Anwers Mcq Macro Final
Anwers Mcq Macro Final
Introduction to Macroeconomics (Trường Đại học Quốc tế, Đại học Quốc gia Thành phố
Hồ Chí Minh)
1. When the government spends more money than they take in each year is called a
_________?
a. Debt.
b. Surplus.
c. Deficit.
d. Expansionary.
2. In the long run, inflation is caused by
a. governments that raise taxes so high that it increases the cost of doing business and,
hence, raises prices.
b. banks that have market power and refuse to lend money.
c. governments that print too much money.
d. increases in the price of inputs, such as labour and oil.
3. When prices rise at an extraordinarily fast rate, it is called
a. deflation.
b. hyperinflation.
c. inflation.
d. hypo inflation.
4. If the price level doubles,
a. The quantity demanded of money falls by half.
b. The value of money has been cut by half.
c. Nominal income is unaffected.
d. The money supply has been cut by half.
5. In the long run, the demand for money is most dependent upon
a. the level of prices.
b. the interest rate.
c. the availability of banking outlets.
d. the availability of credit cards.
6. The quantity theory of money concludes that an increase in the money supply causes
a. a proportional increase in prices.
b. a proportional increase in real output.
c. Stagnation
d. Inflation
23. Based on the quantity equation, if M=10, V=15, Y=300, then P is equal to
a. 1
b. ½
c. ¾
d. 2
24. According to the chart, when the Fed decrease money supply:
a. Is represented by moving from MS2 to MS1.
b. Creates excess demand equal to the distance between A and B.
c. Eventually cause the price level to increase.
d. None of the answer.
25. The classical principle of monetary neutrality states that changes in the money
supply do not influence ________ variables and is thought most applicable in the
________ run.
a. nominal, short.
b. nominal, long
c. real, short
d. real, long.
26. If nominal GDP is $400, real GDP is $200, and the money supply is $100, then
27. According to the quantity theory of money, which variable in the quantity equation
is most stable over long periods of time?
a. money
b. velocity
c. price level
d. output
28. Hyperinflations occur when the government runs a large budget ________, which
the central bank finances with a substantial monetary ________.
a. deficit, contraction
b. deficit, expansion
c. surplus, contraction
d. surplus, expansion
29. According to the quantity theory of money and the Fisher effect, if the central bank
increases the rate of money growth,
a. inflation and the nominal interest rate both increase.
b. inflation and the real interest rate both increase.
c. the nominal interest rate and the real interest rate both increase.
d. inflation, the real interest rate, and the nominal interest rate all increase.
30. The value of money
a. is constant.
b. is positively related to the price level.
c. is determined by the supply and demand of money.
d. is not explained by the quantity theory of money.
31. The neutrality of money refers to the situation where
a. money has not been the cause of war.
b. increases in interest rates are matched by decreases in the price of bonds.
1. Suppose that US is the home country. In Vietnam we experience a rise in the VND
price of foreign exchange. In this circumstance, the VND will have ________ and the
exchange rate will have ________.
a. appreciated; risen
b. depreciated; fallen
c. depreciated; risen
d. appreciated; fallen
2. Trung, a VN. citizen, buys VND 100,000 of cheese from Italy. His action alone
a. increases VN exports by 100,000 and increases VN net exports by 100,000.
b. increases VN exports by 100,000 and decreases VN net exports by 100,000.
c. increases VN imports by 100,000 and increases VN net exports by 100,000.
d. increases VN imports by 100,000 and decreases VN net exports by 100,000.
3. An economy that interacts with other economies is known as
a. an export economy.
b. a friendly economy.
c. an open economy.
d. a balanced trade economy.
4. Each of the following is a reason why international trade has expanded in recent
decades except which one?
a. Technological improvements have meant that countries have become more
similar in terms of the goods they can produce.
b. Many new high technology goods have been introduced for which the cost of
transport relative to the value of the product is low.
c. There have been improvements in technology that have improved
telecommunications between countries.
d. Policy makers have promoted policies to increase international trade, such as the
General Agreement on Tariffs and Trade, and subsequently established the World
Trade Organization.
5. Which of the following is an example of foreign direct investment?
a. General Motors buys steel from South Korea.
b. General Motors of the USA buys shares in Saab of Sweden.
9. If the exchange rate changes from 3 Brazilian reals per dollar to 4 reals per euro,
c. the euro could have appreciated or depreciated depending what happened to relative
prices in Brazil and the Eurozone countries.
10. Suppose the real exchange rate between Russia and the UK is defined in terms of
bottles of Russian vodka per bottle of UK vodka. Which of the following will increase the
real exchange rate (that is, increase the number of bottles of Russian vodka per bottle of
UK vodka)?
b. an increase in the number of roubles for which the pound can be exchanged
d. All of the changes described in these answers will increase the real exchange rate.
11. If the nominal exchange rate between UK pounds and US dollars is 0.5 pound per
dollar, how many dollars can you get for a pound?
a. 1.5 dollars
b. 0.5 of a dollar
c. 1 dollar
d. 2 dollars
12. Suppose the nominal exchange rate between the Japanese yen and the UK pound
is 100 yen per pound. Further, suppose that a kilogram of rice costs £2 in the UK and 250
yen in Japan. What is the real exchange rate between Japan and the UK?
13. Which of the following people or firms would be pleased by a depreciation of the
pound?
14. Suppose a cup of coffee is 1.5 euros in Germany and £0.50 in the UK. If
purchasing power parity holds, what is the nominal exchange rate between euros and
pounds?
15. Which of the following products would likely be the least accurate if used to
calculate purchasing power parity?
a. Diamonds
b. Cars
c. Wheat
d. Dental services
16. Suppose the money supply in Mexico grows more quickly than the money supply
in the USA. We would expect that
c. the Mexican peso should maintain a constant exchange rate with the US dollar
because of purchasing power parity.
17. When people take advantage of differences in prices for the same good by buying
it where it is cheap and selling it where it is expensive, it is known as
c. currency appreciation.
d. arbitrage.
18. Suppose a resident of the USA buys a Jaguar car from the UK, and the UK
exporter uses the receipts to buy shares in Boeing. Which of the following statements is true
from the perspective of the UK?
19. Which of the following statements is not true about the relationship between
national saving, investment, and net capital outflow?
a. An increase in saving associated with an equal increase in net capital outflow leaves
domestic investment unchanged.
b. For a given amount of saving, an increase in net capital outflow must decrease
domestic investment.
c. For a given amount of saving, a decrease in net capital outflow must decrease
domestic investment.
20. Suppose the inflation rate over the last 20 years has been 10 per cent in the UK, 7
per cent in Japan, and 3 per cent in the USA. If purchasing power parity holds, which of
the following statements is true? Over this period,
a. the value of the dollar should have fallen compared to the value of the pound and the yen.
b. the yen should have fallen in value compared to the pound and risen compared to the dollar.
c. the value of the pound should have risen compared to the value of the yen and the dollar.
d. the yen should have risen in value compared to the pound and fallen compared to the
dollar.
d. It raises the standard of living for importing countries and lowers it for exporting countries.
22. If a Central Bank is fully committed to a fixed exchange rate but investors expect a
devaluation, it is likely that the economy will experience:
a. foreign assets by domestic residents minus the purchase of domestic assets by foreign
residents.
b. foreign assets by domestic residents minus the purchase of foreign goods and services by
residents.
c. domestic assets by foreign residents minus the purchase of domestic goods and services by
foreign residents.
d. domestic assets by foreign residents minus the purchase of foreign assets by domestic
residents.
26. The real exchange rate is the nominal exchange rate defined as foreign currency
per dollar times
27. A depreciation of the U.S real exchange rate induces U.S consumers to buy
a. increase U.S net capital outflow, and have no affect on Greek net capital outflow.
b. increase U.S net capital outflow, and increase Greek net capital outflow.
c. increase U.S net capital outflow, but decrease Greek net capital outflow.
d. decrease U.S net capital outflow, but increase Greek net capital outflow.
d. all four
30. Other things remaining equal, when domestic incomes rise, Net Exports:
a. will decrease.
b. will increase.
b. domestic residents are spending more on foreign assets than foreigners are
spending on domestic assets.
c. foreigners are spending more on domestic assets than domestic residents are
spending on foreign assets.
32. Other things remaining equal, if real interest rates increase abroad, our:
33. Other things remaining equal, if there is political or economic turmoil in the U.S., we
can expect our:
34. If purchasing-power parity holds, and if prices in country A are the same as
prices in country B, it means that the ________ exchange rate between these countries is
equal to ________
a. real, zero
b. real, one
c. nominal, zero
d. nominal, one
35. According to the Purchasing Power Parity Theory, if a dollar will buy more in
the U.S. than abroad, traders will ________, which will cause the dollar to ________.
36. According to the Purchasing Power Parity Theory, the ________ exchange rate
tends to become equal to ________.
a. nominal, zero
b. nominal, one
c. real, zero
d. real, one
a. Trade surplus
b. Trade deficit
c. Trade balance
d. International Trade
38. If a Japanese Toyota sells for 2,500,000 yen and the nominal exchange rate is 110
yen/$, then the dollar price of the Japanese automobile is:
a. 22,727 yen
b. $20,000
c.$25,000
d. $22,727
b. a good cannot sell for a price greater than the legal price ceiling.
40. If the nominal exchange rate is foreign currency per dollar, the domestic price is
P, and the foreign price is P*, the real exchange rate is defined as
a. e(P*/P)
b. e(P/P*)
c. e + P/P*
d. e – P/P*
41. Suppose that the U.S. is the home country. If the Japanese inflation rate is 8 per
cent while the U.S. inflation rate is 13 per cent, then the per cent change in e measured as
yen per dollar will:
c. a reduction in the external value of the dollar, thereby stimulating net exports
and raising aggregate demand.
d. a reduction in the external value of the dollar, thereby inhibiting net exports and
raising aggregate demand.
4. A tax on imported goods is call
a. Tariff
b. Quota
c. Voluntary export restriction
d. Inflation tax.
5. Holding other things constant, an increase in a nation’s interest rate reduce
a. national saving and domestic investment.
b. national saving and the net capital outflow.
c. domestic investment and the net capital outflow.
d. national saving only.
7. The government in an open economy are dealing with the crowding out condition. As
a result, the interest rate ________, leading to a capital ________ and a real exchange rate
8. The nation of Ectenia has long banned the export of its highly prized puka shells.
A newly elected president, however, removes the export ban. This change in policy will
cause the nation’s currency to ________, making the goods Ectenia imports ________
expensive
a. appreciate, less
b. appreciate, more
c. depreciate, less
d. depreciate, more
b. does not change the quantity of dollars demanded in the market for foreign-currency
exchange.
10. An increase in Europe's taste for UK produced Hondas would cause the pound to
d. appreciate, but the total value of UK net export stays the same.
11. The purchase of a capital asset adds to the demand for loanable funds
12. Which of the following statements regarding the loanable funds market is not true?
a. A decrease in a country's net capital outflow shifts the demand for loanable funds to
the left.
b. An increase in domestic investment shifts the demand for loanable funds to the right.
c. An increase in a country's net capital outflow shifts the supply of loanable funds
to the left.
d. An increase in a country's net capital outflow raises its real interest rate.
a. has no impact on the real interest rate and fails to crowd out investment because
foreigners buy assets in the deficit country.
14. Which of the following statement regarding the loanable funds market is true?
a. A decrease in the government budget deficit increases the real interest rate.
b. An increase in the government budget deficit shifts the supply of loanable funds to the
right.
c. An increase in private saving shifts the supply of loanable funds to the left.
d. An increase in the government budget deficit shifts the supply of loanable funds
to the left.
15. Assuming all other things unchanged, a higher UK real interest rate
b. decreases UK net capital outflow because UK residents and foreigners prefer to invest
abroad.
c. increases UK net capital outflow because UK residents and foreigners prefer to invest
in the UK.
b. decreases UK net exports and UK net capital outflow the same amount.
c. increases UK net exports and UK net capital outflow the same amount.
17. Which of the following statements regarding the market for foreign currency
exchange is true?
a. An increase in UK net exports decreases the supply of pounds and the pound
depreciates.
b. An increase in UK net exports increases the demand for pounds and the pound
appreciates.
c. An increase in UK net exports increases the supply of pounds and the pound
depreciates.
d. An increase in UK net exports decreases the demand for pounds and the pound
appreciates.
18. If the EU imposes a quota on the importing of clothing produced in China, so reducing
UK imports of clothing, which of the following is true regarding the market for foreign currency
exchange?
19. Suppose, due to political instability, Russians suddenly choose to invest in UK assets
as opposed to Russian assets. Which of the following statements is true regarding UK net
foreign investment?
a. UK net foreign investment is unchanged because only UK residents can alter UK net
foreign investment.
a. increases UK net exports and UK net capital outflow the same amount.
c. decreases UK net exports and UK net capital outflow the same amount.
a. A country's trade policy has no impact on the size of its trade balance.
23. Which of the following groups would not benefit from an EU import quota on
Japanese cars?
a. a tariff on sugar.
c. an increase in the government budget deficit because it reduces a country's net exports.
b. capital flight.
d. a tariff.
26. Which of the following groups would be most harmed by a UK government budget
deficit?
a. decreases a country's net exports and increases its long-run growth path.
b. increases a country's net exports and increases its long-run growth path.
c. increases a country's net exports and decreases its long-run growth path.
d. decreases a country's net exports and decreases its long-run growth path.
30. If business leaders in Great Britain become less confident in their economy, their
pessimism will induce them to decrease investment, causing the British pound to ________
and pushing the British trade balance toward ________.
a. appreciate, deficit
b. appreciate, surplus
c. depreciate, deficit
d. depreciate, surplus
a. Positively related
b. Negatively related
c. Not related
d. Either A or B
32. An increase in the government budget deficit most likely to result in an increase in
which of the following?
a. Exports
33. Tariffs are different from assigned import quotas in that tariffs will
a. restrict imports
34. To decrease the trade deficit and to increase short-run output, which of the
following could work?
35. In the open-economy macroeconomic model, the market for loanable funds identity can
be written as
a. S= I
b.S= NCO
c.S= I+ NCO
d.S+ I= NCO
36. A country has national saving of $70 billion, government expenditures of $20 billion,
domestic investment of $30 billion, and net capital outflow of $40 billion. What is its
supply of loanable funds?
a.$30 billion
b.$40 billion
c.$50 billion
d.$70 billion
37. Other things the same, if the interest rate falls, then
a. firms will want to borrow more, which increases the quantity of loanable funds
demanded.
b.firms will want to borrow less, which decreases the quantity of loanable funds
demanded.
c.firms will want to borrow more, which increase the quantity of loanable funds supplied.
d.firms will want to borrow less, which decreases the quantity of loanable funds supplied.
38. If for some reason Americans desired to increase their purchases of foreign
assets,then other things the same
a.both the real exchange rate and the quantity of dollars exchanged in the market for
foreign-currency exchange would fall.
b.both the real exchange rate and the quantity of dollars exchanged in the market for
foreign-currency would rise.
c.the real exchange rate would rise and the quantity of dollars exchanged in the market
for foreign-currency would fall
d.the real exchange rate would fall and the quantity of dollars exchanged in the
market for foreign-currency would rise
39. Japan generally runs a significant trade surplus. Which of the following is likely
responsible for this?
40. According to the figure, the initial effect of an increase in the budget deficit can
be illustrated as a move from
a. a to b.
b. a to c.
c. c to b.
d. c to d.
41. According to the figure, starting from r1 and E3, an increase in the budget
deficit can be illustrated as a move to
a. r2 and E4.
b. r2 and E2.
c. r0 and E4.
d. r0 and E2.
42. Suppose the U.S. imposes an import quota on steel. U.S. exports
a. increase, the real exchange rate of the U.S. dollar appreciates, and U.S. net
foreign investment increases.
b. increase, the real exchange rate of the U.S. dollar depreciates, and U.S. net
foreign investment is unchanged.
c. decrease, the real exchange rate of the U.S. dollar appreciates, and U.S. net
foreign investment is unchanged.
d. decrease, the real exchange rate of the U.S. dollar depreciates, and U.S. net
foreign investment decreases.
43. According to the figure, which of the following shifts show the effects of an
import quota?
44. If the exchange rate was initially at E0 and an import quota was imposed, the
real exchange rate
45. If the economy were initially in equilibrium at r0 and E0 and the government
removed import quotas, the exchange rate would
a. appreciate to E1.
b. appreciate to E2.
c. depreciate to E1.
d. depreciate to E2.
10. An increase in which of the following would cause the aggregate demand curve to
shift to the left?
a. Consumer optimism
b. Population
c. Cost of resources
d. Income taxes
11. With an upward – sloping short- run aggregate supply curve, an increase in
government expenditure will most likely
a. Reduce the price level
b. Reduce the level of nominal GDP
c. Increase real GDP.
d. Shift both the aggregate demand curve and the long – run aggregate supply curve
to the left.
12. Which of the following statements about economic fluctuations is true?
a. A depression is a mild recession.
28. According to the figure. Suppose the economy is operating in a recession such as
point B in Exhibit 4. If policymakers wished to move output to its long-run natural
rate, they should attempt to
a. shift aggregate demand to the left.
b. shift short-run aggregate supply to the left.
c. shift aggregate demand to the right.
d. shift short-run aggregate supply to the right.
29. According to the figure. Suppose the economy is operating in a recession such as
point B in Exhibit 4. If policymakers allow the economy to adjust to the long-run
natural rate on its own,
a. people will reduce their price expectations and the short-run aggregate
supply will shift right.
b. people will raise their price expectations and aggregate demand will shift left.
c. people will raise their price expectations and the short-run aggregate supply will
shift left.
d. people will reduce their price expectations and aggregate demand will shift right.
30. According to the model of aggregate supply and aggregate demand, in the long run,
an increase in the money supply should cause
a. prices to rise and output to rise.
b. prices to fall and output to remain unchanged.
44. A reduction of the money supply that is followed by a reduction of wages moves an economy
along a path from point
a. 1 to 2 to 3.
b. 1 to 4 to 3.
c. 3 to 2 to 1.
d. 3 to 4 to 1.
45. If government use policies to help the economy recovered after a supply shock (stagflation),
which moves an economy from point
a. 1 to 2 to 3.
b. 1 to 4 to 3.
c. 3 to 4 to 1.
d. 3 to 2 to 1.
46. If workers expect an increase in the price level, the aggregate _____ curve shifts to the
_____.
a. demand; right
b. demand; left
c. supply; left
d. supply; right
47. When output is _____ the natural rate level, wages will begin to _____, shifting the
aggregate supply curve outward.
a. above; fall
b. above; rise
c. below; fall
d. below; rise
48. Stagflation is the result of a
a. positive supply shock.
b. negative supply shock.
c. positive demand shock.
d. negative demand shock.
49. Which of the following is not a component of Aggregate Demand?
a. Consumption
b. Investment
c. Saving
d. Net Exports
50. When consumers feel or become wealthier, what is the effect on consumption spending?
a. It increases consumption spending
b. It decrease consumption spending
c. It has no effect on consumption spending
d. It has an indeterminate effect on consumption spending
c. The government does not spend too much money for a fiscal year.
d. The government impose a high tax for imported goods.
6. Which among the following does not have the application of multiplier
a. Determination of income
b. Fiscal policy
c. Monetary policy
d. Foreign direct investment
7. A 2 percent per year rate of growth of the money supply would constitute an
expansionary monetary policy
a. in no circumstances because this growth in the money supply is too small to
effectively be considered expansionary.
b. if demand for money is increasing by more than 2 percent per year.
c. if demand for money is increasing by exactly 2 percent per year.
d. if demand for money is growing by less than 2 percent per year.
8. In the short run, under a flexible exchange rate, an expansionary fiscal policy
a. definitely has a negative effect on investment
b. definitely has a positive effect on investment
c. definitely has a negative effect on net exports
d. has an ambiguous effect on net exports
9. Expansionary monetary policy results in which of the following in the short run?
10. True statements about expansionary monetary policy in the long run include which
of the following?
II. The nominal interest rate equals the real interest rate plus the expected inflation
rate.
a. I only
b. II only
c. III only
d. I and II only
e. I, II and III
11. Aggregate demand and aggregate supply analysis suggests that, in the short run, an
expansionary monetary policy will result in
a. a shift in the aggregate demand curve to the left.
b. a shift in the aggregate supply curve to the left.
c. an increase in real GDP without much inflation when the economy is on the
horizontal portion of the aggregate supply curve.
d. an increase in real GDP with high inflation when the economy is on the horizontal
portion of the aggregate supply curve.
e. an increase in real GDP and no inflation when the economy is on the vertical portion
of the aggregate supply curve.
12. Which of the following would be the initial impact on an economy if wages were to
increase more than worker productivity?
a. There would be no initial impact, since neither the aggregate supply curve nor the
aggregate demand curve would shift
b. Employment would increase, causing a rightward shift in aggregate demand curve
c. The price level would increase, resulting in excess aggregate supply
d. The short – run aggregate supply curve would shift to the left, increasing the
price level.
e. The aggregate demand curve would shift to the left, increasing the price level.
13. If the interest rate is constant and the MPC is 0.7, then the government purchases
multiplier is:
a. 0.3.
b. 0.7.
c. 1.4.
d. 3.3.
14. If, in response to an increase in government spending, the central bank decides to
keep interest rates constant, the government purchases multiplier is:
a. larger than in the case where the central bank keeps the money supply
constant.
b. smaller than in the case where the central bank keeps the money supply constant.
c. the same as in the case where the central bankd keeps the money supply constant.
d. larger or smaller than in the case where the central bank keeps money supply
constant.
15. Keynes's liquidity preference theory of the interest rate suggests that the interest
rate is determined by
a. aggregate supply and aggregate demand.
b. the supply and demand for loanable funds.
c. the supply and demand for money.
d. the supply and demand for labour.
16. When money demand is expressed in a graph with the interest rate on the vertical
axis and the quantity of money on the horizontal axis, an increase in the interest rate
a. decreases the quantity demanded of money.
b. increases the quantity demanded of money.
c. decreases the demand for money.
d. increases the demand for money.
17. When the supply and demand for money are expressed in a graph with the interest
rate on the vertical axis and the quantity of money on the horizontal axis, an
increase in the price level
a. shifts money demand to the right and increases the interest rate.
b. shifts money demand to the right and decreases the interest rate.
c. shifts money demand to the left and increases the interest rate.
d. shifts money demand to the left and decreases the interest rate.
18. In the market for real output, the initial effect of an increase in the money supply is
to
a. shift the aggregate supply curve to the right.
b. shift the aggregate supply curve to the right.
c. shift the aggregate demand curve to the left.
d. shift the aggregate demand curve to the right.
19. The initial effect of an increase in the money supply is to
a. increase the interest rate.
b. increase the price level.
c. decrease the price level.
d. decrease the interest rate.
20. The long-run effect of an increase in the money supply is to
a. increase the interest rate.
b. decrease the price level.
c. increase the price level.
d. decrease the interest rate.
21. Suppose a wave of investor and consumer pessimism in the USA causes a reduction
in spending. If the US Federal Reserve (which has a broader remit than the Bank of
England which is charged only with controlling inflation) chooses to engage in
activist stabilization policy, it should
a. increase government spending and decrease taxes.
b. decrease the money supply.
c. decrease government spending and increase taxes.
d. decrease interest rates.
22. The initial impact of an increase in government spending is to shift
a. aggregate demand to the right.
b. aggregate demand to the left.
c. aggregate supply to the right.
1. According to the short – run Phillips curve, lower inflation rates are associated with
a. Higher unemployment rates
b. Higher government spending
c. Larger budget deficits
d. Greater labor – force participation rates.
2. 18. In the country of Stabilia, the monetary authorities particularly dislike inflation.
The current inflation of 5 per cent is considered rampant. If the sacrifice ratio in
Stabilia is five, the percentage of a year’s GDP that has to be forgone to bring
inflation down to 1 per cent is:
a. 0.8 per cent.
b. 1.25 per cent.
c. 20 per cent.
d. 25 per cent.
3. The Phillips curve represents the trade-off between:
e. inflation and expected inflation.
f. output and unemployment.
g. inflation and unemployment.
h. output and interest rates.
4. If the Phillips Curve is vertical in the long run, then an increase in the money supply
from year to year will _______ the unemployment rate and will _________inflation
rate.
e. increase; increase
f. increase; not change
g. not change; increase
h. not change; not change
5. An examples of an automatic stabilizers within the economy are
a. tariffs on imports
b. a tax cut approved by Congress
c. defense spending changes
d. changes in spending for unemployment compensation
6. Along a short-run Phillips curve,
a. a higher rate of inflation is associated with a lower unemployment rate.
b. a higher rate of growth in output is associated with a lower unemployment rate.
c. a higher rate of inflation is associated with a higher unemployment rate.
d. a higher rate of growth in output is associated with a higher unemployment rate.
7. If, in the long run, people adjust their price expectations so that all prices and
incomes move proportionately to an increase in the price level, then the long-run
Phillips curve
a. is vertical.
b. is negatively sloped.
c. has a slope that is determined by how fast people adjust their price expectations.
d. is positively slope
8. According to the Phillips curve, in the short run, if policy makers choose an
expansionary policy to lower the rate of unemployment,
a. the economy will experience an increase in inflation.
b. the economy will experience a decrease in inflation.
c. inflation will be unaffected if price expectations are unchanging.
d. none of these answer.
9. An increase in expected inflation
a. shifts the short-run Phillips curve downward and the unemployment inflation trade-off is
less favorable.
b. shifts the short-run Phillips curve upward and the unemployment inflation trade-off is
more favorable.
c. shifts the short-run Phillips curve downward and the unemployment inflation trade-off is
more favorable.
d. shifts the short-run Phillips curve upward and the unemployment inflation trade-off
is less favorable.
10. Which of the following would shift the long-run Phillips curve to the right?
a. An increase in the minimum wage
b. An increase in expected inflation
c. An increase in the price of foreign oil
d. An increase in aggregate demand
11. When actual inflation exceeds expected inflation,
a. unemployment is equal to the natural rate of unemployment.
b. people will reduce their expectations of inflation in the future.
c. unemployment is greater than the natural rate of unemployment.
13. If people in the economy expect inflation to be 3 per cent and inflation is 3 per cent,
the economy is operating at point
a. B
b. I
c. A
d. H
14. If people in the economy expect inflation to be 6 per cent but inflation turns out to
be 3 per cent, the economy is operating at point
a. H
b. C
c. D
d. F
15. Suppose the economy is in long-run equilibrium at point E. A sudden increase in
government spending should move the economy in the direction of point
a. D
b. G
c. E
d. B
16. Suppose the economy is operating at point D. As people revise their price
expectations,
a. the short-run Phillips curve will shift in the direction of the short-run Phillips curve
associated with an expectation of 3 per cent inflation.
b. the short-run Phillips curve will shift in the direction of the short-run Phillips
curve associated with an expectation of 9 per cent inflation.
c. the short-run Phillips curve will shift in the direction of the short-run Phillips curve
associated with an expectation of 6 per cent inflation.
d. the long-run Phillips curve will shift to the left.
17. Suppose the economy is operating in long-run equilibrium at point E. An
unexpected monetary contraction will move the economy in the direction of point
a. H.
b. F.
c. E.
d. C.
18. Suppose the economy is operating in long-run equilibrium at point E. In the long
run, a monetary contraction will move the economy in the direction of point
a. F.
b. A.
c. H.
d. I
20. If the sacrifice ratio is five, a reduction in inflation from 7 per cent to 3 per cent
would require
21. If a country’s policy makers were to continuously use expansionary monetary policy
in an attempt to hold unemployment below the natural rate, the long-run result would be