econ ch 14

In the sticky-price model, if no firms have flexible prices, the short-run aggregate supply schedule will: be vertical. slope upward to the right. be steeper than it would be if some firms had flexible prices. be horizontal.

be horizontal.

The most prominent feature of the U.S. economy in the 1980s was: cost-push deflation. cost-push inflation. demand-pull inflation. demand-pull deflation.

demand-pull deflation.

According to the imperfect-information model, when the price level rises by the amount the producer expected it to rise, the producer: hires more workers. decreases production. increases production. does not change production.

does not change production.

The percentage of a year's real GDP that must be foregone to reduce inflation by 1 percentage point is called the: sacrifice ratio. NAIRU. Okun's law. short-run Phillips curve.

sacrifice ratio.

Assume that an economy has the usual type of Phillips curve except that the natural rate of unemployment in an economy is given by an average of the unemployment rates in the last two years. Then, there is: no long-run tradeoff between inflation and unemployment. a long-run tradeoff between inflation and unemployment. no short-run tradeoff between inflation and unemployment. a sacrifice ratio that is large but not infinite.

a long-run tradeoff between inflation and unemployment.

Inflation inertia is represented in the aggregate supply-aggregate demand model by continuing upward shifts in the: aggregate demand and short-run aggregate supply curves. aggregate demand curve. long-run aggregate supply curve. short-run aggregate supply curve.

aggregate demand and short-run aggregate supply curves.

The tradeoff between inflation and unemployment does not exist in the long run because people will adjust their expectations so that expected inflation: exceeds the inflation rate. is below the inflation rate. equals the inflation rate of the previous year. equals the inflation rate.

equals the inflation rate.

According to the Phillips curve, other things being equal, inflation depends positively on: the quantities of capital and labor. expected inflation. the unemployment rate. the rate of technological change.

expected inflation.

The short-run aggregate supply curve is drawn for a given: output level. expected price level. level of aggregate demand. price level.

expected price level.

According to the sticky-price model, other things being equal, the greater the proportion, s, of firms that follow the sticky-price rule, the ______ the ______ in output in response to an unexpected price increase. greater; increase smaller; increase greater; decrease smaller; decrease

greater; increase

According to the natural-rate hypothesis, output will be at the natural rate: if aggregate demand affects output in the long run. if inflation exceeds expected inflation. in the long run. if inflation falls below expected inflation.

in the long run.

Along an aggregate supply curve, if the level of output is less than the natural level of output, then the price level is: stuck at the existing price level. less than the expected price level. equal to the natural price level. greater than the expected price level.

less than the expected price level.

Advocates of the rational-expectations approach predict that a credible policy to lower inflation will ______ the sacrifice ratio. sometimes raise and sometimes lower not change lower raise

lower

The government can lower inflation with a low sacrifice ratio if the: money supply is reduced slowly. public believes that policymakers are committed to reducing inflation. public has adaptive expectations. short-run aggregate supply schedule is relatively flat.

public believes that policymakers are committed to reducing inflation.

In the case of demand-pull inflation, other things being equal: both the inflation rate and the unemployment rate rise at the same time. the inflation rate rises but the unemployment rate falls. both the inflation rate and the unemployment rate fall. the unemployment rate rises but the inflation rate falls.

the inflation rate rises but the unemployment rate falls.

Based on the Phillips curve, unexpected movements in inflation are related to ______, and based on the short-run aggregate supply curve, unexpected movements in the price level are related to ______. sticky prices; sticky wages output; unemployment sticky wages; sticky prices unemployment; output

unemployment; output