Macro Quation Bank

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Chapter 35
The Short-Run Trade-off between Inflation and Unemployment

Multiple Choice

1.Closely watched indicators such as the inflation rate and unemployment are released each month by the a.Bureau of the Budget.
b.Bureau of Labor Statistics.
c.Department of the Treasury.
d.President's Council of Economic Advisors.
ANS: BPTS: 1DIF: 1REF: 35-1
TOP: Bureau of Labor StatisticsMSC: Definitional

2.The misery index is calculated as the
a.inflation rate plus the unemployment rate.
b.unemployment rate minus the inflation rate.
c.actual inflation rate minus the expected inflation rate. d.natural unemployment rate plus the long-run inflation rate. ANS: APTS: 1DIF: 1REF: 35-1
TOP: Misery indexMSC: Definitional

3.The misery index is supposed to measure the
a.social cost of unemployment.
b.health of the economy.
c.lost output associated with a particular unemployment rate. d.short-run tradeoff between inflation and unemployment. ANS: BPTS: 1DIF: 1REF: 35-1
TOP: Misery indexMSC: Definitional

4.One determinant of the natural rate of unemployment is the a.rate of growth of the money supply.
b.minimum wage rate.
c.expected inflation rate.
d.All of the above are correct.
ANS: BPTS: 1DIF: 1REF: 35-1
TOP: Natural rate of unemploymentMSC: Definitional

5.One determinant of the long-run average unemployment rate is the a.market power of unions, while the inflation rate depends primarily upon government spending. b.minimum wage, while the inflation rate depends primarily upon the money supply growth rate. c.rate of growth of the money supply, while the inflation rate depends primarily upon the market power of unions. d.existence of efficiency wages, while the inflation rate depends primarily upon the extent to which firms are competitive. ANS: BPTS: 1DIF: 1REF: 35-1

TOP: Long-run Phillips curveMSC: Interpretive

6.In the long run, the inflation rate depends primarily on a.the ability of unions to raise wages.
b.government spending.
c.the money supply growth rate.
d.the monopoly power of firms.
ANS: CPTS: 1DIF: 2REF: 35-1
TOP: InflationMSC: Definitional

7.In the long run,
a.the natural rate of unemployment depends primarily on the level of aggregate demand. b.inflation depends primarily upon the money supply growth rate. c.there is a tradeoff between the inflation rate and the natural rate of unemployment. d.All of the above are correct.

ANS: BPTS: 1DIF: 2REF: 35-1
TOP: Long-run Phillips curveMSC: Interpretive

8.There is a
a.short-run tradeoff between inflation and unemployment. b.short-run tradeoff between the actual unemployment rate and the natural rate of unemployment. c.long-run tradeoff between inflation and unemployment. d.long-run tradeoff between the actual unemployment rate and the natural rate of unemployment. ANS: APTS: 1DIF: 1REF: 35-1

TOP: Phillips curveMSC: Definitional

9.If policymakers decrease aggregate demand, the price level a.falls, but unemployment rises.
b.and unemployment fall.
c.and unemployment rise.
d.rises, but unemployment falls.
ANS: APTS: 1DIF: 1REF: 35-1
TOP: Short-run Phillips curve | Contractionary policyMSC: Analytical

10.If policymakers increase aggregate demand, the price level a.falls, but unemployment rises.
b.and unemployment fall.
c.and unemployment rise.
d.rises, but unemployment falls.
ANS: DPTS: 1DIF: 1REF: 35-1
TOP: Short-run Phillips curve | Expansionary policyMSC: Analytical

11.In the short run, policy that changes aggregate demand changes a.both unemployment and the price level.
b.neither unemployment nor the price level.
c.only unemployment.
d.only the price level.
ANS: APTS: 1DIF: 1REF: 35-1...
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