Question 1

The long-run Phillips curve:

Accepted Answer

A)  is horizontal.
B)  is the same as the short-run Phillips curve.
C)  displays a positive relationship rather than an inverse relationship.
D)  is exponential.
E)  is vertical.F) D) and E)
G) A) and B)

Question 2

Which of the following is not an example of an incomes policy?

Accepted Answer

A)  Presidential jawboning.
B)  Unemployment insurance.
C)  Wage and price guidelines.
D)  Wage and price controls.E) None of the above
F) B) and C)

Question 3

What is the difference between the Keynesian and rational expectations theories concerning the success of stabilization policy?

Accepted Answer

The Keynesians believe that government c...

Question 4

The Phillips curve shows a negative relationship between the:

Accepted Answer

A)  consumption rate and the unemployment rate.
B)  savings rate and the inflation rate.
C)  interest rate and the savings rate.
D)  inflation rate and the unemploymentE) A) and C)
F) A) and B)

Question 5

According to the natural rate hypothesis, the unemployment rate should equal 0 percent in the long run.

Accepted Answer

A) True 
 B)False

Question 6

Incorporation of expectations into economic decision making indicates that in the long run:

Accepted Answer

A)  inflation relates directly to unemployment.
B)  inflation is inversely related to unemployment.
C)  the Phillips curve is vertical at the natural rate of unemployment.
D)  high unemployment is a primary cause of inflation.E) B) and D)
F) B) and C)

Question 7

Compliance with wage and price controls by unions and businesses is strictly voluntary.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 17-2 Aggregate demand and aggregate supply curves 1 to AD2 will cause the price level to move: A) directly from 100 to 110 and then remain at 110. B) directly from 100 to 105 and then remain at 105. C) from 100 to 105 initially and then eventually move back to 100. D) from 100 to 105 initially and then eventually move to 110." class="answers-bank-image d-inline" rel="preload" > As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the price level to move:

Accepted Answer

A)  directly from 100 to 110 and then remain at 110.
B)  directly from 100 to 105 and then remain at 105.
C)  from 100 to 105 initially and then eventually move back to 100.
D)  from 100 to 105 initially and then eventually move to 110.E) A) and D)
F) B) and C)

Question 9

Under adaptive expectations theory, people expect the rate of inflation this year to be:

Accepted Answer

A)  zero, regardless of the rate last year.
B)  the same as last year.
C)  the rate based on predictable and fiscal policies.
D)  All of these.E) B) and C)
F) All of the above

Question 10

Exhibit 17-2 Aggregate demand and aggregate supply curves 1 to AD2 will cause the price level to move: A) directly from 100 to 105 and then remain at 105. B) directly from 100 to 110 and then remain at 110. C) from 100 to 105 initially and then eventually move back to 100. D) from 100 to 105 initially and then eventually move to 110." class="answers-bank-image d-inline" rel="preload" > As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the price level to move:

Accepted Answer

A)  directly from 100 to 105 and then remain at 105.
B)  directly from 100 to 110 and then remain at 110.
C)  from 100 to 105 initially and then eventually move back to 100.
D)  from 100 to 105 initially and then eventually move to 110.E) B) and D)
F) None of the above

Question 11

During the 1970s, the inflation rate and the unemployment rate were inversely related.

Accepted Answer

A) True 
 B)False

Question 12

The rational expectations hypothesis indicates that people:

Accepted Answer

A)  pay little attention to policy when forming their expectations about the future.
B)  expect the next period to be pretty much like the recent past, regardless of policy changes.
C)  will always be able to forecast the future accurately.
D)  change their expectations about the future if policy changes.E) All of the above
F) A) and D)

Question 13

Which of the following curves show an inverse relationship between a nation's inflation and unemployment rates?

Accepted Answer

A)  The aggregate demand curve.
B)  The aggregate supply curve.
C)  The short-run Phillips curve.
D)  The long-run Phillips curve.E) A) and C)
F) B) and D)

Question 14

The adaptive expectations hypothesis implies that people:

Accepted Answer

A)  adjust their expectations quickly to policy changes.
B)  expect the next period to be pretty much like the recent past.
C)  will always be correct in their forecast for the next period.
D)  change their expectations about the future if policy changes.E) A) and C)
F) B) and C)

Question 15

A Phillips curve shows the relationship between the inflation rate and the:

Accepted Answer

A)  wage rate.
B)  unemployment rate.
C)  real GDP growth rate.
D)  population growth rate.E) A) and B)
F) A) and C)

Question 16

Exhibit 17-1 Inflation and unemployment rates  In Exhibit 17-1, when the unemployment rate goes from 9 percent to 1 percent, the:

Accepted Answer

A)  level of inflation is unaffected.
B)  inflation rate goes from 3 percent to 14 percent.
C)  inflation rate goes from 3 percent to 8 percent.
D)  inflation rate goes from 8 percent to 14 percent.E) C) and D)
F) B) and D)

Question 17

Experience with the Phillips curve since the 1970s has shown that the:

Accepted Answer

A)  curve can be used as a reliable model to guide public policy.
B)  relationship between the inflation rate and the unemployment rate moves in a clockwise direction.
C)  curve is not stable.
D)  inflation rate and the unemployment rate are equal.E) B) and D)
F) A) and B)

Question 18

This school of thought argues that because people anticipate the consequences of announced government policy and incorporate these anticipated consequences into their present decision making, people end up undermining the government policy. What is it?

Accepted Answer

A)  Neo-Keynesian.
B)  Keynesian.
C)  Monetarist.
D)  Supply-side.
E)  Rational expectations.F) A) and D)
G) None of the above

Question 19

The view that individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy) is called:

Accepted Answer

A)  the adaptive expectations hypothesis.
B)  the permanent income hypothesis.
C)  the rational expectations hypothesis.
D)  the Phillips curve.E) A) and B)
F) A) and C)

Question 20

Explain why rational expectations theorists do not support government intervention to alleviate unemployment. Explain their views on the effectiveness of fiscal policy and monetary policy.

Accepted Answer

Rational expectations theorists believe ...

Exam 17: The Phillips Curve and Expectations Theory

The view that individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy) is called:

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According to the natural rate hypothesis, the unemployment rate should equal 0 percent in the long run.

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The rational expectations hypothesis indicates that people:

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Experience with the Phillips curve since the 1970s has shown that the:

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Under adaptive expectations theory, people expect the rate of inflation this year to be:

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Explain why rational expectations theorists do not support government intervention to alleviate unemployment. Explain their views on the effectiveness of fiscal policy and monetary policy.

Correct AnswerverifiedRational expectations theorists believe ...View AnswerShow Answer

The long-run Phillips curve:

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The adaptive expectations hypothesis implies that people:

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During the 1970s, the inflation rate and the unemployment rate were inversely related.

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Which of the following curves show an inverse relationship between a nation's inflation and unemployment rates?

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What is the difference between the Keynesian and rational expectations theories concerning the success of stabilization policy?

Correct AnswerverifiedThe Keynesians believe that government c...View AnswerShow Answer

Exhibit 17-1 Inflation and unemployment rates In Exhibit 17-1, when the unemployment rate goes from 9 percent to 1 percent, the:

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Compliance with wage and price controls by unions and businesses is strictly voluntary.

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The Phillips curve shows a negative relationship between the:

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Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the price level to move:

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Incorporation of expectations into economic decision making indicates that in the long run:

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A Phillips curve shows the relationship between the inflation rate and the:

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Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the price level to move:

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Which of the following is not an example of an incomes policy?

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This school of thought argues that because people anticipate the consequences of announced government policy and incorporate these anticipated consequences into their present decision making, people end up undermining the government policy. What is it?

Correct AnswerverifiedShow Answer

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Rational expectations theorists believe ...
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The Keynesians believe that government c...
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Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move:

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Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move:

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