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CH 28 Can UE Infl & B C.pdf

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Economics
Course
Economics 1022A/B
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Prof
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Fall

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University of Lethbridge — Department of Economics ECON 1012 — Introduction to Microeconomics Instructor: Michael G. Lanyi Chapter 28 — Canadian UE, Infl & B. C. 1) Which of the following would cause the aggregate demand curve to keep shifting rightward year after year? A) A one-time tax cut. B) A one-time increase in government expenditures on goods and services. C) A persistent increase in the quantity of money. D) Inflation. E) Excess wage demands. Topic: Inflation Cycles 2) At full employment an increase in the quantity of money (ceteris paribus) can create a A) cos- push inflation, as can an increase in government expenditure. B) demand p-ll inflation, as can an increase in government expenditure. C) demand p-ll and a cost -ush inflation, as can an increase in government expenditure. D) cos- push inflation, but an increase in government expenditure cannot. E) demand p-ll inflation, but an increase in government expenditure cannot. Topic: Inflation Cycles 3) Demand p-ll inflation occurs when A) aggregate demand increases. B) unemployment is above the natural rate. C) input costs rise. D) people incorrectly forecast inflation. E) aggregate supply decreases. Topic: Inflation Cycles 4) Inflation resulting from an increase in aggregate demand is called A) cos- push inflation. B) political inflation. C) demand p-ll inflation. D) anticipated inflation. E) unanticipated inflation. Topic: Inflation Cycles 5) Which one of the following can create a demand-pull inflation? A) A cut in the interest rate. B) A decrease in government expenditure on goods and services. C) A decrease in investment as a result of a decrease in expected future profits. D) Higher wages negotiated by unions. E) A sharp increase in the price of oil. Topic: Inflation Cycles 1 6) Stagflation occurs when the economy experiences both A) falling inflation and increasing real GDP. B) falling inflation and decreasing real GDP. C) rising inflation and increasing real GDP. D) low exports and low imports. E) rising inflation and decreasing real GDP. Topic: Inflation Cycles 7) Suppose the economy is in long r-n equilibrium when the price of oil rises. Which one of the following is not a short ru- effect of this situation? A) an increase in the price level B) an increase in unemployment C) a decrease in real GDP D) an increase in real GDP above long r-n real GDP E) a decrease in consumer spending Topic: Inflation Cycles 8) Suppose OPEC unexpectedly collapses, which leads to a fall in the price of oil. As a result, the price level A) falls, and real GDP increases. B) falls, and real GDP decreases. C) rises, and real GDP decreases. D) rises, and real GDP remains the same. E) rises, and real GDP increases. Topic: Inflation Cycles 9) An increase in the price level due to an increase in the price of oil A) leads to an increase in the money wage rate. B) creates stagflation in the sho-t run and will trigger a co-t push inflation. C) increases output above potential GDP. D) leads to a decrease in the money wage rate. E) creates stagflation in the sho-t run and may trigger off a co-t push inflation. Topic: Inflation Cycles 10) Cost-push inflation can result from an initial A) increase in the money wage rate. B) increase in government expenditure. C) increase in personal income taxes. D) decrease in personal income taxes. E) increase in transfer payments. Topic: Inflation Cycles 11) Stagflation can result from A) a rightward shift of the demand curve. B) a rightward shift of the lon- run aggregate supply curve. C) a rightward shift of the short-run aggregate supply curve. D) a leftward shift of the demand curve. E) a leftward shift of the sho-t run aggregate supply curve. Topic: Inflation Cycles 2 12) A cost-price inflation spiral results if the policy response to stagflation is to keep A) doing nothing. B) decreasing aggregate demand. C) decreasing short-run aggregate supply. D) increasing short-run aggregate supply. E) increasing aggregate demand. Topic: Inflation Cycles Use the figure below to answer the following question. Figure 28.1.1 13) Refer to Figure 28.1.1. The figure illustrates an economy initially in equilibrium at the intersection of th0SAS curve and the AD 0urve. Which of the following shifts the short -un aggregate supply curve from SAS to 0AS ? 1 A) An increase in the demand for money. B) An increase in the price level. C) A decrease in the money wage rate. D) An increase in the price of oil. E) An increase in the marginal product of labour. Topic: Inflation Cycles 3 Use the figure below to answer the following questions. Figure 28.1.2 14) Refer to Figure 28.1.2. The economy is in long-run equilibrium. If the short-run aggregate supply curve shifts leftward from SAS t0 SAS , 1eteris paribus, then people expected A) the price level to rise to 110. B) a 15 percent inflation. C) the real wage rate to fall by 10 percent. D) a real GDP decrease of $50 billion. E) a 10 percent inflation. Topic: Inflation Cycles 15) Refer to Figure 28.1.2. The economy is in long-run equilibrium. If the short-run aggregate supply curve shifts leftward from SAS t0 SAS , 1eteris paribus, then the actual inflation rate A) is less than the expected inflation rate. B) is the same as the expected inflation rate. C) is greater than the expected inflation rate. D) depends on what happens to wage settlements. E) cannot be determined without more information. Topic: Inflation Cycles 16) Refer to Figure 28.1.2. The vertical distance between SAS 0nd SAS re1resents the A) expected increase in real GDP. B) expected decrease in the real wage rate. C) actual decrease in real GDP. D) actual inflation rate. E) expected inflation rate. Topic: Inflation Cycles 17) Refer to Figure 28.1.2. If the sho-t run aggregate supply curve does not shift, and remains atSAS ,0then the expected inflation rate is A) zero. B) 10 percent. C) -0 percent. D) 5 percent. E) 15 percent. Topic: Inflation Cycles 4 18) Refer to Figure 28.1.2. If SAS shifts from SA0 to SAS N then A) inflation is expected to be 10 percent. B) inflation will be 10 percent. C) a recession will occur. D) unemployment will fall. E) B and C. Topic: Inflation Cycles 19) Refer to Figure 28.1.2. Consider the market for labour as the shor- run aggregate supply curve shifts leftward from SAS 0 to SAS1. This shift could have been the result of an agreement between workers and employers for a A) 15 percent increase in the money wage rate. B) 10 percent increase in the money wage rate. C) 10 percent increase in the real wage rate. D) 15 percent decrease in the money wage rate. E) 10 percent decrease in the money wage rate. Topic: Inflation Cycles 20) Refer to Figure 28.1.2. Complete the following sentence. The figure illustrates A) demand pu-l inflation. B) cos- push inflation. C) a cost-push inflation spiral. D) a one time rise in the price level. E) A and C are both correct. Topic: Inflation Cycles 21) A forecast based on all the relevant information is A) a future expectation. B) an adaptive expectation. C) a rational expectation. D) a perfect forecast. E) always a correct expectation. Topic: Inflation Cycles 5 Use the figure below to answer the following questions. Figure 28.1.3 22) Refer to Figure 28.1.3. Assume thatthe figure illustrates an economy initially in equilibrium at the intersection of theSAS 0 curve and the AD c0rve. If the aggregate demand curve is correctly expected to shift toAD , ne1 equilibrium real GDP is ________ and the new equilibrium price level is ________. A) $500 billion; 150 B) $380 billion; 125 C) $500 billion; 100 D) $500 billion; 125 E) $620 billion; 125 Topic: Inflation Cycles 23) Refer to Figure 28.1.3. Assume thatthe figure illustrates an economy initially in equilibrium at the intersection of theSAS 0 curve and the AD c0rve. If the aggregate demand curve is expected to shift toAD but 1emains at AD , the n0w equilibrium real GDP is ________ and the new equilibrium price level is ________. A) $500 billion; 100 B) $380 billion; 100 C) $380 billion; 125 D) $500 billion; 150 E) $620 billion; 125 Topic: Inflation Cycles 24) Refer to Figure 28.1.3. Assume thatthe figure illustrates an economy initially in equilibrium at the intersection of theSAS 0 curve and the AD c0rve. If the aggregate demand curve is expected to remain atAD but sh0fts to AD , the n1w equilibrium real GDP is ________ and the new equilibrium price level is ________. A) $500 billion; 150 B) $500 billion; 100 C) $500 billion; 125 D) $380 billion; 125 E) $620 billion; 125 Topic: Inflation Cycles 6 Use the figure below to answer the following question. Figure 28.1.4 25) Refer to Figure 28.1.4. The figure illustrates an economy initially in equilibrium at point A. If the quantity of money is expected to increase by 50 percent, what is the rational expectation of the price level? A) 120 B) 130 C) 150 D) 100 E) We cannot tell without more information on wage negotiations. Topic: Inflation Cycles 26) A correctly anticipated increase in the quantity of money, in an economy with an unchanging long run a-gregate supply, will result in A) no change in the price level and an increase in real GDP. B) a rise in the price level and an increase in real GDP. C) a proportional rise in the price level and no change in real GDP. D) a rise in the price level and a decrease in real GDP. E) no change in the price level and no change in real GDP. Topic: Inflation Cycles 27) Suppose the quantity of money is expected to remain unchanged but it actually increases. The price level A) falls and real GDP increases. B) rises and real GDP stays the same. C) falls and real GDP decreases. D) rises and real GDP decreases. E) rises and real GDP increases. Topic: Inflation Cycles 28) An economy is in long r-n equilibrium when aggregate supply unexpectedly decreases. Then real GDP (ceteris paribus) will be A) below potential GDP. B) equal to potential GDP. C) either above or equal to potential GDP depending on the position of the aggregate demand curve. D) either above, below, or equal to potential GDP depending on the position of the aggregate demand curve. E) above potential GDP. Topic: Inflation Cycles 7 29) A correctly anticipated increase in the quantity of money A) does not change the price level but decreases real GDP. B) increases the price level with no change in real GDP. C) does not change the price level but increases real GDP. D) increases the price level and increases real GDP. E) does not change the price level or real GDP. Topic: Inflation Cycles 30) A forecast that is based on all the relevant information available is A) useful only in the prediction of demand pu-l inflation. B) called a rational expectation. C) useful only in the prediction of cost-push inflation. D) usually accurate. E) usually no better than a random guess given that the future bears many uncertainties. Topic: Inflation Cycles Use the figure below to answer the following question. Figure 28.1.5 31) Refer to Figure 28.1.5. Which one of the graphs in the figure represents an economy experiencing stagflation? A) (a) B) (b) C) (c) D) (d) E) none of the above Topic: Inflation Cycles 8 32) Refer to Figure 28.1.5. Which one of the graphs in the figure represents an economy with the price level expected to remain constant? A) (a) B) (b) C) (c) D) (d) E) none of the above Topic: Inflation Cycles 33) The economy starts out at a full-employment equilibrium. Some events then occur that generate a demand pull in-lation. All of the following events except an increase in ________ might cause a demand pu-l inflation. A) the money wage rate B) government expenditure C) exports D) transfer payments E) the quantity of money Topic: Inflation Cycles Use the figure below to answer the following question. Figure 28.1.6 34) Refer to Figure 28.1.6. Starting at point A, the initial effect of a dem-nd pull inflation is a move to point ________. As a demand p-ll inflation spiral proceeds, it follows the path ________. A) B; E, G, I B) C; B, H, G, I C) C; E, H, I D) E; I E) none of the above Topic: Inflation Cycles 9 35) Refer to Figure 28.1.6. Starting at point A, the initial effect of a-cost push inflation is a move to point ________. As a cost-push inflation spiral proceeds, it follows the path ________. A) B; E, G, I B) C; E, H, I C) C; F D) E; I E) C; B, H, G, I Topic: Inflation Cycles 36) The economy starts out at a full-employment equilibrium. Some events then occur that generate a cost push -nflation. Which of the following events might cause a cost p-sh inflation? A) An increase in taxes. B) An increase in the quantity of money. C) An increase in the money wage rate or an increase in the money prices of raw materials. D) A decrease in exports. E) A decrease in government expenditure. Topic: Inflation Cycles 10 Use the figure below to answer the following questions. Figure 28.2.1 37) Refer to Figure 28.2.1. Which of the graphs in the figure represents an economy that is movingdown along a short run - Phillips curve? A) (a) B) (b) C) (c) D) (d) E) (a) or (c) Topic: Inflation and Unemployment: The Phillips Curve 38) Refer to Figure 28.2.1. Which one of the graphs in the figure represents an economy that is movingup along a short run - Phillips curve? A) (a) B) (b) C) (c) D) (d) E) (b) or (d) Topic: Inflation and Unemployment: The Phillips Curve 11 39) Along the short-run Phillips curve, everything remaining the same, the higher the A) price level, the lower the inflation rate. B) money wage rate, the lower is the unemployment rate. C) quantity of money, the lower the unemployment rate. D) unemployment rate, the lower the inflation rate. E) growth rate of the quantity of money, the higher the inflation rate. Topic: Inflation and Unemployment: The Phillips Curve 40) The short-run Phillips curve shows the relationship between ________ holding constant the expected inflation rate and the natural unemployment rate. A) the inflation rate and the economic growth rate B) the inflation rate and the unemployment rate C) unemployment and the economic growth rate D) the inflation rate and the growth of the money wage rate. E) growth and potential GDP. Topic: Inflation and Unemployment: The Phillips Curve 41) If the unemployment rate rises and the inflation rate falls, while the natural unemployment rate and the expected inflation rate remain constant, then we are studying a movement along the A) Phelps -riedman curve. B) aggregate demand curve. C) Friedman curve. D) short-run Phillips curve. E) long -un aggregate supply curve. Topic: Inflation and Unemployment: The Phillips Curve 42) For a given expected inflation rate, the higher the unemployment rate, the lower is the actual inflation rate. This relationship is the ________ Phillips curve. When the expected inflation rate changes, this is shown as a movement along the ________ Phillips curve. A) short-run; short-run B) long -un; long -un C) long -un; natural D) short-run; long-run E) natural; shor- run Topic: Inflation and Unemployment: The Phillips Curve 43) If the natural unemployment rate rises A) the long-run Phillips curve shifts leftward and the sho-t run Phillips curve does not change. B) the short-run Phillips curve shifts rightward and the lon- run Phillips curve does not change. C) the short-run and long -un Phillips curves both shift leftward. D) the short-run and long -un Phillips curves both shift rightward. E) the long-run Phillips curve shifts rightward and the shor- run Phillips curve does not change. Topic: Inflation and Unemployment: The Phillips Curve 44) If the natural unemployment rate falls A) the short-run and long -un Phillips curves both shift leftward. B) the short-run and long -un Phillips curves both shift rightward. C) the long-run Phillips curve shifts leftward and the sho-t run Phillips curve does not change. D) the short-run Phillips curve shifts rightward. E) the long-run Phillips curve shifts rightward and the shor- run Phillips curve does not change. Topic: Inflation and Unemployment: The Phillips Curve 12 45) The short-run Phillips curve shows the relationship between A) inflation and unemployment, when the expected inflation rate and the natural unemployment rate remain constant. B) the price level and unemployment in the short run. C) inflation and unemployment, when inflation expectations can change. D) unemployment and real GDP in the short run. E) the price level and real GDP in the short run. Topic: Inflation and Unemployment: The Phillips Curve 46) Along the short-run Phillips curve, if the actual unemployment rate falls below the natural unemployment rate, the A) actual inflation rate will be greater than the expected inflation rate. B) expected inflation rate will fall to zero. C) actual inflation rate will be equal to the expected inflation rate. D) actual inflation rate may be greater than, equal to, or less than the expected inflation rate E) actual inflation rate will be less than the expected inflation rate. Topic: Inflation and Unemployment: The Phillips Curve 47) A movement down along the short ru- Phillips curve results from an unanticipated A) increase in the natural unemployment rate. B) decrease in aggregate demand. C) increase in aggregate demand. D) decrease in shor- run aggregate supply. E) increase in shor- run aggregate supply. Topic: Inflation and Unemployment: The Phillips Curve 48) An increase in the expected rate of inflation shifts the A) short-run Phillips curve upward. B) long-run Phillips curve rightward. C) short-run Phillips curve downward. D) long-run Phillips curve leftward. E) B and C are correct. Topic: Inflation and Unemployment: The Phillips Curve Use the table below to answer the following questions. Table 28.2.1 Inflation Unemployment (percent per year) (percent) 12 4 11 5 10 6 9 7 8 8 7 9 49) Refer to Table 28.2.1. The table gives points on the s-ort run Phillips curve for the country of Ruritania. If the expected inflation rate is 10 percent, what is the natural unemployment rate? A) 7 percent B) 4 percent C) 9 percent D) 5 percent E) 6 percent Topic: Inflation and Unemployment
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