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Economics Ps 9

24 Questions
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Questions and Answers
  • 1. 
    • A. 

      Greater; increase

    • B. 

      Smaller; increase

    • C. 

      Greater; decrease

    • D. 

      Smaller; decrease

  • 2. 
    Each of the two models of short-run aggregate supply is based on some market imperfection. In the sticky-price model, the imperfection is that:
    • A. 

      Some firms do not adjust their prices instantly to changes in demand.

    • B. 

      Expectations are formed adaptively rather than rationally.

    • C. 

      Firms confuse changes in the overall level of prices with changes in relative prices.

    • D. 

      The real wage adjusts to bring labor supply and labor demand into equilibrium.

  • 3. 
    In the sticky-price model, the relationship between output and the price level depends on:
    • A. 

      The proportion of firms with flexible prices.

    • B. 

      The target real wage rate.

    • C. 

      The target nominal wage rate.

    • D. 

      The implicit agreements between workers and firms.

  • 4. 
    According to the sticky-price model, output will be at the natural level if:
    • A. 

      Firms expect a high price level and the demand for goods is high.

    • B. 

      The proportion of firms with flexible prices equals the proportion of firms with sticky prices.

    • C. 

      The price level equals the expected price level.

    • D. 

      Expectations are formed adaptively, but not if expectations are formed rationally

  • 5. 
    According to the sticky-price model, deviations of output from the natural level are _____ deviations of the price level from the expected price level.
    • A. 

      Positively associated with

    • B. 

      Negatively associated with

    • C. 

      Not related to

    • D. 

      Equal to

  • 6. 
    According to the imperfect-information model, when the price level rises and the producer expects the price level to rise, the producer:
    • A. 

      Increases production.

    • B. 

      Does not change production.

    • C. 

      Decreases production.

    • D. 

      Hires more workers.

  • 7. 
    According to the imperfect-information model, when the price level falls but the producer did not expect it to fall, the producer:
    • A. 

      Increases production.

    • B. 

      Does not change production.

    • C. 

      Decreases production.

    • D. 

      Hires more workers.

  • 8. 
    According to the imperfect-information model, when the price level is greater than the expected price level, output will _____ the natural level of output
    • A. 

      Be greater than

    • B. 

      Be less than

    • C. 

      Equal to

    • D. 

      Shift the

  • 9. 
    Both models of aggregate supply discussed in Chapter 12 imply that if the price level is higher than expected, then output ______ natural rate of output.
    • A. 

      Exceeds the

    • B. 

      Falls below the

    • C. 

      Equals the

    • D. 

      Moves to a different

  • 10. 
    Starting from the natural level of output, an unexpected monetary contraction will cause output and the price level to ______ in the short run, and in the long run the expected price level will ______, causing the level of output to return to the natural level.
    • A. 

      Increase; increase

    • B. 

      Increase; decrease

    • C. 

      Decrease; decrease

    • D. 

      Decrease; increase

  • 11. 
    Along an aggregate supply curve, if the level of output is less than the natural level of output, then the price level is:
    • A. 

      Greater than the expected price level.

    • B. 

      Less than the expected price level.

    • C. 

      Equal to the natural price level.

    • D. 

      Stuck at the existing price level.

  • 12. 
    • A. 

      Unemployment level.

    • B. 

      Expected price level.

    • C. 

      Inflation level.

    • D. 

      Output level.

  • 13. 
    Which of the following will shift the aggregate supply curve up to the left?
    • A. 

      An increase in the price level.

    • B. 

      A decrease in the level of output.

    • C. 

      An increase in the expected price level.

    • D. 

      A decrease in the price level.

  • 14. 
    Use the following to answer questions 15-16: (Exhibit: AD-AS Shifts) Starting from long-run equilibrium at A with output equal to and the price level equal to P1, if there is an unexpected monetary expansion that shifts aggregate demand from AD1 to AD3, then the short-run nonneutrality of money is represented by the movement from:
    • A. 

      A to B.

    • B. 

      A to G.

    • C. 

      A to C.

    • D. 

      A to D.

  • 15. 
    Use the following to answer questions 15-16: (Exhibit: AD-AS Shifts) Starting from long-run equilibrium at A with output equal to and the price level equal to P1, if there is an unexpected monetary expansion that shifts aggregate demand from AD1 to AD3, then the long-run neutrality of money is represented by the movement from:
    • A. 

      A to B.

    • B. 

      A to G.

    • C. 

      A to C.

    • D. 

      A to D.

  • 16. 
    If the short-run aggregate supply curve is steep, the Phillips curve will be:
    • A. 

      Flat.

    • B. 

      Steep.

    • C. 

      Backward-bending.

    • D. 

      Unrelated to the slope of the short-run aggregate supply curve.

  • 17. 
    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

  • 18. 
    Inflation inertia is represented in the aggregate supply and aggregate demand model by continuing upward shifts in the:
    • A. 

      Aggregate demand curve.

    • B. 

      Short-run aggregate supply curve.

    • C. 

      Long-run aggregate supply curve.

    • D. 

      Aggregate demand and short-run aggregate supply curves.

  • 19. 
    Use the following to answer questions 23-24: (Exhibit: AD-AS Shifts) Starting from long-run equilibrium at A with output equal to and the price level equal to P1, a cost-push inflation would be represented by a shift from:
    • A. 

      AD1 to AD2.

    • B. 

      AD1 to AD3.

    • C. 

      AS1 to AS2.

    • D. 

      AS1 to AS3.

  • 20. 
    Use the following to answer questions 23-24: (Exhibit: AD-AS Shifts) Starting from long-run equilibrium at A with output equal to and the price level equal to P1, a demand-pull inflation would be represented by a shift from:
    • A. 

      AD1 to AD2.

    • B. 

      AD1 to AD3.

    • C. 

      AS1 to AS2.

    • D. 

      AS1 to AS3.

  • 21. 
    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. 

      Equals the inflation rate.

    • C. 

      Is below the inflation rate.

    • D. 

      Equals the inflation rate of the previous year.

  • 22. 
    Use the following to answer questions 26-27: (Exhibit: Short-run Phillips Curves) As the short-run Phillips curve shifts from A to B to C to D, policymakers face:
    • A. 

      The same tradeoff between inflation and unemployment.

    • B. 

      A lower rate of inflation for any level of unemployment.

    • C. 

      A higher rate of inflation for any level of unemployment.

    • D. 

      Higher than expected inflation rates and lower unemployment rates.

  • 23. 
    Use the following to answer questions 26-27: (Exhibit: Short-run Phillips Curves) As the short-run Phillips curve shifts from A to B to C to D:
    • A. 

      The expected rate of inflation is unchanged at every level of unemployment.

    • B. 

      There is a lower-expected rate of inflation at every level of unemployment.

    • C. 

      There is a higher-expected rate of inflation for every level of unemployment.

    • D. 

      The natural rate of unemployment falls.

  • 24. 
    According to the natural-rate hypothesis, the levels of output and unemployment depend on:
    • A. 

      Aggregate demand in the short run, but not in the long run.

    • B. 

      Aggregate demand in the long run, but not in the short run.

    • C. 

      The natural rate of unemployment in the short run, but the natural rate of inflation in the long run.

    • D. 

      The natural rate of inflation in the short run, but the natural rate of unemployment in the long run.