Question 1

Suppose a middle-class tax cut increases consumption expenditures. Which of the following would you expect to occur as a result of this change?
A)The economy will move up and to the left along the short-run Phillips Curve.
B)The economy will move down and to the right along the short-run Phillips Curve.
C)​The short-run Phillips Curve will shift to the left.
D)​The short-run Phillips Curve will shift to the right.

Accepted Answer

The answer of Suppose a middle-class tax cut increases consumption...

Question 2

In the long run,
A)the natural rate of unemployment depends primarily on the level of aggregate demand.
B)inflation depends primarily upon the money supply growth rate.
C)there is a tradeoff between the inflation rate and the natural rate of unemployment.
D)All of the above are correct.

Accepted Answer

The long-run Phillips Curve model suggests that there is no tradeoff between inflation and unemployment in the long run, and the natural rate of unemployment is primarily determined by structural factors and not aggregate demand. However, inflation in the long run is determined by the money supply growth rate, which makes option B the correct answer. Options A and C are incorrect as they conflict with the long-run Phillips Curve model.

Question 3

Which of the following statements is correct?
A)In the short run, unemployment and inflation are positively related. In the long run they are largely unrelated problems.
B)Inflation and unemployment are positively related in the short run and in the long run.
C)In the short run, unemployment and inflation are negatively related. In the long run they are largely unrelated problems.
D)Inflation and unemployment are negatively related in the short run and in the long run.

Accepted Answer

The answer of Which of the following statements is correct?
A)In...

Question 4

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are
A)downward pressures on prices and wages.
B)downward pressures on prices and upward pressures on wages.
C)upward pressures on prices and downward pressures on wages.
D)upward pressures on prices and wages.

Accepted Answer

When unemployment is high, there is excess supply in the labor market, meaning that there are more workers than available jobs. This puts downward pressure on both prices and wages, as workers are willing to accept lower pay in order to secure employment. Therefore, the short-run Phillips curve has a negative slope, showing an inverse relationship between unemployment and inflation.

Question 5

Which of the following depends primarily on the growth rate of the money supply?
A)inflation and the natural rate of unemployment
B)inflation but not the natural rate of unemployment
C)the natural rate of unemployment but not inflation
D)neither inflation nor the natural rate of unemployment

Accepted Answer

The growth rate of the money supply primarily affects inflation, as it influences the overall price level in the economy. The natural rate of unemployment is determined by factors such as labor market policies and demographics, not by the money supply.

Question 6

The misery index is supposed to measure the
A)social cost of unemployment.
B)health of the economy.
C)lost output associated with a particular unemployment rate.
D)short-run tradeoff between inflation and unemployment.

Accepted Answer

The answer of The misery index is supposed to measure...

Question 7

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?
A)Short-run aggregate supply decreases.
B)The natural rate of unemployment increases.
C)The price level increases more rapidly.
D)The money supply increases less rapidly.

Accepted Answer

When monetary and fiscal policymakers expand aggregate demand, the short-run effect is usually an increase in the price level. In the short run, firms have limited capacity to increase output, so they will raise prices instead. This increase in the price level is usually accompanied by an increase in output and employment in the short run, but the long-run effects depend on whether the increase in aggregate demand is sustainable and whether it leads to inflation. Short-run aggregate supply may decrease in response to the increase in demand, but this is not always the case. The natural rate of unemployment may increase in the long run if the increase in aggregate demand is not sustainable and leads to inflation. The money supply may increase rapidly or slowly, depending on whether monetary policymakers are using expansionary or contractionary policy.

Question 8

Closely watched indicators such as the inflation rate and unemployment are released each month by the
A)Bureau of the Budget.
B)Bureau of Labor Statistics.
C)Department of the Treasury.
D)President's Council of Economic Advisors.

Accepted Answer

The Bureau of Labor Statistics releases data on the inflation rate and unemployment each month. The Bureau of the Budget (now known as the Office of Management and Budget) is responsible for managing the federal budget. The Department of the Treasury oversees the nation's finances, including collecting taxes and managing the nation's debt. The President's Council of Economic Advisors provides economic advice to the President.

Question 9

In the long run, which of the following depends primarily on the growth rate of the money supply?
A)the natural rate of unemployment and the inflation rate
B)the natural rate of unemployment but not the inflation rate
C)the inflation rate but not the natural rate of unemployment
D)neither the natural rate of unemployment nor the inflation rate

Accepted Answer

In the long run, the inflation rate primarily depends on the growth rate of the money supply, according to the quantity theory of money. The natural rate of unemployment is determined by factors such as labor market policies and technology, not the money supply.

Question 10

One determinant of the long-run average unemployment rate is the
A)market power of unions, while the inflation rate depends primarily upon government spending.
B)minimum wage, while the inflation rate depends primarily upon the money supply growth rate.
C)rate of growth of the money supply, while the inflation rate depends primarily upon the market power of unions.
D)existence of efficiency wages, while the inflation rate depends primarily upon the extent to which firms are competitive.

Accepted Answer

The minimum wage can affect the long-run average unemployment rate by increasing the cost of labor for employers, leading them to hire fewer workers. This in turn can result in a higher long-run average unemployment rate. Meanwhile, the inflation rate depends primarily upon the growth rate of the money supply, as the more money that is in circulation, the higher prices can rise.

Question 11

One determinant of the natural rate of unemployment is the
A)rate of growth of the money supply.
B)minimum wage rate.
C)expected inflation rate.
D)All of the above are correct.

Accepted Answer

The answer of One determinant of the natural rate of...

Question 12

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short-run consequence of this contraction?
A)The inflation rate decreases.
B)The level of output decreases.
C)The unemployment rate increases.
D)All of the above are correct.

Accepted Answer

The answer of Suppose policymakers take actions that cause a...

Question 13

In the long run, inflation
A)and unemployment are primarily determined by labor market factors.
B)and unemployment are primarily determined by the rate of money supply growth.
C)is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors.
D)is primarily determined by labor market factors while unemployment is primarily determined by the rate of money supply growth.

Accepted Answer

In the long run, inflation is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors. This is because in the long run, the economy adjusts to changes in money supply and output, while labor market factors such as demographic trends and technology affect the supply and demand for labor. However, in the short run, changes in the rate of money supply growth can affect both inflation and unemployment.

Question 14

In the long run,
A)the natural rate of unemployment depends primarily on the level of aggregate demand.
B)inflation depends primarily upon the money supply growth rate.
C)there is a tradeoff between the inflation rate and the natural rate of unemployment.
D)All of the above are correct.

Accepted Answer

The answer of In the long run,
A)the natural rate of...

Question 15

Suppose Congress decides to reduce government expenditures by reducing its purchases of weapons systems. Which of the following would you expect to occur as a result of this change?
A)The economy will move up and to the left along the short-run Phillips Curve.
B)The economy will move down and to the right along the short-run Phillips Curve.
C)​The short-run Phillips Curve will shift to the left.
D)​The short-run Phillips Curve will shift to the right.

Accepted Answer

Reducing government expenditures, such as on weapons systems, would likely lead to a decrease in aggregate demand. This decrease in demand can lead to lower inflation and higher unemployment in the short run, which is represented by a movement down and to the right along the short-run Phillips Curve.

Question 16

The misery index is calculated as the
A)inflation rate plus the unemployment rate.
B)unemployment rate minus the inflation rate.
C)actual inflation rate minus the expected inflation rate.
D)natural unemployment rate times the inflation rate

Accepted Answer

The misery index is a measure of economic well-being that combines the unemployment rate and the inflation rate. It is calculated by adding these two rates together to give an overall measure of how difficult it is for people to make ends meet. Therefore, option A is the correct answer.

Quiz 35: The Short-Run Tradeoff Between Inflation and Unemployment

Suppose a middle-class tax cut increases consumption expenditures. Which of the following would you expect to occur as a result of this change?

In the long run,

Which of the following statements is correct?

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

Which of the following depends primarily on the growth rate of the money supply?

The misery index is supposed to measure the

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?

Closely watched indicators such as the inflation rate and unemployment are released each month by the

In the long run, which of the following depends primarily on the growth rate of the money supply?

One determinant of the long-run average unemployment rate is the

One determinant of the natural rate of unemployment is the

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short-run consequence of this contraction?

In the long run, inflation

In the long run,

Suppose Congress decides to reduce government expenditures by reducing its purchases of weapons systems. Which of the following would you expect to occur as a result of this change?

The misery index is calculated as the