ECON 2102: SRAS, Inflation & Unemployment

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

B

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. A. smaller; decrease B. smaller; increase C. greater; increase D. greater; decrease

B

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

B

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: A. a sacrifice ratio that is large but not infinite. B. a long-run tradeoff between inflation and unemployment. C. no short-run tradeoff between inflation and unemployment. D. no long-run tradeoff between inflation and unemployment.

B

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

C

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

C

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

A

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

C.

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

D

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

A

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

B

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

C

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 ______. A. sticky wages; sticky prices B. sticky prices; sticky wages C. output; unemployment D. unemployment; output

D

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

D

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

D

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

D