Question 1

Describe how a demand- pull inflation can occur.

Accepted Answer

Demand- pull inflation starts from an in...

Question 2

When workers and employers correctly anticipate an increase in inflation caused by an increase in aggregate demand,

Accepted Answer

A)   there will be no unemployment.
B)   workers will underestimate the real wage rate.
C)   unemployment will be at the natural rate.
D)   workers will overestimate the real wage rate.E) A) and D)
F) B) and D)

Question 3

Real business cycle theory says that the factor leading to the business cycle is changes in

Accepted Answer

A)   the growth rate of the quantity of money.
B)   only aggregate demand.
C)   animal spirits.
D)   productivity.E) B) and C)
F) A) and D)

Question 4

Monetarists believe in changes in animal spirits are the factor that leads to business cycles.

Accepted Answer

A) True 
 B)False

Question 5

If the economy is at potential GDP and the Fed increases the quantity of money, then

Accepted Answer

A)   real GDP rises temporarily above potential GDP.
B)   real GDP rises permanently above potential GDP.
C)   potential GDP and real GDP both decrease.
D)   potential GDP rises.E) B) and C)
F) A) and B)

Question 6

The theory that regards random fluctuations in productivity as the main source of economic fluctuations is the _ of the business cycle.

Accepted Answer

A)   real business cycle theory
B)   dynamic general equilibrium theory
C)   productivity theory
D)   Keynesian cycle theoryE) B) and D)
F) A) and B)

Question 7

Which of the following is held constant when moving along a short- run Phillip's curve?

Accepted Answer

A)   the inflation rate
B)   the unemployment rate
C)   the growth rate of the quantity of money
D)   the expected inflation rateE) B) and D)
F) C) and D)

Question 8

Suppose the natural unemployment rate is 4 percent and the expected inflation rate is 6 percent. In the above figure, illustrate the long- run Phillips curve. What does the long- run Phillips curve reveal abut the long- run tradeoff between inflation and unemployment?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> The long- run Phillips curve is illustr...

Question 9

What is the factor that leads to business cycles in the new classical cycle theory?

Accepted Answer

The factor leading to business...

Question 10

-In the above figure, the economy is initially at point A. If workers and firms correctly anticipate the increase in aggregate demand and the resulting inflation rate, the economy will move to point

Accepted Answer

A)   A, that is, the price level and level of real GDP will not change.
B)   B.
C)   C.
D)   D.E) None of the above
F) A) and B)

Question 11

Cost- push inflation starts with

Accepted Answer

A)   a decrease in aggregate demand.
B)   a decrease in short- run aggregate supply.
C)   an increase in aggregate demand.
D)   an increase in short- run aggregate supply.E) C) and D)
F) All of the above

Question 12

The monetarist theory of the business cycle regards as the factor that leads to business cycles.

Accepted Answer

A)   volatility in the demand for money
B)   changes in the growth rate of the quantity of money
C)   volatility in the interest rate
D)   unexpected increases in aggregate demandE) A) and B)
F) B) and C)

Question 13

According to real business cycle theory, workers' decisions to work now versus later depend on

Accepted Answer

A)   labor productivity.
B)   the money wage rate.
C)   the real wage rate today but not the real wage rate in the future.
D)   the real interest rate.E) A) and D)
F) A) and B)

Question 14

The term "stagflation" refers to the situation when

Accepted Answer

A)   real GDP and the price level both rise because of an increase in aggregate demand.
B)   prices become stagnant and do not increase or decrease.
C)   the short- run aggregate supply curve and the aggregate demand curve shift in opposite directions.
D)   the aggregate supply curve shifts leftward, prices increase and real GDP decreases.E) B) and C)
F) A) and D)

Question 15

In monetarist business cycle theory, decreasing the growth rate of the quantity of money and increasing the growth rate of the quantity of money .

Accepted Answer

A)   causes the economy to enter a recession; causes the economy to enter an expansion
B)   increases real GDP; decreases the inflation rate
C)   causes the economy to enter an expansion; causes the economy to enter a recession
D)   decreases real GDP; decreases the inflation rateE) None of the above
F) A) and B)

Question 16

The negative relationship between inflation and unemployment can be explained by the aggregate supply and demand curves.

Accepted Answer

A) True 
 B)False

Question 17

When the price level rises and simultaneously there is a decrease in real GDP,

Accepted Answer

A)   there is an expansionary gap.
B)   the natural unemployment rate increases.
C)   stagflation occurs.
D)   the Fed has increased the discount rate.E) All of the above
F) A) and B)

Question 18

"The short- run Phillips curve shows the relationship between real GDP and inflation." Is the previous statement correct or incorrect? Briefly explain you answer.

Accepted Answer

The statement is incorrect. Th...

Question 19

The early 1990s were the last period of substantial demand- pull inflation in the U.S.

Accepted Answer

A) True 
 B)False

Question 20

A leftward shift in the aggregate supply curve

Accepted Answer

A)   increases both the price level and real GDP.
B)   occurs when consumer expenditures exceed available output.
C)   occurs when the price of a key resource rises.
D)   occurs when the Fed increases the quantity of money.E) A) and D)
F) None of the above

Exam 12: U.S. Inflation, Unemployment, and Business Cycle

The monetarist theory of the business cycle regards as the factor that leads to business cycles.

Correct AnswerverifiedShow Answer

Suppose the natural unemployment rate is 4 percent and the expected inflation rate is 6 percent. In the above figure, illustrate the long- run Phillips curve. What does the long- run Phillips curve reveal abut the long- run tradeoff between inflation and unemployment?

Correct Answerverified The long- run Phillips curve is illustr...View AnswerShow Answer

-In the above figure, the economy is initially at point A. If workers and firms correctly anticipate the increase in aggregate demand and the resulting inflation rate, the economy will move to point

Correct AnswerverifiedShow Answer

What is the factor that leads to business cycles in the new classical cycle theory?

Correct AnswerverifiedThe factor leading to business...View AnswerShow Answer

When the price level rises and simultaneously there is a decrease in real GDP,

Correct AnswerverifiedShow Answer

If the economy is at potential GDP and the Fed increases the quantity of money, then

Correct AnswerverifiedShow Answer

When workers and employers correctly anticipate an increase in inflation caused by an increase in aggregate demand,

Correct AnswerverifiedShow Answer

Describe how a demand- pull inflation can occur.

Correct AnswerverifiedDemand- pull inflation starts from an in...View AnswerShow Answer

The negative relationship between inflation and unemployment can be explained by the aggregate supply and demand curves.

Correct AnswerverifiedShow Answer

"The short- run Phillips curve shows the relationship between real GDP and inflation." Is the previous statement correct or incorrect? Briefly explain you answer.

Correct AnswerverifiedThe statement is incorrect. Th...View AnswerShow Answer

Monetarists believe in changes in animal spirits are the factor that leads to business cycles.

Correct AnswerverifiedShow Answer

The term "stagflation" refers to the situation when

Correct AnswerverifiedShow Answer

The early 1990s were the last period of substantial demand- pull inflation in the U.S.

Correct AnswerverifiedShow Answer

Which of the following is held constant when moving along a short- run Phillip's curve?

Correct AnswerverifiedShow Answer

In monetarist business cycle theory, decreasing the growth rate of the quantity of money and increasing the growth rate of the quantity of money .

Correct AnswerverifiedShow Answer

Cost- push inflation starts with

Correct AnswerverifiedShow Answer

A leftward shift in the aggregate supply curve

Correct AnswerverifiedShow Answer

The theory that regards random fluctuations in productivity as the main source of economic fluctuations is the _ of the business cycle.

Correct AnswerverifiedShow Answer

According to real business cycle theory, workers' decisions to work now versus later depend on

Correct AnswerverifiedShow Answer

Real business cycle theory says that the factor leading to the business cycle is changes in

Correct AnswerverifiedShow Answer

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The long- run Phillips curve is illustr...
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The factor leading to business...
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Demand- pull inflation starts from an in...
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The statement is incorrect. Th...
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