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Multiple Choice Quiz
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1
The original Phillips curve implied
A)a policy tradeoff between the output level and the price level
B)a policy tradeoff between the unemployment level and the inflation level
C)a 2 percent drop in the unemployment rate for a 1 percent increase in output
D)a 1 percent increase in the unemployment rate for a 2 percent decrease in output
2
The inflation-expectations-augmented Phillips curve implies that
A)a decrease in expected inflation will shift the Phillips curve to the right
B)unemployment is below its natural rate if actual inflation is below expected inflation
C)unemployment is at its natural rate when expected inflation is equal to actual inflation
D)stagflation occurs when the Phillips curve shifts to the left
3
According to the inflation-expectations-augmented Phillips curve, stagflation is a situation when
A)the actual inflation rate is high and is below the expected inflation rate
B)the actual inflation rate is high and is above the expected inflation rate
C)the actual inflation rate is high but unemployment is below its natural rate
D)D. the actual inflation rate has had a chance to adjust to the expected inflation rate
4
The efficiency wage theory suggests that
A)wages always immediately adjust to the market-clearing level
B)unanticipated changes in monetary policy have no effect on wages or unemployment
C)paying workers a higher wage rate may increase labor productivity
D)wages can be adjusted easily following a price change to maintain full employment
5
Which of the following equations best describes Okun's law?
A)(Y - Y*) = 0.5(u - u*)
B)(Y - Y*)/ Y* = - 2(u - u*)
C)(Y* - Y) = 2(u - u*)
D)(Y* - Y)/Y = - 0.5(u - u*)
6
In an AD-AS model with an upward sloping AS-curve, an increase in the output level combined with a price decrease and a lower interest rate is most likely the result of
A)expansionary fiscal policy combined with restrictive monetary policy
B)an adverse supply shock followed by expansionary monetary policy
C)a favorable supply shock
D)a decrease in money supply
7
Which of the following is the most likely result of an unanticipated increase in money supply?
A)higher prices and output in the medium run but no change in output in the long run
B)higher prices and lower real money balances in both the medium and the long run
C)higher prices and employment in the medium run, but no change in output and prices in the long run
D)higher prices and output in the medium and long runs
8
If the government employs restrictive monetary policy in response to an adverse supply shock,
A)the inflation rate and the natural rate of unemployment will both decrease
B)the rate of unemployment will increase sharply
C)unemployment will remain at its natural level
D)the shift in the AS-curve can be reversed almost immediately
9
The sacrifice ratio is defined as
A)the inflation rate divided by the unemployment rate
B)the percentage decrease in unemployment for each one-percent increase in the inflation rate
C)the percentage increase in the unemployment rate for every one-percent reduction in GDP
D)the percentage decrease in GDP for every a one-percent decrease in the inflation rate
10
The misery index
A)combines the sacrifice ratio with Okun's law
B)is strongly related to voting behavior and thus supports the political business cycle theory
C)is constructed by adding the inflation rate and the unemployment rate
D)can be calculated by adding the sacrifice ratio and the replacement rate





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