Econ 4200 Chapter 7, 8, 9 Quiz Set

Suppose the Phillips curve is represented by the following equation: πt - πt-1 = 20 - 2ut. Given this information, we know that the natural rate of unemployment in this economy is A) 10%. B) 20%. C) 6.5%. D) 5%. E) none of these

A) 10%.

For this question, assume that individuals form expectations of inflation according to the following equation πet = θπt-1. From 1970 on, the value of θ for this equation A) increased over time and approached 1. B) decreased over time and approached zero. C) remained constant at zero. D) remained constant at negative one. E) none of these

A) increased over time and approached 1.

Based on price setting behavior, we know that a reduction in the unemployment rate will cause... A) no change in the real wage. B) a reduction in the real wage. C) an increase in the real wage. D) an upward shift of the PS curve

A) no change in the real wage.

Suppose the Phillips curve is represented by the following equation: πt - πt-1 = 20 - 2ut. Given this information, which of the following is most likely to occur if the actual unemployment in any period is equal to 6%? A) the rate of inflation will tend to increase B) the rate of inflation will be constant C) the rate of inflation will tend to decrease D) none of these

A) the rate of inflation will tend to increase

Use the following Phillips curve equation to answer this question: πt - πt-1 = (m + z) - αut. Which of the following will cause an increase in the natural rate of unemployment? A) a reduction in m B) an increase in z C) an increase in α D) a reduction in expected inflation E) none of these

B) an increase in z

17) Assume that expected inflation is based on the following: πet = θπt-1. If θ = 1, we know that A) a reduction in the unemployment rate will have no effect on inflation. B) low rates of unemployment will cause steadily increasing rates of inflation. C) the actual unemployment rate will not deviate from the natural rate of unemployment. D) the Phillips curve illustrates the relationship between the level of inflation rate and the level of the unemployment rate.

B) low rates of unemployment will cause steadily increasing rates of inflation.

Efficiency wage theory suggests that... A) workers will be paid less than their reservation wage. B) productivity might drop if the wage rate is too low. C) the government can only set tax rates so high before people will prefer not to work. D) unskilled workers will have a lower turnover rate than skilled workers. E) firms will be more resistant to wage increases as the labor market tightens

B) productivity might drop if the wage rate is too low.

The original Phillips curve implied or assumed that A) the markup over labor costs was zero. B) the expected rate of inflation would be zero. C) the actual and expected rates of inflation would always be equal. D) all of these E) none of these

B) the expected rate of inflation would be zero.

Suppose workers and firms expect the overall price level to increase by 5%. Given this information, we would expect that... A) the nominal wage will increase by less than 5%. B) the nominal wage will increase by exactly 5%. C) the nominal wage will increase by more than 5%. D) the real wage will increase by 5%. E) the real wage will increase by less than 5%.

B) the nominal wage will increase by exactly 5%.

For this question, assume that the Phillips curve equation is represented by the following equation: πt - πt-1 = (m + z) - αut. A reduction in the unemployment rate will cause A) a reduction in the markup over labor costs (i.e., a reduction in m). B) an increase in the markup over labor costs. C) an increase in the inflation rate over time. D) a decrease in the inflation rate over time. E) none of these

C) an increase in the inflation rate over time.

In the wage setting relation W = PeF(u,z), the variable z does not include which of the following variables? A) the minimum wage B) unemployment benefits C) the extent to which firms mark up prices over their marginal cost D) all of these E) none of these

C) the extent to which firms mark up prices over their marginal cost

The reservation wage is A) the wage that an employer must pay workers to reduce turnover to a reasonable level. B) the wage that ensures a laid-off individual will wait for re-hire, rather than find another job. C) the lowest wage firms are allowed by law to pay workers D) the wage offer that will end a labor-strike. E) none of the above

C) the lowest wage firms are allowed by law to pay workers

When the current price level is equal to the expected price level, we know that... A) the unemployment rate is zero. B) the goods market and financial markets are in equilibrium. C) the output is equal to the natural level of output. D) the money market is in equilibrium. E) none of the above

C) the output is equal to the natural level of output.

If efficiency wage theory is valid, we would expect a relatively low premium over the reservation wage when... A) the unemployment rate is low. B) the job requires very little training. C) workers can be easily monitored. D) workers have few other options for employment in the area. E) all of the above

C) workers can be easily monitored.

In the Phillips curve equation, which of the following will cause an increase in the current inflation rate? A) an increase in the expected inflation rate B) a reduction in the unemployment rate C) an increase in the markup, m D) all of these E) none of these

D) all of these

Assume that expected inflation is based on the following: πet = θπt-1. If θ = 0, we know that A) a reduction in the unemployment rate will have no effect on inflation. B) low rates of unemployment will cause steadily increasing rates of inflation. C) high rates of unemployment will cause steadily declining rates of inflation. D) the Phillips curve illustrates the relationship between the level of inflation rate and the level of the unemployment rate.

D) the Phillips curve illustrates the relationship between the level of inflation rate and the level of the unemployment rate.

For this question, assume that the Phillips curve equation is represented by the following equation: πt - πt-1 = (m + z) - αut. Given this information, the natural rate of unemployment will be equal to A) m + z. B) (m + z - α). C) α(m + z). D) 0. E) none of these

E) none of these

Suppose the actual unemployment rate decreases. This will cause... A) an upward shift in the WS curve. B) a downward shift in the WS curve. C) an upward shift in the PS curve. D) a downward shift in the PS curve. E) none of these

E) none of these a movement along the WS and the PS curves.

The natural rate of unemployment is the rate of unemployment... A) that occurs when the money market is in equilibrium. B) that occurs when the markup of prices over costs is zero. C) where the markup of prices over costs is equal to its historical value. D) that occurs when both the goods and financial markets are in equilibrium. E) none of the above

E. None of the above consistent with both the wage-setting and price-setting equations when the expected and actual price level are the same.

As fiscal consolidation takes place, the central bank should a) decrease the policy rate. b) increase the policy rate. c) increase inflation rate. d) decrease money supply.

a) decrease the policy rate.

What is the major reason for oil price to go up in the 1970s? a) formation of the OPEC b) fast of growth of emerging economies c) new energy d) higher demand from the US

a) formation of the OPEC

If the output is too high, to achieve the medium run equilibrium, the central bank will... a) increases policy rate. b) reduces policy rate. c) increase money supply. d) increases inflation rate.

a) increases policy rate.

When a government reduces its deficits by increasing taxes, in the medium run, a) output returns to potential. b) output increases. c) interest rate is higher. d) IS curve shifts inward to the left.

a) output returns to potential.

The zero lower bound refers to the situation that a) the lowest the central bank can decrease the nominal policy rate is 0%. b) real interest rate is 0%. c) inflation rate is 0%. d) risk premium is 0%.

a) the lowest the central bank can

For this question, assume that the economy is initially operating at the natural level of output. An increase in the price of oil will cause which of the following in the medium run? a) a reduction in the interest rate b) a reduction in output and an increase in the aggregate price level c) a reduction in output and a reduction in the interest rate d) a reduction in unemployment, an increase in the nominal wage and an increase in the aggregate price level e) a reduction in the aggregate price level and no change in output

b) a reduction in output and an increase in the aggregate price level

What is the major reason for oil price to go up in the 2000s? a) formation of the OPEC b) fast growth of emerging economies c) new energy d) higher demand from the US

b) fast growth of emerging economies

In the short run, a reduction in the price of oil will cause a) a reduction in output. b) an increase in the price level. c) a reduction in the interest rate. d) all of these e) none of these

c) a reduction in the interest rate.

Okun's law shows that when the unemployment rate is above the natural rate... a) inflation is higher than expected. b) inflation is lower than expected. c) output is below potential. d) output is above potential.

c) output is below potential.

When a government reduces its deficits by increasing taxes, in the short run, a) output returns to potential. b) output increases. c) interest rate is higher. d) IS curve shifts inward to the left.

d) IS curve shifts inward to the left.