AP Macroeconomics
CH 35 QUIZ REVIEW
Mr. Kelley
NAME _____________________________ DATE _____________
PART I: Multiple Choice
1. If a worker’s nominal wage rate increases from $10 to $12 per hour and at the same
time the general price level increases by 10%, the worker’s real wage has
A. Approximately decreased by 10%
B. Approximately decreased by 20%
C. Approximately increased by 10%
D. Approximately increased by 20%
E. not changed
2. According to the short run Phillips Curve, a decrease in unemployment is expected to
be accompanied by
A. Higher labor-force participation
B. An increase in inflation
C. An increase in the productivity of capital
D. An increase in the government deficit
E. A decrease in RGDP
3. Which of the following is true of the long-run Phillips Curve?
A. It shows there is a trade off between unemployment and inflation
B. It is positively sloped when the inflation rate exceeds the unemployment rate
C. It is vertical at the natural rate of unemployment
D. It shifts to the right if AD increases
E. It is created by an adverse supply shock
4. When movement up along the AS curve occurs (sliding up, not shifting), there is also
A. A movement down (sliding not shifting) along the short-run Phillips Curve.
B. A movement up (sliding not shifting) along the short-run Phillips Curve.
C. A rightward shift of the short-run Phillips Curve.
D. A leftward shift of the short-run Phillips Curve
E. Neither a slide not a shift of the short-run Phillips Curve
AP Macroeconomics
CH 35 QUIZ REVIEW
Mr. Kelley
5. If RGDP exceeds potential GDP, then employment is _______ full employment and
the unemployment rate is _________ the natyral unemployment rate.
A. below; above
B. equal to; below
C. above; below
D. above; above
E. equal to; equal to
6. The long-run Phillips curve is the relationship between
A. Unemployment and the price level at full employment
B. Unemployment and the inflation rate at the expected price level
C. Inflation and RGDP at full employment
D. Inflation and unemployment when the economy is at full employment
E. Inflation and the expected inflation rate
7. When the expected inflation rate rises,
A. The short-run Phillips Curve shifts rightward (up)
B. The short-run Phillips Curve shifts leftward (down)
C. There is movement right along the short-run Phillips Curve n the short-run
aggregate demand will decrease and in the long-run aggregate supply will increase.
D. There is movement left along the short-run Phillips Curve
E. Expected inflation has no affect on the short run Phillips Curve
AP Macroeconomics
CH 35 QUIZ REVIEW
Mr. Kelley
8. Assume that an economy is in a recession, and Point R is one a short-run Philips
Curve indicating the recession. Suppose a fiscal policy in implemented to close this
recessionary gap. A new point, Point Z, on the Phillips curve would represent the new
situation after the fiscal policy was successfully implemented. Which of the following is
true?
A. Point Z is to the right of Point R on the short-run Phillips curve
B. Point Z is to the left of Point R on the short-run Phillips curve
C. Point Z is on a short-run Phillips Curve that is shifted right of the original curve
D. Point Z is on a short-run Phillips Curve that is shifted left of the original curve
E. Point Z is in the same place as point R
Use the following graph to answer question 9.
LRAS
E2
E1
Qf
9. The economy depicted in the graph is experiencing a(n)
A. Contractionary gap
B. Demand gap
C. Inflationary gap
D. Recessionary gap
E. Supply gap
AP Macroeconomics
CH 35 QUIZ REVIEW
Mr. Kelley
10. When there is a negative supply shock, the economy experiences
A. Increase in Unemployment; Decrease in aggregate Price Level
B. Decrease in aggregate output; Increase in aggregate Price Level
C. Increase in aggregate output; Increase in aggregate Price Level
D. Decrease in aggregate output; Decrease in Unemployment
E. Steady growth
Part II Short Answer:
11. Briefly describe the effect of Demand-Pull Inflation as it affects Price Level. Use a
properly labeled AS-AD-LRAS curve to illustrate you description.
AP Macroeconomics
CH 35 QUIZ REVIEW
Mr. Kelley
2. The table below gives data for an economy. Suppose that for this economy the natural
rate of unemployment is 5% and the potential GDP is $8 trillion.
Unemployment rate (%)
4
5
6
7
RGDP in trillions
3a. What is Okun’s Law?
3b. Using Okun’s Law, complete the table by calculating RGDP for each
unemployment rate.
3. What is the effect on the AS curve and the short-run Phillips Curve of an increase in
aggregate demand?
AP Macroeconomics
CH 35 QUIZ REVIEW
Mr. Kelley
4. The table below shows five possible outcomes for 2011 depending on the level of
aggregate demand in that year. Potential GDP in 2011 is $11.0 trillion and the natural
rate of unemployment is 6%. The price level in 2011 was 105.
A
B
C
D
E
Price Level (2005 = 100)
108
113
115
118
123
Unemployment Rate (%)
9
6
5
4
3
4a. Calculate the inflation rate for each possible outcome.
4b. Use Okun’s law to find the RGDP at each unemployment rate in the table.
4c. What are the expected inflation rate and the expected price level in 2011?
4d. Plot the short-run Phillips Curve for 2011. Mark points A – E that correspond to the
data in the table and/or that you calculated.
4e. Plot the AS Curve for 2011. Mark points A – E that correspond to the data in the table
and/or that you calculated.
AP Macroeconomics
CH 35 QUIZ REVIEW
Mr. Kelley
PART III: FRQ
1.
1. Assume that the United States economy is currently in a recession in a shortrun equilibrium.
Draw a correctly labeled graph of the short-run and long-run Phillips curves. Use
the letter A to label a point that could represent the current state of the economy
in recession.
AP Macroeconomics
CH 35 QUIZ REVIEW
Mr. Kelley
2. The unemployment rate in the country of Southland is greater than the natural rate
of unemployment.
(a) Using a correctly labeled graph of aggregate demand and aggregate supply,
show the current equilibrium real gross domestic product, labeled YC, and
price level in Southland, labeled PLC.
AP Macroeconomics
CH 35 QUIZ REVIEW
Mr. Kelley
The president of Southland is receiving advice from two economic advisers—Kel and
Ley—about how best to reduce unemployment in Southland.
(b) Ley advises the president to decrease personal income taxes.
(i) How would such a decrease in taxes affect aggregate demand?
Explain.
(ii) Using a correctly labeled graph of the short-run Phillips curve, show
the effect of the decrease in taxes.
Label the initial equilibrium from part (a) as point A, and the new equilibrium
resulting from the decrease in taxes as point B.
AP Macroeconomics
CH 35 QUIZ REVIEW
Mr. Kelley
(c) Kel advises the president to take no policy action.
(i) What will happen to the short-run aggregate supply curve in the long
run? Explain.
(ii) Using a new correctly labeled graph of the short-run Phillips curve,
show the effect of the change in the short-run aggregate supply you
identified in part (c)(i).