Question 1

If nominal GDP growth has accelerated permanently (assuming Y(N) ,is constant) ,

Accepted Answer

A)  real GDP must keep growing until the growth rate of nominal GDP equals the inflation rate.
B)  real GDP will increase by the same percentage that nominal GDP increased.
C)  real GDP must keep growing until the rate of growth of real GDP equals the inflation rate.
D)  the level of real GDP will be permanently increased.

Question 2

Lucas's idea of information barriers as applied to the formation of inflation expectations is an example of

Accepted Answer

A)  forward-looking expectations.
B)  backward-looking expectations.
C)  adaptive expectations.
D)  irrational expectations.

Question 3

Beneficial supply shocks ________ the rate of inflation and ________ the natural rate of unemployment.

Accepted Answer

A)  reduce,reduce
B)  reduce,increase
C)  increase,reduce
D)  increase,increase

Question 4

Government price controls act as ________ supply shock,shifting SP ________.

Accepted Answer

A)  an adverse,downward
B)  an adverse,upward
C)  a beneficial,downward
D)  a beneficial,upward

Question 5

The European Monetary System

Accepted Answer

A)  broke down in 1990 and resulted in a resurgence of inflation in many European countries.
B)  was still in place in 1996 but was permitting frequent exchange rate adjustments.
C)  came to an end in 1992 and was followed by devaluations in Italy,the U.K.and several other countries.
D)  has been a successful experiment in fixed exchange rates and was still in place as of 1996.

Question 6

Figure 8-3
 
-Employing Figure 8-3 above and assuming the nominal money supply is not altered,a permanent adverse supply side shock puts ________ pressure on nominal wages during renegotiation provided ________.

Accepted Answer

A)  no;the reduction in the natural real GDP YN to Y₁ is exactly offset by the fall in goods demanded due to the rise in the price level
B)  downward;the reduction in the real GDP YN to Y₂ is exactly offset by the fall in goods demanded due to the rise in the price level
C)  upward;the reduction in the natural real GDP is exactly offset by the fall in goods demanded due to the rise in the price level
D)  no;since the natural real GDP does not change

Question 7

From a long-run equilibrium with p = pe = 0,suppose x rises to 6.If initially pe remains at zero and p rises to 4,Y becomes

Accepted Answer

A)  110.
B)  102.
C)  98.
D)  96.

Question 8

Figure 8-6
 
-In Figure 8-6 above,a beneficial supply shock accompanied by an accommodating policy takes us along path

Accepted Answer

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

Question 9

Inflation is a ________ increase in the price level and it can be produced if the AD curve shifts up ________.

Accepted Answer

A)  continuous,continuously
B)  continuous,either once or continuously
C)  one-shot,once but only once
D)  one-shot,either once or continuously

Question 10

Given an adverse supply shock,a "neutral policy" will

Accepted Answer

A)  maintain the inflation rate and the output ratio.
B)  lower the inflation rate and the output ratio.
C)  raise the inflation rate and the output ratio.
D)  maintain the inflation rate but lower the output ratio.

Question 11

Figure 8-5
 
-In Figure 8-5 above,from initial point A in the top diagram AD₀ shifts to AD₁,while the nominal wage remains constant.Short-run equilibrium occurs at point

Accepted Answer

A)  G.
B)  B.
C)  C.
D)  D.
E)  F.

Question 12

COLAs ________ the probability that a permanent adverse supply shock will permanently increase an economy's ________.

Accepted Answer

A)  increase,inflation rate
B)  increase,price level
C)  decrease,inflation rate
D)  decrease,price level

Question 13

Assume adaptive expectations.Compared to a simple one-period lag,if the last five periods' inflation rates are averaged to arrive at currently expected inflation,we have ________ disinflationary loops and ________ recessions accompanying disinflationary policy

Accepted Answer

A)  skinnier,milder
B)  skinnier,deeper
C)  fatter,milder
D)  fatter,deeper

Question 14

From an initial AD/SAS/LAS equilibrium with price and wage index numbers of 1.00 and an output index number of 100,suppose a new SAS curve must be drawn for a wage level of 1.03.Applying a general rule for drawing SAS curves,it goes through the

Accepted Answer

A)  current AD curve at Y = 103.
B)  current AD curve at P = 1.03.
C)  LAS curve at Y = 103.
D)  LAS curve at P = 1.03.

Question 15

Can monetary policy maintain a constant price level when confronted with the effects of an adverse supply shock?

Accepted Answer

A)  Yes,if the economy is characterized by real and/or nominal wage rigidity.
B)  No,if the economy is characterized by real and/or nominal wage rigidity.
C)  Yes,if the economy is characterized by continuous renegotiation.
D)  No,if the economy is characterized by overlapping contracts.

Question 16

A positive relationship between inflation and unemployment emerged in

Accepted Answer

A)  1963-70.
B)  1974-75.
C)  1986-90.
D)  All of the above

Question 17

The rate of inflation will be permanently reduced provided

Accepted Answer

A)  the rate of monetary growth is permanently reduced.
B)  the government balances the budget.
C)  people behave rationally.
D)  there is a Pigou effect.

Question 18

If the average unemployment rate = 6.0,Y = 5200,and YN = 5030,Okun's law,using the textbook's value for "h," predicts that the unemployment rate is approximately ________ percent.

Accepted Answer

A)  7.4
B)  6.4
C)  4.3
D)  5.6
E)  5.0

Question 19

An acceleration of nominal GDP growth from,say 4% to 6% will

Accepted Answer

A)  permanently raise the rate of inflation.
B)  temporarily lower the rate of inflation.
C)  leave real GDP unaffected in the long run.
D)  Both A and C.

Question 20

A rise in expected inflation causes

Accepted Answer

A)  the SP curve to shift upward.
B)  the SP curve to shift downward.
C)  a movement upward along the SP curve.
D)  a movement downward along the SP curve.

Exam 9: Inflation: Its Causes and Cures

Figure 8-6 -In Figure 8-6 above,a beneficial supply shock accompanied by an accommodating policy takes us along path

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A positive relationship between inflation and unemployment emerged in

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Assume adaptive expectations.Compared to a simple one-period lag,if the last five periods' inflation rates are averaged to arrive at currently expected inflation,we have ________ disinflationary loops and ________ recessions accompanying disinflationary policy

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The European Monetary System

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From a long-run equilibrium with p = pe = 0,suppose x rises to 6.If initially pe remains at zero and p rises to 4,Y becomes

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Government price controls act as ________ supply shock,shifting SP ________.

Correct AnswerverifiedShow Answer

Inflation is a ________ increase in the price level and it can be produced if the AD curve shifts up ________.

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The rate of inflation will be permanently reduced provided

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Given an adverse supply shock,a "neutral policy" will

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From an initial AD/SAS/LAS equilibrium with price and wage index numbers of 1.00 and an output index number of 100,suppose a new SAS curve must be drawn for a wage level of 1.03.Applying a general rule for drawing SAS curves,it goes through the

Correct AnswerverifiedShow Answer

If the average unemployment rate = 6.0,Y = 5200,and YN = 5030,Okun's law,using the textbook's value for "h," predicts that the unemployment rate is approximately ________ percent.

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Lucas's idea of information barriers as applied to the formation of inflation expectations is an example of

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Figure 8-3 -Employing Figure 8-3 above and assuming the nominal money supply is not altered,a permanent adverse supply side shock puts ________ pressure on nominal wages during renegotiation provided ________.

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Figure 8-5 -In Figure 8-5 above,from initial point A in the top diagram AD₀ shifts to AD₁,while the nominal wage remains constant.Short-run equilibrium occurs at point

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If nominal GDP growth has accelerated permanently (assuming Y(N) ,is constant) ,

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Can monetary policy maintain a constant price level when confronted with the effects of an adverse supply shock?

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A rise in expected inflation causes

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COLAs ________ the probability that a permanent adverse supply shock will permanently increase an economy's ________.

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Beneficial supply shocks ________ the rate of inflation and ________ the natural rate of unemployment.

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An acceleration of nominal GDP growth from,say 4% to 6% will

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Assume adaptive expectations.Compared to a simple one-period lag,if the last five periods' inflation rates are averaged to arrive at currently expected inflation,we have disinflationary loops and recessions accompanying disinflationary policy

Correct Answer
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Government price controls act as supply shock,shifting SP .

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Inflation is a increase in the price level and it can be produced if the AD curve shifts up .

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Figure 8-3 -Employing Figure 8-3 above and assuming the nominal money supply is not altered,a permanent adverse supply side shock puts pressure on nominal wages during renegotiation provided .

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COLAs the probability that a permanent adverse supply shock will permanently increase an economy's .

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Beneficial supply shocks the rate of inflation and the natural rate of unemployment.

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