Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
EC 305-Exam1-Ch6
Macro
| Question | Answer |
|---|---|
| The theory of aggregate supply is one of the most controversial in macroeconomics because | economists do not completely agree on the reasons for the slow adjustment of wages and prices after demand-side disturbances |
| Friedman and Phelps argued that the Phillips curve is not stable over time because | workers' expectations about price changes are only wrong temporarily |
| For many government decision makers, the original Phillips curve implied | a trade-off between lowering unemployment at the cost of higher inflation or lowering inflation at the cost of higher unemployment |
| If we look at the annual U.S. unemployment rates over the last three decades, we see | that the unemployment rate exceeded 10% in 1982 |
| The Phillips curve shows a relationship between | rate of change in prices and the rate of unemployment |
| According to the Phillips curve relationship, if unemployment is at the natural rate, then | -the rate of inflation is zero -nominal wages will always be equal to real wages -the labor supply will be totally price elastic -prices will always immediately adjust to changes in money supply E)none of the above |
| The newer view of the Phillips curve implies that | an increase in monetary growth affects unemployment and inflation in the short run, but only affects inflation in the long run |
| The coordination approach to the Phillips curve focuses on the fact that | firms are unsure about their competitors' behavior and are therefore reluctant to change wages and prices following a change in aggregate demand |
| The inflation-expectations-augmented Phillips curve implies that | unemployment is at its natural rate when expected inflation is equal to actual inflation |
| Stagflation, that is, high unemployment combined with high inflation | cannot persist, since the economy eventually will return to full employment |
| The natural rate of unemployment is | the result of labor market friction--people entering the labor force, changing careers, etc. |
| A difference between the inflation-expectations-augmented Phillips curve and the Phillips curve that is based on rational expectations is that | -in lttr pple never make incorrect forecasts -in lttr mntry plcy chng cant affect rate of infl -in frmr change in monetary policy causes an immediate shift in Phillips curve -in frmr expctd infl is always equal to actual infl E)none of the above |
| The rational expectations hypothesis predicts that | -anncd change in monetary policy will not affect the unemployment rate -sht-run Phillips curve will shift as soon as new info about future infl becomes available -level of output will not be affected by any predictable change in mntry plcy D)all |
| If nominal wage rates were completely flexible, then | fiscal policy would affect real money balances but not output |
| The insider-outsider model refers to | -the fact that the unemployed do not take part in collective bargaining -the fact that wages do not respond significantly to changes in the unemployment rate |
| Wages are considered to be sticky rather than flexible since | firms are unsure about their competitors' behavior and only reluctantly change prices and wages following a change in aggregate demand |
| The efficiency wage theory of aggregate supply implies that | -the AS-curve is vertical -paying emply higher wages won't induce them to work harder -even unanticipated changes in monetary or fiscal policy have no effect on the level of output E)none |
| The inverse relationship between inflation and unemployment is called | the Phillips curve |
| Okun's law states that one extra percentage point in unemployment causes | real GDP to fall by about 2 percent |
| Robert Lucas modified the rational expectations argument by | allowing for the role of forecasting errors |
| Restrictive monetary policy will eventually affect the upward-sloping AS-curve since | the resulting unemployment will cause downward pressure on nominal wages, so the cost of production will decrease |
| In the medium run the aggregate supply curve is upward sloping since | firms encounter costs in resetting prices and are reluctant to change wages following a change in aggregate demand |
| The fact that nominal wages are fixed by a contract at the beginning of a period while prices of goods may change within that period, implies that | firms want to supply more output when prices increase since the real wage rate is lower |
| The unemployment gap | -always grows twice as fast as the output gap -always is negative -always increases as the rate of inflation increases -always stays at its natural level E)none of the above |
| Which of the following is NOT used in deriving the AS-curve in Chapter 6? | the quantity theory of money |
| The upward-sloping AS-curve will shift eventually to the left if | actual output is higher than the full-employment level |
| Which of the following is NOT true? | the Phillips curve shifts as soon as actual inflation changes |
| Assume the Fed implements restrictive monetary policy. Which of the following is the most likely result in an AD-AS framework with an upward sloping AS-curve? | the interest rate will increase but output, prices, and real money balances will fall |
| In an AD-AS model with an upward-sloping AS-curve, the most likely effects of fiscal expansion would be | an increase in prices and interest rates, but a decrease in real money balances |
| In the medium run, a price increase combined with a decrease in the unemployment rate is most likely the result of | expansionary fiscal or monetary policy |
| Assume output is at its full-employment level and the Fed restricts money supply. What is the most likely outcome? | -no change in nominal wages in the short run, but a decline in output and prices in the medium run -a decrease in nominal wages and prices in proportion to money supply, but no change in output and real interest rates in the long run |
| Assume the economy is at full employment. Which is the most likely effect of a decrease in government spending? | prices and interest rates will decrease in the medium and long run while output will be negatively affected in the medium run but not in the long run |
| Assume the economy is at full employment and the Fed restricts money supply. What will be the effects on output and prices? | in the medium run output and prices will both decrease, but in the long run output will remain the same, while prices will decrease |
| The most likely long-run result of a tax cut would be | more consumption and less investment, with output remaining unchanged |
| In the long run, real money balances | are not affected by restrictive monetary policy, but increase if restrictive fiscal policy is employed |
| In the long run, monetary expansion should have the following result: | -nominal wages change in proportion to nominal money supply -real interest rates remain constant -real wages remain constant -nominal wages and prices change in proportion to nominal money supply E)all of the above |
| In an AD-AS model with an upward sloping AS-curve, what would happen if oil prices increased and the Fed responded by restricting money supply? | real output would decrease but we can't tell what would happen to the price level |
| What sort of event could lead to a simultaneous decrease in the rates of inflation and unemployment? | a decrease in material prices |
| In the static AD-AS model, what is the most likely long-run outcome of an oil price increase, if no policy change is implemented? | real wages will decline while the levels of output and prices will remain unchanged |
| In the AD-AS model with an upward-sloping AS-curve, a decrease in oil prices will | decrease prices and increase output |
| Which of the following is the most likely medium-run outcome of an adverse supply shock? | a decrease in real GDP |
| Suppose an increase in oil prices is accompanied by a decline in the level of potential output. Which of the following is the most likely long-run effect? | real GDP will decrease but prices will increase |
| If policy makers want to get the price level quickly back to its original level following an adverse supply shock, they need to | implement restrictive monetary policy |
| In the 1990s, the consumer price index | increased slightly despite a drastic decrease in computer prices |
| If the government stimulates aggregate demand in response to an adverse supply shock, | an increase in unemployment can be avoided but only at the cost of increased inflation |
| Assume the economy is at full employment. If the Fed accommodates an increase in oil prices by expansionary monetary policy, what will be the long-run effects on unemployment and prices? | unemployment will remain the same but prices would increase |
| When we look at the real (inflation adjusted) price of crude oil over the last four decades, we realize that | -oil prices doubled between 1971 and 1974 -oil prices did not change much between 1974 and 1978 -oil prices more than doubled between 1978 and 1981 -oil prices were lower in 1998 than in 1978 E)all of the above |
| In the long run, an increase in nominal money supply will | cause both the nominal wage rate and the price level to rise proportionately, leaving the real wage rate and output unchanged |
| In the long run, what event(s) can lead to an increase in inflation without changing the unemployment rate above its natural level? | an adverse supply shock accommodated by expansionary monetary policy |
| Which of the following event(s) most likely will leave prices relatively unchanged while increasing output? | expansionary fiscal policy employed after a favorable supply shock |
Created by:
jwtroupe
Popular Economics sets