Question 1

According to the Phillips curve, if current output is above potential output:

Accepted Answer

According to the Phillips curve, if current output is above potential output, there is a lower level of unemployment which increases competition for labour and wage rises. This, in turn, translates into higher costs of production and higher prices. Therefore, inflation rises.

Question 2

Oil prices are closely watched because:

Accepted Answer

Oil prices can affect inflation directly due to the cost of transportation and production, as well as indirectly by impacting the prices of goods and services that rely on oil. Additionally, fluctuations in oil prices can have a significant impact on the stock market and global economy.

Question 3

An increase in the interest rate by the Federal Reserve will affect only real interest rates because:

Accepted Answer

An increase in the nominal interest rate by the Federal Reserve will lead to an increase in the real interest rate only if inflation is sticky in the short run. This is because in the short run, prices are not flexible enough to adjust to changes in nominal interest rates. As a result, an increase in the nominal interest rate will result in a decrease in inflation expectations, leading to an increase in the real interest rate. In the long run, however, prices become more flexible and inflation expectations adjust, leading to a smaller or no real effect on the interest rate.

Question 4

In the Phillips curve, the term ________ reflects ________.

Accepted Answer

The answer of In the Phillips curve, the term ________...

Question 5

Figure 12.6: IS-MP Curve 
-Start from any equilibrium in Figure 12.6 to answer the following question. In 1980, U.S. inflation hit about 14 percent; Federal Reserve chairman ________ engineered a decline in inflation by ________ rates, shown in the figure as movement from point ________.

Accepted Answer

The question refers to the period when the U.S. inflation hit about 14 percent, which was in the late 1970s and early 1980s. At that time, Paul Volcker was the Federal Reserve chairman who implemented a tight monetary policy to lower inflation. As shown in Figure 12.6, this involved raising interest rates, which is represented by a movement along the IS-MP curve from point b to point c. Therefore, the correct answer is choice D: Volcker; raising interest; b to c.

Question 6

In the Phillips curve  measures:

Accepted Answer

The answer of In the Phillips curve  measures:
...

Question 7

With adaptive expectations, the Phillips curve can be written as:

Accepted Answer

The answer of With adaptive expectations, the Phillips curve can...

Question 8

In the Phillips curve  is:

Accepted Answer

The answer of In the Phillips curve  is:
...

Question 9

Refer to the following figure when answering the following questions.
Figure 12.4: Phillips Curve 
-Consider the Phillips curve in Figure 12.4. At point a, the economy is ________; at point c, the economy is ________.

Accepted Answer

At point a, the economy is in recession because the unemployment rate is high and the inflation rate is low. At point c, the economy is in its long-run equilibrium because the unemployment rate and the inflation rate are both at their natural rates.

Question 10

According to the Phillips curve, if the:

Accepted Answer

The Phillips curve suggests an inverse relationship between inflation and unemployment, implying that when inflation is rising, unemployment is typically falling, indicating a booming economy.

Question 11

Recent energy legislation that dictates increased use of ethanol as automobile fuel might ________ overall inflation because corn prices will ________, affecting all downstream industries that use corn as a(n) ________.

Accepted Answer

The use of ethanol, derived from corn, as fuel will likely increase corn prices due to higher demand. This, in turn, affects industries using corn as an input (not as a final good), potentially leading to overall inflation.

Question 12

In the Phillips curve  is a:

Accepted Answer

The Phillips curve shows the inverse relationship between inflation and unemployment. A temporary cost shock, such as an increase in oil prices, would cause an increase in production costs for firms, leading to a decrease in aggregate supply and causing unemployment to rise and inflation to increase. This is represented by a leftward shift in the short-run Phillips curve.

Question 13

In the Phillips curve,  , if 
Is large, then:

Accepted Answer

A large value of Phillips curve slope (coefficient) indicates that price-setting behavior is very sensitive to short-run fluctuations. This means that even small changes in demand or input costs can lead to significant changes in prices.

Question 14

Based on the reasoning of the original version of the Phillips curve, conventional wisdom of the 1960s was that:

Accepted Answer

The original Phillips curve suggested a trade-off between inflation and unemployment (which is closely related to economic performance), implying that lower unemployment could be achieved at the cost of higher inflation, and vice versa.

Question 15

According to reasoning by Milton Friedman and Edmund Phelps:

Accepted Answer

Both Milton Friedman and Edmund Phelps believed that economic stimulus programs might have a short-term effect on output and employment, but in the long run, they would fail to sustain growth and create real wealth. They argued that economic growth needs to come from the private sector's productivity, innovation, and investment, not from government intervention. Therefore, answer A is the best choice.

Question 16

Refer to the following figure when answering the following questions.
Figure 12.4: Phillips Curve 
-Consider the Phillips curve in Figure 12.4. At point b, the economy is ________, and at point a, the economy is ________.

Accepted Answer

At point b, the economy is booming because it is at a point where unemployment is lower than its natural rate, indicating an overheated economy. At point a, the economy is in recession, as it is at a point where unemployment is higher than its natural rate, indicating an economic downturn.

Question 17

According to the quantity theory of money, an increase in GDP ________ inflation, and the Phillips curve demonstrates that inflation ________ with rising GDP. This is because the quantity theory is a ________ theory of price behavior.

Accepted Answer

The quantity theory of money posits that an increase in GDP will lead to inflation. The Phillips curve demonstrates that inflation decreases with rising GDP, which indicates a short-run relationship between these two variables. Thus, the best choice is A, as it reflects the predicted outcomes of both theories and characterizes the quantity theory as a theory of long-run price behavior.

Question 18

In the Phillips curve, the term ________ reflects ________.

Accepted Answer

The answer of In the Phillips curve, the term ________...

Question 19

Which of the following contributed to high levels of inflation in the 1970s?
i. Oil price shocks
ii. Lower taxes
iii. A productivity slowdown

Accepted Answer

In the 1970s, there were two major oil price shocks, which led to a rise in the cost of production and a decrease in aggregate supply. This resulted in higher prices for goods and services, causing inflation (i). Additionally, there was a productivity slowdown, which meant that the economy was producing less output per unit of input, leading to higher prices (iii). Lower taxes (ii) may have contributed to inflation by increasing aggregate demand, but it is not as significant a factor as the other two options. Therefore, the correct answer is D (i and iii).

Question 20

The most immediate and visible form of inflation shock is:

Accepted Answer

The price of oil is the most immediate and visible form of inflation shock because it affects the prices of many other goods and services. This is because oil is a key input in the production of many goods, as well as being a major source of energy for transportation. As oil prices rise, the cost of producing and transporting goods increases, leading to higher prices for consumers. In addition, higher oil prices can also lead to higher inflation overall, as businesses may pass on higher costs to consumers in the form of higher prices for other goods and services.

Quiz 12: Monetary Policy and the Phillips Curve

According to the Phillips curve, if current output is above potential output:

Oil prices are closely watched because:

An increase in the interest rate by the Federal Reserve will affect only real interest rates because:

In the Phillips curve, the term reflects .

Figure 12.6: IS-MP Curve -Start from any equilibrium in Figure 12.6 to answer the following question. In 1980, U.S. inflation hit about 14 percent; Federal Reserve chairman engineered a decline in inflation by rates, shown in the figure as movement from point .

In the Phillips curve measures:

With adaptive expectations, the Phillips curve can be written as:

In the Phillips curve is:

Refer to the following figure when answering the following questions. Figure 12.4: Phillips Curve -Consider the Phillips curve in Figure 12.4. At point a, the economy is ; at point c, the economy is .

According to the Phillips curve, if the:

Recent energy legislation that dictates increased use of ethanol as automobile fuel might overall inflation because corn prices will , affecting all downstream industries that use corn as a(n) .

In the Phillips curve is a:

In the Phillips curve, , if Is large, then:

Based on the reasoning of the original version of the Phillips curve, conventional wisdom of the 1960s was that:

According to reasoning by Milton Friedman and Edmund Phelps:

Refer to the following figure when answering the following questions. Figure 12.4: Phillips Curve -Consider the Phillips curve in Figure 12.4. At point b, the economy is , and at point a, the economy is .

According to the quantity theory of money, an increase in GDP inflation, and the Phillips curve demonstrates that inflation with rising GDP. This is because the quantity theory is a theory of price behavior.

In the Phillips curve, the term reflects .

Which of the following contributed to high levels of inflation in the 1970s? i. Oil price shocks ii. Lower taxes iii. A productivity slowdown

The most immediate and visible form of inflation shock is:

Quiz 12: Monetary Policy and the Phillips Curve

According to the Phillips curve, if current output is above potential output:

Oil prices are closely watched because:

An increase in the interest rate by the Federal Reserve will affect only real interest rates because:

In the Phillips curve, the term ________ reflects ________.

Figure 12.6: IS-MP Curve -Start from any equilibrium in Figure 12.6 to answer the following question. In 1980, U.S. inflation hit about 14 percent; Federal Reserve chairman ________ engineered a decline in inflation by ________ rates, shown in the figure as movement from point ________.

In the Phillips curve measures:

With adaptive expectations, the Phillips curve can be written as:

In the Phillips curve is:

Refer to the following figure when answering the following questions. Figure 12.4: Phillips Curve -Consider the Phillips curve in Figure 12.4. At point a, the economy is ________; at point c, the economy is ________.

According to the Phillips curve, if the:

Recent energy legislation that dictates increased use of ethanol as automobile fuel might ________ overall inflation because corn prices will ________, affecting all downstream industries that use corn as a(n) ________.

In the Phillips curve is a:

In the Phillips curve, , if Is large, then:

Based on the reasoning of the original version of the Phillips curve, conventional wisdom of the 1960s was that:

According to reasoning by Milton Friedman and Edmund Phelps:

Refer to the following figure when answering the following questions. Figure 12.4: Phillips Curve -Consider the Phillips curve in Figure 12.4. At point b, the economy is ________, and at point a, the economy is ________.

According to the quantity theory of money, an increase in GDP ________ inflation, and the Phillips curve demonstrates that inflation ________ with rising GDP. This is because the quantity theory is a ________ theory of price behavior.

In the Phillips curve, the term ________ reflects ________.

Which of the following contributed to high levels of inflation in the 1970s? i. Oil price shocks ii. Lower taxes iii. A productivity slowdown

The most immediate and visible form of inflation shock is:

In the Phillips curve, the term reflects .

Figure 12.6: IS-MP Curve -Start from any equilibrium in Figure 12.6 to answer the following question. In 1980, U.S. inflation hit about 14 percent; Federal Reserve chairman engineered a decline in inflation by rates, shown in the figure as movement from point .

Refer to the following figure when answering the following questions. Figure 12.4: Phillips Curve -Consider the Phillips curve in Figure 12.4. At point a, the economy is ; at point c, the economy is .

Recent energy legislation that dictates increased use of ethanol as automobile fuel might overall inflation because corn prices will , affecting all downstream industries that use corn as a(n) .

Refer to the following figure when answering the following questions. Figure 12.4: Phillips Curve -Consider the Phillips curve in Figure 12.4. At point b, the economy is , and at point a, the economy is .

According to the quantity theory of money, an increase in GDP inflation, and the Phillips curve demonstrates that inflation with rising GDP. This is because the quantity theory is a theory of price behavior.

In the Phillips curve, the term reflects .