Phillips found a negative relation between unemployment and inflation in the United Kingdom, now known as the Phillips Curve.

Question 18

One determinant of the long-run average unemployment rate is the
A) market power of unions, while the inflation rate depends primarily upon government spending.
B) minimum wage, while the inflation rate depends primarily upon the money supply growth rate.
C) rate of growth of the money supply, while the inflation rate depends primarily upon the market power of unions.
D) existence of efficiency wages, while the inflation rate depends primarily upon the extent to which firms are competitive.

Accepted Answer

The minimum wage affects the long-run average unemployment rate, as higher minimum wages may lead to higher unemployment rates due to increased costs for employers. On the other hand, inflation rate depends primarily upon the growth rate of money supply, as higher money supply leads to increased demand for goods and services, which can result in higher prices.

Question 19

A. W. Phillips' findings were based on data
A) from 1861-1957 for the United Kingdom.
B) from 1861-1957 for the United States.
C) mostly from the post-World War II period in the United Kingdom.
D) mostly from the post-World War II period in the United States.

Accepted Answer

The answer of A. W. Phillips' findings were based on...

Question 20

The short-run relationship between inflation and unemployment is often called
A) the Classical Dichotomy.
B) Money Neutrality.
C) the Phillips curve.
D) None of the above is correct.

Accepted Answer

The short-run relationship between inflation and unemployment is referred to as the Phillips curve, named after economist A.W. Phillips who first observed this relationship in the UK labor market in the 1950s. The Phillips curve shows a negatively sloped relationship between inflation and unemployment in the short run, suggesting that lower levels of unemployment are associated with higher levels of inflation and vice versa.

Quiz 17: The Short-Run Tradeoff Between Inflation and Unemployment

Which of the following depends primarily on the growth rate of the money supply?

In the long run,

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

In the long run, inflation

In his famous article published in an economics journal in 1958, A.W. Phillips

The misery index is calculated as the

In the long run, which of the following depends primarily on the growth rate of the money supply?

The misery index is supposed to measure the

The economist A.W. Phillips published a famous article in 1958 in which he showed a

Which of the following statements is correct?

Economist A.W. Phillips found a negative correlation between

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short- run consequence of this contraction?

One determinant of the natural rate of unemployment is the

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?

In the long run,

Closely watched indicators such as the inflation rate and unemployment are released each month by the

A.W. Phillips found a

One determinant of the long-run average unemployment rate is the

A. W. Phillips' findings were based on data

The short-run relationship between inflation and unemployment is often called