Question 1

A rise in the price level because of an increase in the price of oil

Accepted Answer

A)   definitely triggers a cost- push inflation.
B)   might trigger a demand- pull inflation.
C)   definitely triggers a demand- pull inflation.
D)   might trigger a cost- push inflation.E) B) and C)
F) C) and D)

Question 2

The theory of the business cycle asserts that expected and unexpected changes in aggregate demand lead to fluctuations in real GDP.

Accepted Answer

A)   monetarist cycle
B)   real business cycle
C)   new classical cycle
D)   new Keynesian cycleE) B) and C)
F) A) and B)

Question 3

According to the real business cycle theory, a decrease in the real interest rate today increases current labor supply.

Accepted Answer

A) True 
 B)False

Question 4

Using the monetarist model, place the following events in the order in which they occur in a busines
I. Money wages fall and the SAS curve shifts rightward.
II. The Federal Reserve decreases the growth rate of the quantity of money.
III. The AD curve shifts leftward.

Accepted Answer

A)   III, II, I
B)   II, III, I
C)   I, III, II
D)   The events are not part of a monetarist model of the business cycle.E) A) and D)
F) All of the above

Question 5

The Keynesian explanation of the business cycle is based on

Accepted Answer

A)   the inability of government policy- makers to predict the future course of the economy.
B)   shifts in monetary policy undertaken by the Federal Reserve.
C)   unstable inflationary expectations.
D)   fluctuations in business confidence.E) A) and B)
F) C) and D)

Question 6

Keynesians believe that

Accepted Answer

A)   a change in business confidence can affect the amount of investment in the economy.
B)   money wage rate adjustments will quickly eliminate unemployment.
C)   aggregate demand changes tend to induce aggregate supply changes, offsetting any effect from changes in government expenditures.
D)   the economy will normally operate at full employment.E) B) and C)
F) None of the above

Question 7

An increase in the expected inflation rate shifts

Accepted Answer

A)   both the short- run and the long- run Phillips curves upward.
B)   the short- run but not the long- run Phillips curve upward.
C)   neither the short- run nor the long- run Phillips curve.
D)   the long- run but not the short- run Phillips curve upward.E) All of the above
F) None of the above

Question 8

Phillips curves describe the relationship between

Accepted Answer

A)   unemployment and inflation.
B)   aggregate demand and the price level.
C)   the quantity of money and interest rates.
D)   aggregate expenditures and aggregate demand.E) None of the above
F) All of the above

Question 9

Increases in the quantity of money can start a inflation and an increase in government expenditure can start a inflation.

Accepted Answer

A)   demand- pull; cost- push
B)   demand- pull; demand- pull
C)   cost- push; cost- push
D)   cost- push; demand- pullE) C) and D)
F) A) and B)

Question 10

An increase in could start a demand- pull inflation?

Accepted Answer

A)   exports.
B)   the quantity of money.
C)   government expenditures.
D)   All of the above answers are correct.E) A) and C)
F) A) and B)

Question 11

By itself, a supply shock such as a hike in the price of oil, can

Accepted Answer

A)   cause a wage- price spiral.
B)   not cause inflation.
C)   be inflationary as long as there is no policy response.
D)   cause real GDP to permanently decrease year after year.E) All of the above
F) A) and C)

Question 12

According to the real business cycle (RBC)  theory, during a recession the demand for labor
And the supply of labor .

Accepted Answer

A)   increases; decreases
B)   decreases; decreases
C)   decreases; does not change
D)   does not change; decreasesE) A) and D)
F) None of the above

Question 13

Which of the following is NOT a potential start of a demand- pull inflation?

Accepted Answer

A)   an increase in the money wage rate
B)   an increase in exports
C)   an increase in the quantity of money
D)   an increase in government expenditureE) A) and B)
F) A) and C)

Question 14

In a demand- pull inflation, money wage rates rise because

Accepted Answer

A)   a decrease in aggregate demand creates a labor shortage.
B)   an increase in aggregate demand creates a labor surplus.
C)   a decrease in aggregate demand creates a labor surplus.
D)   an increase in aggregate demand creates a labor shortage.E) C) and D)
F) B) and D)

Question 15

In the Keynesian business cycle theory, business cycles begin with changes in

Accepted Answer

A)   consumer sentiment.
B)   the public's expectations about Fed policies.
C)   business confidence.
D)   inflation expectations.E) B) and C)
F) A) and C)

Question 16

According to the new classical model, changes in aggregate demand change real GDP

Accepted Answer

A)   all of the time.
B)   only when the changes in aggregate demand are expected.
C)   only when the changes in aggregate demand are unexpected.
D)   only when the short- run aggregate supply curve is vertical.E) B) and C)
F) A) and B)

Question 17

Movements upward along the short- run Phillips curve result from

Accepted Answer

A)   unanticipated increases in the inflation rate.
B)   anticipated decreases in the inflation rate.
C)   anticipated increases in the inflation rate.
D)   unanticipated decreases in the inflation rate.E) A) and B)
F) A) and C)

Question 18

Demand- pull inflation starts as the

Accepted Answer

A)   AD curve shifts leftward.
B)   AD curve shifts rightward.
C)   LAS curve shifts leftward.
D)   LAS curve shifts rightward.E) B) and C)
F) A) and D)

Question 19

"Intertemporal substitution" in labor supply describes changes in labor supply in response to changes in

Accepted Answer

A)   the real interest rate.
B)   personal tax rates.
C)   investment spending.
D)   consumer demand for goods.E) B) and C)
F) A) and C)

Question 20

The short- run Phillips curve intersects the long- run Phillips curve at the expected inflation rate.

Accepted Answer

A) True 
 B)False

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

An increase in the expected inflation rate shifts

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According to the real business cycle theory, a decrease in the real interest rate today increases current labor supply.

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The short- run Phillips curve intersects the long- run Phillips curve at the expected inflation rate.

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The theory of the business cycle asserts that expected and unexpected changes in aggregate demand lead to fluctuations in real GDP.

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Movements upward along the short- run Phillips curve result from

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A rise in the price level because of an increase in the price of oil

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According to the new classical model, changes in aggregate demand change real GDP

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Increases in the quantity of money can start a inflation and an increase in government expenditure can start a inflation.

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By itself, a supply shock such as a hike in the price of oil, can

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Keynesians believe that

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Phillips curves describe the relationship between

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Using the monetarist model, place the following events in the order in which they occur in a busines I. Money wages fall and the SAS curve shifts rightward. II. The Federal Reserve decreases the growth rate of the quantity of money. III. The AD curve shifts leftward.

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According to the real business cycle (RBC) theory, during a recession the demand for labor And the supply of labor .

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In the Keynesian business cycle theory, business cycles begin with changes in

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The Keynesian explanation of the business cycle is based on

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Which of the following is NOT a potential start of a demand- pull inflation?

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Demand- pull inflation starts as the

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"Intertemporal substitution" in labor supply describes changes in labor supply in response to changes in

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An increase in could start a demand- pull inflation?

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In a demand- pull inflation, money wage rates rise because

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