Question 1

What is the Lucas critique, and why was it so important to macroeconomists in the 1970s?

Accepted Answer

The Lucas critique suggests that histori...

Question 2

One cost of an unanticipated inflation is that it

Accepted Answer

A)   damages the role of prices as signals in the economy.
B)   transfers wealth from borrowers to lenders.
C)   decreases menu costs.
D)   increases the purchasing power of money.

Question 3

Milton Friedman and Edmund Phelps questioned

Accepted Answer

A)   the use of expectations in the Phillips curve.
B)   the stability of the relationship between inflation and unemployment.
C)   the existence of a natural rate of unemployment.
D)   the existence of a full-employment level of output.

Question 4

Hysteresis in unemployment means

Accepted Answer

A)   many people counted as employed are really underemployed.
B)   the natural rate of unemployment changes in response to the actual rate of unemployment.
C)   there is no natural rate of unemployment; there is a natural rate of inflation instead.
D)   the actual unemployment rises when the natural rate of unemployment rises.

Question 5

How would each of the following changes likely affect the natural unemployment rate?
a. Government increases the subsidies for training workers.
b. According to a new law, the laid off employees will receive a higher lump sum payment.
c. In a new law, the number of months an unemployed worker can receive benefit is reduced by half.
d. An aggressive easy monetary policy introduced to keep unemployment rate low.

Accepted Answer

a. Higher subsidies for training workers...

Question 6

In the expectations-augmented Phillips curve π = πe - 3(u - .06) , when π = .06 and πe = .03, the unemployment rate is

Accepted Answer

A)   .03.
B)  .05.
C)  .) 07.
D)  .09.

Question 7

Ball found that an important factor affecting the sacrifice ratio is

Accepted Answer

A)   the flexibility of the labour market.
B)   the shape of the yield curve.
C)   the real interest rate.
D)   the tightness of fiscal policy.

Question 8

The origin of the idea of a trade-off between inflation and unemployment was a 1958 article by

Accepted Answer

A)   A.W. Phillips.
B)   Edmund Phelps.
C)   Milton Friedman.
D)   Robert Gordon.

Question 9

If the expected rate of inflation rose at the same time the natural rate of unemployment rose, the Phillips curve

Accepted Answer

A)   would shift down.
B)   would shift up.
C)   would not move.
D)   might shift up or down or not move, depending on which effect was larger.

Question 10

Which of the following forms of unemployment probably imposes the greatest personal costs?

Accepted Answer

A)   frictional unemployment
B)   structural unemployment
C)   cyclical unemployment
D)   voluntary unemployment

Question 11

The Bank of Canada announces that it will increase the money supply by 5 percent for the next five years. This will cause

Accepted Answer

A)   the expected inflation to increase and the Phillips curve to shift right.
B)   the expected inflation to decrease and the Phillips curve to shift right.
C)   the natural rate of unemployment to decrease and the Phillips curve to shift left.
D)   the natural rate of unemployment to increase and the Phillips curve to shift left.

Question 12

Ball's research on disinflation across different countries found that

Accepted Answer

A)   costs of disinflation were smaller for rapid disinflation than for gradual disinflation.
B)   costs of disinflation were larger for rapid disinflation than for gradual disinflation.
C)   costs of disinflation were about the same for both rapid and gradual disinflation.
D)   costs of disinflation were smaller when the Central Bank had a strong inflation-fighting reputation.

Question 13

Which of the following represents the expectations-augmented Phillips curve?

Accepted Answer

A)   Anticipated inflation rate is proportional to the cyclical unemployment rate.
B)   Unanticipated inflation rate is proportional to the cyclical unemployment rate.
C)   Unanticipated inflation rate is proportional to unemployment rate.
D)   Anticipated inflation rate is proportional to unemployment rate.

Question 14

Classicals argue that an adverse supply shock would

Accepted Answer

A)   raise neither the natural rate of unemployment nor the actual rate of unemployment.
B)   raise the actual rate of unemployment, but not the natural rate of unemployment.
C)   raise the natural rate of unemployment, but not the actual rate of unemployment
D)   raise both the natural rate of unemployment and the actual rate of unemployment.

Question 15

Which of the following best describes the original Phillips curve?

Accepted Answer

A)   In the original Phillips curve, the inflation expectation is constant.
B)   In the original Phillips curve, the inflation expectation is not constant.
C)   In the original Phillips curve, the natural rate of unemployment is constant.
D)   Both A and C are correct.

Question 16

Which of the following best explains economic theory behind the Phillips curve?

Accepted Answer

A)   If inflation rate is lower than expected inflation rate, real money balance will increase leading to a lower interest rate and a higher aggregate demand and output.
B)   If inflation rate is lower than expected inflation rate, real money balance will decrease leading to a higher interest rate and a lower aggregate demand and output.
C)   If there is an unanticipated inflation rate, real wage will increase leading to a lower output and employment.
D)   If there is an unanticipated inflation rate, real wage will decrease leading to a lower output and employment.

Question 17

An adverse supply shock would cause

Accepted Answer

A)   a movement up the short-run Phillips curve.
B)   a movement down the short-run Phillips curve.
C)   the short-run Phillips curve to shift upward and to the right.
D)   the short-run Phillips curve to shift downward and to the left.

Question 18

The Friedman-Phelps analysis shows that a negative relationship between inflation and unemployment holds

Accepted Answer

A)   even when expected inflation changes.
B)   even when the natural rate of unemployment changes.
C)   even if both the expected inflation rate and the natural rate of unemployment change.
D)   as long as the expected inflation rate and the natural rate of unemployment are approximately constant.

Question 19

Describe the principal costs of unemployment. Are there any benefits to unemployment?

Accepted Answer

The costs of unemployment are the loss o...

Question 20

The long-run Phillips curve is

Accepted Answer

A)   vertical.
B)   horizontal.
C)   upward sloping.
D)   downward sloping.

Exam 13: Unemployment and Inflation

If the expected rate of inflation rose at the same time the natural rate of unemployment rose, the Phillips curve

Correct Answer
verified

In the expectations-augmented Phillips curve π = π^e - 3(u - .06) , when π = .06 and π^e = .03, the unemployment rate is

Correct Answer
verified

Correct Answer
verified
a. Higher subsidies for training workers...
View Answer

The Bank of Canada announces that it will increase the money supply by 5 percent for the next five years. This will cause

Correct Answer
verified

The origin of the idea of a trade-off between inflation and unemployment was a 1958 article by

Correct Answer
verified

Which of the following best explains economic theory behind the Phillips curve?

Correct Answer
verified

Classicals argue that an adverse supply shock would

Correct Answer
verified

Ball found that an important factor affecting the sacrifice ratio is

Correct Answer
verified

The long-run Phillips curve is

Correct Answer
verified

Which of the following best describes the original Phillips curve?

Correct Answer
verified

Describe the principal costs of unemployment. Are there any benefits to unemployment?

Correct Answer
verified
The costs of unemployment are the loss o...
View Answer

The Friedman-Phelps analysis shows that a negative relationship between inflation and unemployment holds

Correct Answer
verified

An adverse supply shock would cause

Correct Answer
verified

Which of the following forms of unemployment probably imposes the greatest personal costs?

Correct Answer
verified

Milton Friedman and Edmund Phelps questioned

Correct Answer
verified

Which of the following represents the expectations-augmented Phillips curve?

Correct Answer
verified

Hysteresis in unemployment means

Correct Answer
verified

One cost of an unanticipated inflation is that it

Correct Answer
verified

What is the Lucas critique, and why was it so important to macroeconomists in the 1970s?

Correct Answer
verified
The Lucas critique suggests that histori...
View Answer

Ball's research on disinflation across different countries found that

Correct Answer
verified

Exam 13: Unemployment and Inflation

If the expected rate of inflation rose at the same time the natural rate of unemployment rose, the Phillips curve

Correct AnswerverifiedShow Answer

In the expectations-augmented Phillips curve π = πe - 3(u - .06) , when π = .06 and πe = .03, the unemployment rate is

Correct AnswerverifiedShow Answer

Correct Answerverifieda. Higher subsidies for training workers...View AnswerShow Answer

The Bank of Canada announces that it will increase the money supply by 5 percent for the next five years. This will cause

Correct AnswerverifiedShow Answer

The origin of the idea of a trade-off between inflation and unemployment was a 1958 article by

Correct AnswerverifiedShow Answer

Which of the following best explains economic theory behind the Phillips curve?

Correct AnswerverifiedShow Answer

Classicals argue that an adverse supply shock would

Correct AnswerverifiedShow Answer

Ball found that an important factor affecting the sacrifice ratio is

Correct AnswerverifiedShow Answer

The long-run Phillips curve is

Correct AnswerverifiedShow Answer

Which of the following best describes the original Phillips curve?

Correct AnswerverifiedShow Answer

Describe the principal costs of unemployment. Are there any benefits to unemployment?

Correct AnswerverifiedThe costs of unemployment are the loss o...View AnswerShow Answer

The Friedman-Phelps analysis shows that a negative relationship between inflation and unemployment holds

Correct AnswerverifiedShow Answer

An adverse supply shock would cause

Correct AnswerverifiedShow Answer

Which of the following forms of unemployment probably imposes the greatest personal costs?

Correct AnswerverifiedShow Answer

Milton Friedman and Edmund Phelps questioned

Correct AnswerverifiedShow Answer

Which of the following represents the expectations-augmented Phillips curve?

Correct AnswerverifiedShow Answer

Hysteresis in unemployment means

Correct AnswerverifiedShow Answer

One cost of an unanticipated inflation is that it

Correct AnswerverifiedShow Answer

What is the Lucas critique, and why was it so important to macroeconomists in the 1970s?

Correct AnswerverifiedThe Lucas critique suggests that histori...View AnswerShow Answer

Ball's research on disinflation across different countries found that

Correct AnswerverifiedShow Answer

Correct Answer
verified

In the expectations-augmented Phillips curve π = π^e - 3(u - .06) , when π = .06 and π^e = .03, the unemployment rate is

Correct Answer
verified

Correct Answer
verified
a. Higher subsidies for training workers...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The costs of unemployment are the loss o...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The Lucas critique suggests that histori...
View Answer

Correct Answer
verified