MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The negative relationship between unemployment and inflation is known as the
A) aggregate supply curve.
B) aggregate demand curve.
C) efficiency wage line.
D) Phillips curve.
2) Friedman and Phelps suggested that there should not be a stable relationship between inflation and unemployment, but there should be a stable relationship between
A) anticipated inflation and frictional unemployment.
B) unanticipated inflation and frictional unemployment.
C) anticipated inflation and cyclical unemployment.
D) unanticipated inflation and cyclical unemployment.
3) In the extended classical model, an unanticipated increase in the money supply would cause
output to ________ and the price level to ________ in the short run.
A) decrease; decrease
B) decrease; remain unchanged
C) remain unchanged; increase
D) increase; increase
4) In the extended classical model, an unexpected decrease in aggregate demand would cause 4)
unanticipated inflation to be ________ and cyclical unemployment to be ________.
A) negative; negative
B) positive; negative
C) positive; positive
D) negative; positive
5) In the expectations-augmented Phillips curve, “Inflation = Expected Inflation – 3(unemployment – Full output unemployment). If Inflation= 0.03 when Expected Inflation = 0.06 and Unemployment =0.06, then Full Output Unemployment = _______
A) 0.05.
B) 0.04.
C) 0.02.
D) 0.03.
6) The Phillips curve is the relation between inflation and unemployment that holds for a given 6)
natural rate of unemployment and a
A) given level of unemployment.
B) given rate of inflation.
C) given expected level of unemployment.
D) given expected rate of inflation.
7) Suppose most people had anticipated that inflation would be 3% in the coming year because the
Fed would increase the money supply by 3%. Instead, the Fed increases the money supply by 5%.
In the short run, this would cause actual output to be ________ full-employment output and prices
to increase by ________ 3%.
A) above; less than
B) below; more than
C) above; more than
D) below; less than
8} An increase in the expected rate of inflation would
A) shift the long-run Phillips curve to the right.
B) shift the Phillips curve downward.
C) shift the Phillips curve upward.
D) shift the long-run Phillips curve to the left.
9) If the expected inflation rate is unchanged, a fall in the natural rate of unemployment would
A) not shift the Phillips curve.
B) shift the Phillips curve to the left and shift the long-run Phillips curve to the right.
C) shift the Phillips curve to the right.
D) shift the Phillips curve to the left.
10) A beneficial supply shock would cause
A) a movement up the short-run Phillips curve.
B) the short-run Phillips curve to shift upward and to the right.
C) a movement down the short-run Phillips curve.
D) the short-run Phillips curve to shift downward and to the left.
11) When the economy goes into a recession, there’s an increase in
A) frictional unemployment.
B) structural unemployment.
C) voluntary unemployment.
D) cyclical unemployment.
12) One cost of a perfectly anticipated inflation is that it
A) transfers wealth from lenders to borrowers.
B) damages the role of prices as signals in the economy.
C) increases menu costs.
D) transfers wealth from borrowers to lenders.
13) When actual inflation is greater than expected inflation
A) cyclical unemployment falls, according to Phillips-curve analysis.
B) unemployment falls, according to Phillips-curve analysis.
C) there are transfers from lenders to borrowers.
D) there are transfers from borrowers to lenders.
14) The main determinant of how quickly expected inflation adjusts to changes in monetary policy is
A) the slope of the short-run aggregate supply curve.
B) the slope of the Phillips curve.
C) the credibility of the central bank.
D) the degree of indexation in the economy.
15) Phillips’s research looked at British data on
A) unemployment and inflation.
B) inflation and nominal wage growth.
C) unemployment and nominal wage growth.
D) unemployment and output.
16) Classicals argue that an adverse supply shock would
A) raise both the natural rate of unemployment and the actual rate of unemployment.
B) raise neither the natural rate of unemployment nor the actual rate of unemployment.
C) raise the actual rate of unemployment, but not the natural rate of unemployment.
D) raise the natural rate of unemployment, but not the actual rate of unemployment.
17) Examining data on cyclical unemployment plotted against unanticipated inflation shows
A) a negative relationship.
B) no significant relationship.
C) a relationship only during the 1960s.
D) a positive relationship.
18) The long-run Phillips curve is
A) vertical.
B) downward sloping.
C) horizontal.
D) upward sloping.
19) The fact that the long-run Phillips curve is vertical implies that
A) monetary policy can’t affect unemployment.
B) there is a natural rate of inflation.
C) money is neutral in the long run.
D) money can’t affect inflation in the long run.
Answers (One might be wrong. If you find it speak up.)
- D
- D
- D
- D
- A
- D
- C
- C
- D
- D
- D
- C
- A
- C
- A
- ???
- A
- A
- C