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Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which of the following would be likely to lead to a decrease in the natural rate of unemployment? 1)

A) a prolonged recession

B) a decrease in the length of time during which people can receive unemployment benefitsC) an increase in the number of teenage workers in the workforce

D) all of the above

Answer: B

2) Structural unemployment 2)

A) is due to seasonal changes.

B) arises from recessions.

C) is due to changes in the structure of the economy.

D) arises from the time it takes employers to find appropriate employees.

Answer: C

3) Cyclical unemployment 3)

A) is due to changes in the structure of the economy.

B) arises from the time it takes employers to find appropriate employees.

C) is due to seasonal changes.

D) arises from recessions.

Answer: D

4) Structural unemployment 4)

A) arises from the time it takes employers to find appropriate employees.

B) is less severe during economic downturns.

C) is most likely to arise from a recession.

D) is most likely to arise as a result of technological changes.Answer: D

5) If you hear a person saying "I lost my job and I was replaced by a computer," you should conclude

that this person is ________ unemployed.

5)

A) frictionally B) seasonally C) structurally D) cyclically

Answer: C

6) If you hear a person saying "I lost my job at the Gateway plant because computer manufacturing is

slow due to a slowdown in the economy," you should conclude that this person is ________

unemployed.

6)

A) cyclically B) frictionally C) structurally D) seasonally

Answer: A

7) Economists define the labor force to include 7)

A) all individuals of work age, regardless of whether they are working or looking for a job.

B) only people who are working full- time.

C) people who are not working but are actively looking for a job, and people who are working.

D) people who are working.

Answer: C

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8) The number unemployed divided by the labor force is the 8)

A) civilian population. B) per- capita employment rate.

C) unemployment rate. D) discouraged worker total.

Answer: C

9) If a country has a population of 300 million, 135 million people employed and 15 million people

looking for work, then its unemployment rate is

9)

A) 5%. B) 10%. C) 15%. D) 35%.

Answer: B

10) Employment tends to fall when 10)

A) aggregate output rises. B) unemployment rises.

C) aggregate output falls. D) labor productivity falls.

Answer: C

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

11) If a household member is in the labor force, it is because he or she has decided his or her time is

more valuable in non-market activities.

11)

Answer: True False

12) If a person is not employed but is looking for work, he is not in the labor force. 12)

Answer: True False

13) Structural unemployment is the type that arises due to recessions. 13)

Answer: True False

14) Frictional unemployment arises when the economy changes, making some jobs obsolete. 14)

Answer: True False

15) Cyclical unemployment is that which rises in recessions and falls during expansions. 15)Answer: True False

16) The unemployment rate will never be zero because the economy is static. 16)

Answer: True False

17) The labor force is the fraction of the population with a job. 17)

Answer: True False


18) The shape of the short run aggregate supply curve is impacted by changes in the 18)

A) goods market. B) financial market.C) money market. D) labor market.

Answer: D

19) According to ________ economists, the only types of unemployment that exist in an economy are

structural and frictional unemployment.

19)

A) Keynesian B) Marxist C) classical D) monetarist

Answer: C

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20) According to classical economists, ________ unemployment does not persist in the economy

because wages will always adjust to ensure equilibrium in the labor market.

20)

A) frictional B) the natural rate of

C) excessive D) structural

Answer: C

Refer t o the in formati on provi ded in Fi gure 14.1 below t o answ er t he questi ons that f oll ow .

Figure 14.1

21) Refer to Figure 14.1. Suppose there is an increase in the fertility rate and this causes some men and

women to place a higher value on their time spent in non-market activities. This will cause

21)

A) the labor supply curve to shift to the right of S.

B) the labor supply curve to shift to the left of S.

C) the labor demand curve to shift from Dto D'.

D) the labor demand curve to shift from D'to D.

Answer: B

22) Refer to Figure 14.1. If the demand for labor ________ and wages are sticky on the downward side,

there will be unemployment of 150 million.

22)

A) falls from Dto D' B) rises from D'to D

C) falls from D D) remains at D'

Answer: A

23) Refer to Figure 14.1. The demand for labor falls fromDto D'. If firms enter into social, or implicit,

contracts with workers not to cut wages, then the wage rate will ________ and employment will

________.

23)

A) fall to $8; fall to 200 million B) fall to $8; remain at 300 million

C) remain at $10; fall to 150 million D) remain at $10; fall to 200 million

Answer: C

24) One way to reduce employee turnover is to pay efficiency wages 24)

A) at the going market wage B)below the equilibrium wage

C) above the equilibrium wage. D) at the equilibrium wage.

Answer: C

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Figure 14.2

25) Refer to Figure 14.2. The equilibrium number of people employed is ________ million people and

the equilibrium wage rate is $________.

25)

A) 150; 15 B) 270; 15 C) 180; 6 D) 210; 9

Answer: D

26) Refer to Figure 14.2. At a wage rate of $________, there is a surplus of labor equal to ________

million people.

26)

A) 6; 180 B) 6; 60 C) 15; 120 D) 15; 150

Answer: C

27) Refer to Figure 14.2. At a wage rate of $________ , there is a shortage of labor equal to ________

million people.

27)

A) 15; 120 B) 15; 150 C) 6; 60 D) 6; 180

Answer: C

28) Refer to Figure 14.2. According to classical economists, if the wage rate is $15 the wage rate will

________ to eliminate the ________.

28)

A) increase; surplus B) increase; shortage

C) decline; surplus D) decline; shortage

Answer: C

29) Refer to Figure 14.2. If the value people put on their leisure time increases, the equilibrium wage

rate

29)

A) would stay at $15. B) could change from $9 to $15.

C) would increase to $15. D) could change from $9 to $6.

Answer: B

30) Refer to Figure 14.2. If the productivity of workers decreases, the equilibrium wage rate 30)

A) would stay at $15. B) could change from $9 to $6.

C) could change from $9 to $15. D) would increase to $15.

Answer: B

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31) Ceteris paribus, which of the following will shift the labor demand curve to the right as a result of

the demand for labor being a derived demand?

31)

A) more people entering the labor force

B) a decrease in the value of leisure

C) an increase in the value of output that firms produce

D) an increase in the value of leisure

Answer: C

32) Ceteris paribus, which of the following will shift the labor supply curve to the left? 32)

A) an increase in the value people place on their leisure time

B) an increase in the price of the output of the firm

C) an increase in worker productivity

D) all of the above

Answer: A

33) Ceteris paribus, which of the following will shift the labor supply curve to the right? 33)

A) an increase in the price of the output of the firm

B) an increase in the wage rate

C) a decrease in the value people place on their leisure time

D) all of the aboveAnswer: C

34) A decrease in the productivity of workers shifts the labor ________ curve to the ________. 34)

A) supply; right B) demand; right C) demand; left D) supply; left

Answer: C

35) An increase in worker productivity 35)

A) reduces the supply of labor. B) reduces the demand for labor.

C) increases the supply of labor. D) increases the demand for labor.

Answer: D

36) Tyler is not employed. The value Tyler places on his leisure time is $15 an hour. Tyler looks for a

ob and all the offers he has are for less than $15 an hour. Tyler should supply

36)

A) between 0 and 20 hours per week in the labor market.

B) exactly 40 hours per week in the labor market.

C) between 20 and 40 hours per week in the labor market.

D) 0 hours in the labor market.

Answer: D

37) Stephanie is currently not employed. She places a value of $8 an hour on her time in nonmarket

activities. If Stephanie is offered a job paying $10 an hour

37)

A) she is indifferent between supplying hours to the labor market and using her time in

nonmarket activities.B) she should supply a positive number of hours in the labor market and allocate no time to

nonmarket activities.

C) she should supply a positive number of hours in the labor market and to nonmarket activities.

D) she should supply 0 hours in the labor market and allocate all of her time to nonmarket

activities.

Answer: C

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38) Patrick is currently not employed. He places a value of $13 an hour on his time in nonmarket

activities. If Patrick is offered a job paying $8 an hour

38)

A) he should supply 0 hours in the labor market.

B) he is indifferent between supplying hours to the labor market and using his time in


C) he should supply a positive number of hours in the labor market and allocate no time to


D) he should supply a positive number of hours in the labor market and to nonmarket activities.

Answer: A

39) Arnold is contemplating whether he should take a job offered to him. Arnold should 39)

A) take the job if taking the job implies he will enjoy more leisure.

B) not take the job if taking the job implies he will enjoy less leisure.

C) not take the job if the value of his leisure is less than the wage rate the job pays.

D) not take the job if the value of his leisure is greater than the wage rate the job pays.

Answer: D

40) If a policy is implemented that guarantees all adults an annual income of $40,000 whether they

work or not, then this would most likely shift the

40)

A) labor supply curve to the right. B) labor demand curve to the right.C) labor demand curve to the left. D) labor supply curve to the left.

Answer: D

41) The government raises the marginal income tax rates so that after- tax wages are decreased. This

most likely will shift the labor

41)

A) supply curve to the left. B) demand curve to the left.

C) supply curve to the right. D) demand curve to the right.

Answer: A

42) If a new governmental policy decreases unemployment benefits, we would expect the labor

________ curve to shift to the ________.

42)

A) demand; right B) supply; right C) demand; left D) supply; left

Answer: B

43) One of the tenets of the classical view of the labor market is that the ________ adjustments are

necessary to clear the labor market.

43)

A) interest rate B) price C) wage D) all of the above

Answer: D

44) If firms start offering fewer employment benefits, such as less vacation time and a less desirable

medical plan, we would expect the labor ________ curve to shift to the ________.

44)

A) demand; left B) supply; right C) supply; left D) demand; right

Answer: C

45) The classical view of the labor market is basically consistent with the assumption of a vertical (or

almost vertical) ________ curve.

45)

A) aggregate expenditures B) aggregate demand

C) production possibility D) aggregate supply

Answer: D

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46) Classical economists believe that a reason the aggregate supply curve is ________ is because people

who are not working are those who have chosen not to work at the prevailing wage rate.

46)

A) positively sloped B) horizontal

C) vertical D) negatively sloped

Answer: C

47) According to the classical theory, a contractionary monetary policy ________ the price level and

________ output in the long run.

47)

A) increases; increases B) decreases; increases

C) decreases; doesn't change D) doesn't change; doesn't change

Answer: C

48) Assume that wage rates, on the aggregate, decrease as a result of newly negotiated union contracts.

This will tend to

48)

A) increase the effectiveness of fiscal policy, but decrease the effectiveness of monetary policy to

change output.

B) increase the effectiveness of both monetary and fiscal policy to change output.

C) have no impact on the effectiveness of either monetary or fiscal policy to change output.

D) decrease the effectiveness of both monetary and fiscal policy to change output.

Answer: D

49) According to the ________ economists, those who are not working have chosen not to work at the

market wage.

49)

A) Keynesian B) modern monetarist

C) classical D) neo-Marxist

Answer: C

50) Those who believe that wages adjust ________ to clear the labor market also believe that the

________curve is vertical.

50)

A) slowly;AS B) quickly;AS C) quickly;AD D) slowly,AD

Answer: B

51) A definition of unemployment that ________ economists would use is "Anyone who is willing to

work at the current market wage, but has not yet been able to find employment."

51)

A) classical B) monetarist C) Keynesian D) Marxist

Answer: A


52) Those who believe that the wage rate adjusts quickly to clear the labor market are likely to believe

that the aggregate supply curve is vertical.

52)

Answer: True False

53) If the actual unemployment rate is below NAIRU, the change in the inflation rate will be negative. 53)

Answer: True False

54) The classical view of the labor market holds that unemployment in the economy consists of cyclical,

frictional, and structural unemployment.

54)

Answer: True False

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55) Classical economists believe that economic policies are effective because they affect aggregate

demand in the economy.

55)

Answer: True False

56) If firms pay wages lower than the market clearing wage, their profits will be increased. 56)

Answer: True False


57) Suppose the wage rate in the labor market is $20 and the demand for labor increases. If wages are

sticky

57)

A) wages decrease to eliminate the surplus. B) unemployment decreases.

C) unemployment increases. D) unemployment stays the same.

Answer: B

58) Suppose the equilibrium wage rate in the labor market is $20 and the demand for labor decreases.

If wages are sticky, there will be a

58)

A) surplus of labor and the wage rate declines.

B) shortage of labor and the wage rate increases.

C) surplus of labor and the wage rate increases.D) surplus of labor and the wage rate stays the same.

Answer: D

59) If the wage rate in the labor market is $12 and more previously unemployed people exited the labor

force, which of the following statements is correct?

59)

A) If wages are sticky, the unemployment rate stays the same.

B) If wages are flexible, then wages will decrease.

C) If wages are flexible, the unemployment rate increases.

D) If wages are sticky, the unemployment rate decreases.

Answer: D

60) If the wage rate in the labor market is $17 and the productivity of workers decreases, which of thefollowing statements is incorrect?

60)

A) The labor demand curve shifts to the left.

B) If wages are sticky, there will be a surplus in the labor market.

C) If wages are sticky, there will be a shortage in the labor market.

D) If wages are flexible, there will be a decrease in wages.

Answer: C

61) If wages are sticky, a decrease in labor 61)

A) supply decreases the wage rate. B) demand decreases the wage rate.

C) demand increases the wage rate. D) none of the above

Answer: D

62) The downward rigidity of wages as an explanation for the existence of unemployment is known as 62)

A) sticky wages. B) locked wages.

C) minimum wages. D) crashing wages.

Answer: A

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63) Social contracts are ________ agreements between workers and firms that firms will not cut wages. 63)

A) written B) formal C) unspoken D) union

Answer: C

64) General Motors saw the demand for its automobiles drop by 15%. Even though the demand for its

automobiles decreased, GM did not cut the wages of its non-unionized workers. This is an

example of

64)

A) an explicit contract not to cut wages.

B) a relative-wage contract.

C) an implicit or social contract not to cut wages.

D) employment- at-will.

Answer: C

65) Apple experienced a 10% drop in its sales. Even though the demand for its computers decreased,

Apple did not cut the wages of its non-unionized workers. This is an example of

65)

A) an implicit or social contract not to cut wages.

B) poor management.

C) employment- at-will.

D) an explicit contract not to cut wages.

Answer: A

66) Suppose that flight attendants are laid off during a recession because of an unspoken agreement

between the flight attendants and airline executives that wages will not be reduced. This example is

consistent with the

66)

A) explicit contract explanation of unemployment.

B) implicit contract explanation of unemployment.

C) efficiency wage explanation of unemployment.

D) relative-wage explanation of unemployment.

Answer: B

67) The ________ explanation for the existence of downwardly sticky wages emphasizes the contention

that workers in one industry may be unwilling to accept a wage cut, unless they know that workersin other firms and industries are receiving similar cuts.

67)

A) living-wage B) relative-wage

C) minimum-wage D) nominal-wage

Answer: B

68) According to the ________ explanation of unemployment, workers will be willing to accept wage

cuts only if they know that workers in other firms and industries are receiving similar cuts.

68)

A) relative-wage B) nominal-wage

C) living-wage D) minimum-wage

Answer: A

69) Workers in the coal mining industry are laid off during a recession because they are unwilling to

accept a wage cut unless they know that workers in other industries are receiving similar cuts. This

example is consistent with the

69)

A) relative-wage explanation of unemployment.

B) explicit contract explanation of unemployment.

C) efficiency wage explanation of unemployment.

D) social contract explanation of unemployment.

Answer: A

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70) The percentage of workers whose wages are set by explicit contracts increases. This should 70)

A) cause the labor market to always be at an equilibrium, even if there is a change in the demand

for labor.

B) make it easier for the labor market to reach an equilibrium after a change in the demand for

labor.

C) have no impact on the movement of the labor market toward equilibrium after a change in

the demand for labor.

D) make it more difficult for the labor market to reach an equilibrium after a change in the

demand for labor.

Answer: D

71) Employment contracts that stipulate workers' wages, usually for a period of 1 to 3 years, are known

as

71)

A) explicit contracts. B) social contracts.

C) implicit contracts. D) none of the above

Answer: A

72) Suppose that postal employees are laid off during a recession because their wages have been

locked into place by a three-year contract. This example is consistent with the

72)

A) efficiency wage explanation of unemployment.B) social contract explanation of unemployment.

C) relative-wage explanation of unemployment.

D) explicit contract explanation of unemployment.

Answer: D

73) Explicit contracts generally stipulate workers' wages for a period of 73)

A) 3 to 5 years. B) 90 days.

C) 1 to 3 years. D) no more than 1 year.

Answer: C

74) To improve workers' morale, a firm pays higher wages for its workers. This firm is paying 74)

A) minimum wages. B) sticky wages.C) efficiency wages. D) flexible wages.

Answer: C

75) Which of the following is a reason why firms pay efficiency wages? 75)

A) to reduce shirking of work B) to reduce turnovers

C) to improve morale D) all of the above

Answer: D

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Figure 14.3

76) Refer to Figure 14.3. Assume that the productivity of workers decreases as the wage rate decreases.

The efficiency wage

76)

A) could either be above or below $10. B) would be below $10.

C) would equal $10. D) would be above $10.

Answer: D

77) Refer to Figure 14.3. If this firm pays the efficient wage of $9 77)

A) there will be an excess supply of labor of 3,000.

B) the supply of labor will increase until $9 is also the equilibrium wage.

C) there will be an excess demand for labor of 3,000.

D) the firm's demand for labor will decrease until $9 is also the equilibrium wage.

Answer: C

78) Efficiency wage theory suggests that firms may hold wages ________ the market clearing rate

because they believe that the productivity of workers ________ with the wage rate.

78)

A) below; decreases B) below; increases

C) above; decreases D) above; increases

Answer: D

79) The theory which holds that productivity of workers increases with the wage rate is the 79)

A) efficiency wage theory. B) minimum wage theory.

C) nominal wage theory. D) living wage theory.

Answer: A

80) If productivity increases as wages increase and firms pay a wage ________ the market clearingwage, then a potential benefit these firms may receive is a(n) ________ in employee turnover.

80)

A) below; increase B) above; reduction

C) below; reduction D) above; increase

Answer: B

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81) A firm may benefit by paying workers ________ than the market clearing wage because the higher

wages may lead to ________ worker morale.

81)

A) more; declining B) more; improved

C) less; declining D) less; improved

Answer: B

82) If, as a result of imperfect information, firms set their wage rates ________ the market clearing

wage rate, there will be a shortage of workers.

82)

A)below B) above C) at D) above or below

Answer: A

83) If, as a result of imperfect information, firms set their wage rates ________ the market clearing

wage rate, there will be a surplus of workers.

83)

A) below B) above C) at D) above or below

Answer: B

84) Minimum wage laws contribute to a ________ unemployment rate by raising wages above the

market clearing level in some labor markets.

84)

A) market equilibrium B) lower

C) higher D) naturalAnswer: C

85) The ________ contributes to a ________ unemployment rate among teenaged workers. 85)

A) efficiency wage law; higher B) minimum wage law; higher

C) efficiency wage law; lower D) minimum wage law; lower

Answer: B


Figure 14.4

86) Refer to Figure 14.4. A minimum wage of $10 86)

A) will lead to unemployment of 60.

B) will lead to unemployment of 40.

C) will lead to unemployment of 20.

D) will have no effect because the minimum wage is set at the equilibrium wage and for a

minimum wage to have any effect on the labor market it must be below the equilibrium

wage.

Answer: D

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87) Refer to Figure 14.4. A minimum wage of ________ will lead to unemployment of 40. 87)

A) $8 B) $10 C) $12 D)>$12

Answer: C

88) Refer to Figure 14.4. In an attempt to increase worker productivity, this firm would pay wages

________ per hour.

88)

A) of $10 B) >$10 C) of $8 D)


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97) When aggregate demand decreases, the price level ________, inventories ________ and firms

respond by ________ output and employment.

97)

A) falls; decline; increasing B) rises; increase; increasing

C) rises; decline; increasing D) falls; increase; reducing

Answer: D

98) When aggregate demand increases, the price level ________, inventories ________ and firms

respond by ________ output and employment.

98)

A) falls; decline; increasing B) rises; increase; increasing

C) rises; decline; increasing D) falls; increase; reducing

Answer: C


Figure 14.5

99) Refer to Figure 14.5. Which panel shows the typical relationship between the price level and the

unemployment rate?

99)

A) A B) B C) C D) D

Answer: A

100) As the unemployment rate decreases in response to the economy moving toward capacity output,

the aggregate price level

100)

A) rises. B) is stable.

C) falls at an increasing rate. D) falls at a declining rate.

Answer: A

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101) If aggregate demand increases while aggregate supply is stable, aggregate output will ________

and the unemployment rate will ________.

101)

A) decrease; increase B) increase; increase

C) increase; decrease D) decrease; decrease

Answer: C

102) If the aggregate supply is ________, an increase in the price level does not change the

unemployment rate.

102)

A) vertical B) positively sloped

C) negatively sloped D) horizontal

Answer: A

103) If aggregate demand decreases while aggregate supply is stable, income will ________ and the

unemployment rate will ________.

103)

A) decrease; decrease B) increase; increase

C) decrease; increase D) increase; decrease

Answer: C

104) The relationship between inflation and unemployment is depicted by the 104)

A) Phillips curve. B) aggregate demand curve.C) aggregate supply curve. D) production possibility curve.

Answer: A

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Figure 14.6

105) Refer to Figure 14.6. Panel B represents the typical shape of the 105)

A) short- run aggregate supply curve. B) long- run aggregate supply curve.

C) short- run Phillips curve. D) long- run Phillips curve.

Answer: A

106) Refer to Figure 14.6. Panel A represents the typical shape of the 106)

A) short- run Phillips curve. B) long- run aggregate supply curve.

C) long- run Phillips curve. D) short- run aggregate supply curve.

Answer: A

107) Refer to Figure 14.6. Panel C represents the typical shape of the 107)

A) short- run Phillips curve. B) short- run aggregate demand curve.

C) long- run Phillips curve. D) short- run aggregate supply curve.

Answer: C

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Figure 14.7

108) Refer to Figure 14.7. The unemployment rate at U1 108)

A) equals the natural rate. B) is greater than the natural rate.

C) equals zero. D) is lower than the natural rate.

Answer: A

109) Refer to Figure 14.7. If the natural unemployment rate equals 4%, the unemployment rate at U0

could be

109)

A) 3%. B) 4%. C) 5%. D) 6%.

Answer: A

110) Refer to Figure 14.7. Suppose the economy is at PointA, a decrease in money supply will move the

economy to Point ________ in the short run.

110)

A) E B) B C) C D) D

Answer: B

111) Refer to Figure 14.7. If the economy is on SRPC3, then the expected inflation rate is 111)

A) 4% B) 5%

C) 6% D) none of the above

Answer: A

112) Refer to Figure 14.7. The expected inflation rate is 6% if the economy is 112)

A) above SRPC2. B) on SRPC2. C) on SRPC1. D) on SRPC3.

Answer: B

113) Refer to Figure 14.7. Suppose the economy is initially at PointA. An expansionary fiscal policymoves the economy to Point ________ in the short run.

113)

A) E B) B C) C D) D

Answer: C

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114) Refer to Figure 14.7. Suppose the economy is at Point B. What can possibly move the economy to

Point E?

114)

A) a rightward shift in theAScurve B) a rightward shift in theADcurve

C) a leftward shift in theAScurve D) a leftward shift in theADcurve

Answer: A

115) Refer to Figure 14.7. An expansionary fiscal policy followed by a leftward shift in theAScurve

could move the economy from PointAto Point________, and then to Point________.

115)

A) E; B B) B; E C) C; D D) D; C

Answer: C

116) Refer to Figure 14.7. An contractionary monetary policy followed by a rightward shift in theAS

curve could move the economy from PointAto Point________, and then to Point________.

116)

A) E; B B) B; E C) C; D D) D; C

Answer: B

117) Refer to Figure 14.7. If the economy is at PointA, a sudden decrease in the price of oil without any

change in the aggregate demand shifts the short- run Phillips curve (SRPC) from

117)

A) SRPC3to SRPC1. B) SRPC2to SRPC1.

C) SRPC1to SRPC2. D) SRPC1to SRPC3.

Answer: D

118) Refer to Figure 14.7. If the economy is at PointA, the cost of raw material increased dramatically,

and the aggregate demand did not change, the economy could move to Point ________.

118)

A)A B) B C) E D) D

Answer: D

119) Refer to Figure 14.7. Suppose the economy is at PointAand the cost of inputs is fixed. A decrease in

government spending could move the economy to Point ________.

119)

A) E B) B C) C D) D

Answer: B

120) If aggregate demand decreases and expectations regarding inflation remain constant 120)

A) the economy moves along the short- run Phillips curve.

B) the long- run Phillips curve shifts to the right.

C) the short- run Phillips curve shifts to the right.

D) the short- run Phillips curve shifts to the left.

Answer: A

121) If inflation expectations change, a contractionary fiscal policy causes 121)

A) the short- run Phillips curve to shift.

B) a movement along the short- run Phillips curve.

C) the long- run Phillips curve to shift.D) the short- run Phillips curve to remain constant.

Answer: A

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122) If aggregate supply decreases and aggregate demand remains unchanged 122)

A) the price level will remain unchanged, but aggregate output will decrease.

B) there will be a positive relationship between the price level and the level of aggregate output.

C) there will be a negative relationship between the price level and the level of aggregate output.

D) there will be no systematic relationship between the price level and the level of aggregate

output.

Answer: C

123) The economy experiences both ________ and ________ when aggregate supply decreases and

aggregate demand remains unchanged.

123)

A) deflation; economic growth B) inflation; economic growth

C) deflation; unemployment D) inflation; unemployment

Answer: D

124) The economy experiences both a ________ price level and ________ unemployment when

aggregate supply increases with aggregate demand stable.

124)

A) falling; rising B) rising; rising C) falling; falling D) rising; falling

Answer: C

125) There is ________ relationship between the price level and the level of aggregate output when bothaggregate supply and aggregate demand are changing simultaneously.

125)

A) an infinite B) a positive C) a negative D) no systematic

Answer: D

126) If the ________ curve shifts from year to year and the ________ curve does not, then the short run

Phillips curve would be downward sloping.

126)

A) inflation; employment B) aggregate demand; aggregate supply

C) aggregate supply; aggregate demand D) employment; inflation

Answer: B

127) If the ________ curve shifts from year to year and the ________ curve does not, then the Phillips

curve would show a positive relationship between inflation and unemployment rates.

127)

A) employment; inflation B) aggregate supply; aggregate demand

C) inflation; employment D) aggregate demand; aggregate supply

Answer: B

128) If inflationary expectations increase, the Phillips curve will 128)

A) shift to the left. B) become upward sloping.

C) shift to the right. D) become vertical.

Answer: C

129) If, when recovering from a recession, unemployment falls but inflation does not increase, the most

likely cause of this is

129)

A) aggregate demand is increasing but aggregate supply is decreasing.

B) both aggregate demand and aggregate supply are decreasing.

C) aggregate demand is increasing at a faster rate than aggregate supply.

D) aggregate supply is increasing at a faster rate than aggregate demand.

Answer: D

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130) As the unemployment rate declines in response to the economy moving closer and closer to

capacity output, the aggregate price level falls at an increasing rate.

130)

Answer: True False

131) At the natural rate of unemployment, structural unemployment is zero. 131)

Answer: True False

132) The Phillips curve suggests that if we want to lower the unemployment rate, we must accept a

lower inflation rate in return.

132)

Answer: True False

133) If aggregate demand changes when aggregate supply is stable, then the Phillips curve is negatively

sloped.

133)

Answer: True False

134) A decrease in inflationary expectations shifts the economy's short- run Phillips curve to the left. 134)

Answer: True False


135) In the long run, the Phillips curve will be ________ at the natural rate of unemployment if the

long- run aggregate supply curve is vertical at potential output.

135)

A) horizontal B) negatively sloped

C) positively sloped D) vertical

Answer: D

136) If the Phillips curve is ________ in the long run, there is no trade- off between inflation and

unemployment in the long run.

136)

A) concave B) convex

C) vertical D) negatively sloped

Answer: C

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Figure 14.8

137) Refer to Figure 14.8. Expected inflation at PointD________ expected inflation at PointC. 137)

A) is less than B) equals

C) is greater than D) cannot be determined from the figure

Answer: C

138) Refer to Figure 14.8. Expected inflation at PointCequals 138)

A) 4%. B) 5%.

C) 6%. D) cannot be determined from the figure

Answer: B

139) Refer to Figure 14.8. Expected inflation equals 6% 139)

A) along SRPC1. B) along SRPC2. C)below SRPC3. D) along SRPC3.

Answer: B

140) Refer to Figure 14.8. Along SRPC1, expected inflation equals 140)

A) 6%. B) 5%.

C) 4%. D) cannot be determined from the figure

Answer: B

141) If the measured unemployment rate is 6% and the natural unemployment rate is 4%, then 141)

A) frictional unemployment is - 2%. B) structural unemployment is 10%.

C) cyclical unemployment is 2%. D) frictional unemployment is 2%.

Answer: C

142) Economists who argue that theAScurve is vertical in the long run at potential output also argue

that in the long run, the ________ is vertical at the natural rate of unemployment.

142)

A) production possibility curve B) aggregate demand curve

C) Phillips curve D) aggregate expenditures curve

Answer: C

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143) The ________ unemployment rate can be pushed below the ________ rate, but only in the short run

and not without inflation.

143)

A) natural; cyclical B) measured; natural

C) cyclical; frictional D) frictional; structural

Answer: B

144) If the economy is at potential output, expected inflation 144)

A) equals actual inflation. B) equals the natural rate of unemployment.

C) is greater than actual inflation. D) is less than actual inflation.

Answer: A


145) As a result of a shifting aggregate supply curve during the 1990s, the U.S. economy experienced a

positive trade- off between inflation and unemployment.

145)

Answer: True False

146) A vertical aggregate supply curve implies a horizontal Phillips curve. 146)

Answer: True False

147) If the unemployment rate rises above the natural rate of unemployment in the short run, the

inflation rate will fall.

147)

Answer: True False

148) If unemployment is above the natural rate of unemployment, then output is above potential

output.

148)

Answer: True False

149) The cyclical rate of unemployment is unemployment that occurs as a normal part of the functioning

of the economy.

149)

Answer: True False

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