Question 1

The short-run model is built on which of the following?
i. The economy is constantly being hit by "shocks."
ii. Economic policy has no impact on output.
iii. There is trade-off between output and inflation.
A) i only
B) i and iii
C) ii and iii
D) ii only
E) i, ii, and iii

Accepted Answer

The short-run model is built on the assumption that the economy is constantly being hit by "shocks" (i) and there is a trade-off between output and inflation (iii), known as the Phillips curve relationship. However, it recognizes that economic policy can have an impact on output in the short run, although this impact may not be sustainable over the long term. Therefore, economic policy is not assumed to have no impact on output (ii).

Question 2

If $\Delta \pi > 0$ , the macroeconomy is:
A) in a recession
B) in an expansion
C) at its potential level of output
D) Not enough information is given.
E) None of these answers are correct.

Accepted Answer

If $\Delta \pi > 0$, then the economy is experiencing inflation. This means that the economy is in an expansion.

Question 3

If $\tilde { Y } _ { t } < 0$ , the macroeconomy is:
A) in an expansionary gap
B) at its potential level of output
C) in a recessionary gap
D) None of these answers are correct
E) Not enough information is given.

Accepted Answer

A negative output gap ($\tilde { Y } _ { t } < 0$) indicates that the actual output is less than the potential output, which is characteristic of a recessionary gap.

Question 4

According to the Phillips curve presented in the text, a positive macroeconomic shock:
A) increases the rate of inflation
B) decreases the rate of inflation
C) has no effect on the rate of inflation
D) has a negative effect on the unemployment rate
E) has a positive effect on the unemployment rate

Accepted Answer

According to the Phillips curve, there is an inverse relationship between inflation and unemployment. In other words, when unemployment is low, inflation tends to be higher and vice versa. Therefore, a positive macroeconomic shock, such as an increase in aggregate demand, would lead to a decrease in unemployment and an increase in inflation. Hence, the best choice is A (it increases the rate of inflation).

Question 5

If $\tilde { Y } _ { t } > 0$ , the macroeconomy is:
A) in a recession
B) in an expansion
C) at its potential level of output
D) Not enough information is given.
E) None of these answers are correct.

Accepted Answer

If $\tilde { Y } _ { t } > 0$, it indicates that the actual output is above the potential output, suggesting the economy is in an expansion phase.

Question 6

Okun's law shows the ________ relationship between ________ and ________.
A) negative; the unemployment gap; economic fluctuations
B) positive; the unemployment gap; economic fluctuations
C) negative; the unemployment gap; inflation
D) positive; the unemployment gap; inflation
E) negative; inflation; economic fluctuations

Accepted Answer

Okun's law demonstrates a negative relationship between the unemployment gap (the difference between actual and natural rates of unemployment) and economic fluctuations (measured as changes in real GDP). When the economy grows faster than its potential (positive economic fluctuations), the unemployment gap decreases, and vice versa.

Question 7

In 1979, the inflation rate reached about 14 percent. The Federal Reserve ________ interest rates, sending the economy into a(n) ________. When doing so, the Federal Reserve knew this would be the case because of the ________.
A) raised; expansion; Phillips curve
B) raised; recession; Phillips curve
C) raised; recession; Okun relationship
D) lowered; recession; Phillips curve
E) lowered; expansion; Phillips curve

Accepted Answer

The Federal Reserve raised interest rates, which led to a recession. This is supported by choice B, as it matches the outcomes of the events in the question. The Phillips curve, which shows the relationship between unemployment and inflation, is not mentioned in relation to the Federal Reserve's decision to raise interest rates. The Okun relationship measures the relationship between GDP growth and unemployment, which also is not mentioned in the question. The answer cannot be choices A or E, as they suggest that raising interest rates leads to an expansion, which is not the case here. Similarly, the answer cannot be choice D, as lowering interest rates would not lead to a recession.

Question 8

If $\Delta \pi = 0$ , the macroeconomy is:
A) in an expansion
B) in a recession
C) at its potential level of output
D) Not enough information is given.
E) None of these answers are correct.

Accepted Answer

When $\Delta \pi = 0$, it indicates that there is no change in inflation, suggesting the economy is at its potential level of output, where aggregate demand equals aggregate supply.

Question 9

Refer to the following figure when answering  
Figure 9.3: Phillips Curve 
-Consider the Phillips curve at $\tilde { Y } _ { t } = 0$ in Figure 9.3. The economy is:
A) booming
B) inflationary
C) at its potential output
D) in recession
E) Not enough information is given to determine.

Accepted Answer

The Phillips curve at $\tilde { Y } _ { t } = 0$ indicates that the economy is at its potential output, where there is no output gap, meaning actual output equals potential output.

Question 10

If $\tilde { Y } _ { t } = 0$ , the macroeconomy is:
A) at its potential level of output
B) in a recessionary gap
C) in an expansionary gap
D) Not enough information is given.
E) None of these answers are correct.

Accepted Answer

When $\tilde { Y } _ { t } = 0$, it indicates that the actual output is equal to the potential output, meaning the economy is operating at its potential level of output.

Question 11

Generally speaking, the rate of inflation ________ during a recession.
A) stays the same
B) falls
C) rises
D) falls, then rises
E) None of these answers are correct.

Accepted Answer

During a recession, the overall demand for goods and services decreases, resulting in a drop in prices. As a result, the rate of inflation falls.

Question 12

According to the Phillips curve presented in the text, a negative macroeconomic shock:
A) increases the rate of inflation
B) decreases the rate of inflation
C) has no effect on the rate of inflation
D) has a negative effect on the unemployment rate
E) has a positive effect on the unemployment rate

Accepted Answer

According to the Phillips curve, a negative macroeconomic shock, such as a decrease in aggregate demand, will decrease the rate of inflation. This is because as unemployment increases due to the negative shock, workers' bargaining power decreases, leading to lower wage growth and ultimately lower price inflation.

Question 13

The Phillips curve in the text shows the ________ relationship between ________ and ________.
A) positive; inflation; unemployment
B) positive; inflation; short-term economic fluctuations
C) positive; the change in inflation; short-term economic fluctuations
D) negative; inflation; unemployment
E) negative; the change in inflation; unemployment

Accepted Answer

The answer of The Phillips curve in the text shows...

Question 14

The Phillips curve in the text shows the ________ relationship between ________ and ________.
A) positive; the change in inflation; short-term economic fluctuations
B) negative; the change in inflation; short-term economic fluctuations
C) positive; inflation; unemployment
D) negative; inflation; unemployment
E) negative; the change in inflation; unemployment

Accepted Answer

The answer of The Phillips curve in the text shows...

Question 15

If $\Delta \pi < 0$ , the macroeconomy is:
A) in a recession
B) in an expansion
C) at its potential level of output
D) Not enough information is given.
E) None of these answers are correct.

Accepted Answer

If $\Delta \pi < 0$, then the economy is in a recession. This is because a negative value for $\Delta \pi$ indicates that the rate of inflation is decreasing, which is a sign of an economic slowdown.

Question 16

Refer to the following figure when answering  
Figure 9.3: Phillips Curve 
-Consider the Phillips curve at $\tilde { Y } _ { t , 1 }$ in Figure 9.3.Which of the following is true?
A) The economy is booming.
B) The economy is deflationary.
C) The economy is at potential output.
D) The economy is in recession.
E) Unemployment is above the natural level.

Accepted Answer

The Phillips curve at $\tilde { Y } _ { t , 1 }$ suggests that the economy is operating above its potential output, indicating a booming economy with higher inflationary pressures.

Question 17

In 1979, the inflation rate reached about 14 percent, due in part to ________. The Board of Governors of the Federal Reserve under ________ decided to ________ interest rates, sending the economy into a ________.
A) a fall in oil prices; Volcker; raise; recession
B) an increase in consumer spending; Volcker; lower; recession
C) an increase in oil prices; Volcker; raise; recession
D) an increase in oil prices; Volcker; lower; boom
E) a fall in oil prices; Greenspan; raise; recession

Accepted Answer

In 1979, inflation was significantly impacted by an increase in oil prices. Paul Volcker, who was the Chairman of the Federal Reserve at the time, implemented a policy of raising interest rates to combat inflation, which contributed to the economy entering a recession.

Question 18

According to the text, the slope of the Phillips curve in the United States is about ________. Thus, if the change in inflation is 1 percent, the gap would be ________ percent.
A) 1/4; 0.25
B) 1/3; 3
C) 1/2; 2
D) 2; 0.5
E) 1/4; 4

Accepted Answer

The answer of According to the text, the slope of...

Question 19

Refer to the following figure when answering  
Figure 9.3: Phillips Curve 
-Consider the Phillips curve at $\tilde { Y } _ { t , 2 }$ in Figure 9.3. The economy is:
A) booming
B) inflationary
C) in recession
D) at potential output
E) Not enough information is given to determine.

Accepted Answer

The answer of Refer to the following figure when answering...

Question 20

According to the text, the slope of the Phillips curve in the United States is about ________. Thus, if the gap is 6 percent, the change in inflation would be ________ percent.
A) 1/4; 1.5
B) 1/3; 2
C) 1/4; 24
D) 1/2; 3
E) 1/2; 12

Accepted Answer

The answer of According to the text, the slope of...

Quiz 9: An Introduction to the Short Run

The short-run model is built on which of the following? i. The economy is constantly being hit by "shocks." ii. Economic policy has no impact on output. iii. There is trade-off between output and inflation.

If $\Delta \pi > 0$ , the macroeconomy is:

If $\tilde { Y } _ { t } < 0$ , the macroeconomy is:

According to the Phillips curve presented in the text, a positive macroeconomic shock:

If $\tilde { Y } _ { t } > 0$ , the macroeconomy is:

Okun's law shows the relationship between and .

In 1979, the inflation rate reached about 14 percent. The Federal Reserve interest rates, sending the economy into a(n) . When doing so, the Federal Reserve knew this would be the case because of the .

If $\Delta \pi = 0$ , the macroeconomy is:

If $\tilde { Y } _ { t } = 0$ , the macroeconomy is:

Generally speaking, the rate of inflation ________ during a recession.

According to the Phillips curve presented in the text, a negative macroeconomic shock:

The Phillips curve in the text shows the relationship between and .

The Phillips curve in the text shows the relationship between and .

If $\Delta \pi < 0$ , the macroeconomy is:

In 1979, the inflation rate reached about 14 percent, due in part to . The Board of Governors of the Federal Reserve under decided to interest rates, sending the economy into a .

According to the text, the slope of the Phillips curve in the United States is about . Thus, if the change in inflation is 1 percent, the gap would be percent.

According to the text, the slope of the Phillips curve in the United States is about . Thus, if the gap is 6 percent, the change in inflation would be percent.

Quiz 9: An Introduction to the Short Run

The short-run model is built on which of the following? i. The economy is constantly being hit by "shocks." ii. Economic policy has no impact on output. iii. There is trade-off between output and inflation.

If Δπ>0\Delta \pi > 0Δπ>0 , the macroeconomy is:

If Y~t<0\tilde { Y } _ { t } < 0Y~t​<0 , the macroeconomy is:

According to the Phillips curve presented in the text, a positive macroeconomic shock:

If Y~t>0\tilde { Y } _ { t } > 0Y~t​>0 , the macroeconomy is:

Okun's law shows the ________ relationship between ________ and ________.

In 1979, the inflation rate reached about 14 percent. The Federal Reserve ________ interest rates, sending the economy into a(n) ________. When doing so, the Federal Reserve knew this would be the case because of the ________.

If Δπ=0\Delta \pi = 0Δπ=0 , the macroeconomy is:

Refer to the following figure when answering Figure 9.3: Phillips Curve -Consider the Phillips curve at Y~t=0\tilde { Y } _ { t } = 0Y~t​=0 in Figure 9.3. The economy is:

If Y~t=0\tilde { Y } _ { t } = 0Y~t​=0 , the macroeconomy is:

Generally speaking, the rate of inflation ________ during a recession.

According to the Phillips curve presented in the text, a negative macroeconomic shock:

The Phillips curve in the text shows the ________ relationship between ________ and ________.

The Phillips curve in the text shows the ________ relationship between ________ and ________.

If Δπ<0\Delta \pi < 0Δπ<0 , the macroeconomy is:

Refer to the following figure when answering Figure 9.3: Phillips Curve -Consider the Phillips curve at Y~t,1\tilde { Y } _ { t , 1 }Y~t,1​ in Figure 9.3.Which of the following is true?

In 1979, the inflation rate reached about 14 percent, due in part to ________. The Board of Governors of the Federal Reserve under ________ decided to ________ interest rates, sending the economy into a ________.

According to the text, the slope of the Phillips curve in the United States is about ________. Thus, if the change in inflation is 1 percent, the gap would be ________ percent.

Refer to the following figure when answering Figure 9.3: Phillips Curve -Consider the Phillips curve at Y~t,2\tilde { Y } _ { t , 2 }Y~t,2​ in Figure 9.3. The economy is:

According to the text, the slope of the Phillips curve in the United States is about ________. Thus, if the gap is 6 percent, the change in inflation would be ________ percent.

If $\Delta \pi > 0$ , the macroeconomy is:

If $\tilde { Y } _ { t } < 0$ , the macroeconomy is:

If $\tilde { Y } _ { t } > 0$ , the macroeconomy is:

Okun's law shows the relationship between and .

In 1979, the inflation rate reached about 14 percent. The Federal Reserve interest rates, sending the economy into a(n) . When doing so, the Federal Reserve knew this would be the case because of the .

If $\Delta \pi = 0$ , the macroeconomy is:

If $\tilde { Y } _ { t } = 0$ , the macroeconomy is:

The Phillips curve in the text shows the relationship between and .

The Phillips curve in the text shows the relationship between and .

If $\Delta \pi < 0$ , the macroeconomy is:

In 1979, the inflation rate reached about 14 percent, due in part to . The Board of Governors of the Federal Reserve under decided to interest rates, sending the economy into a .

According to the text, the slope of the Phillips curve in the United States is about . Thus, if the change in inflation is 1 percent, the gap would be percent.

According to the text, the slope of the Phillips curve in the United States is about . Thus, if the gap is 6 percent, the change in inflation would be percent.