Eco202, Spring 2008, Quiz 7
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The text discusses reasons why the AD, SAS and LAS curves shift rightward over time. If there is inflation,
which curve shifts rightward at a faster pace?
A) SAS curve
B) LAS curve
C) AD curve
D) The curves shift rightward at the same pace.
2) When aggregate demand persistently grows at a rate that exceeds the growth rate of potential GDP, the
economy will experience ________.
A) rising wage rates
B) persistent inflation
C) persistent full-employment
D) a slowdown in the economic growth rate
3) An increase in ________ could start a demand-pull inflation?
B) exports.
A) government expenditures.
C) the quantity of money.
D) All of the above answers are correct.
4) Which of the following is NOT a potential start of a demand-pull inflation?
A) an increase in the money supply
B) an increase in exports
C) an increase in taxes
D) an increase in government expenditure
5) Suppose the economy starts at AD1 and SAS1 in the figure below. Given the implied short run equilibrium,
the economy will experience unemployment that is _______ the natural rate of unemployment and ________
pressure on real wages.
A) equal to; upward
B) above; upward.
C) below; upward.
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D) equal to; no
6)
Suppose that the economy starts with AD1/SAS1 in the above diagram and the economyʹs AD curve increases
to AD2. In the short run, this will cause prices to _______, the unemployment rate to _______ and real wages
to _______.
A) rise; fall; fall.
B) rise; rise; fall
C) fall; rise; fall.
D) all; fall; rise.
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7)
Which combination of AD and SAS curves would generate a ʺrecessionary gapʺ?
A) AD1 & SAS1
B) AD1 & SAS2
C) AD2 & SAS2
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D) AD2 & SAS1
8)
Which combination of AD and SAS cuves would eventually cause the economy to experience higher prices and
higher unemployment as it returns to the long run equilibrium?
A) AD1 & SAS1
B) AD1 & SAS2
C) AD2 & SAS2
D) AD2 & SAS1
9) During a demand-pull inflation, if the Fed tries to maintain a level of real GDP above potential GDP,
A) the AD curve will shift rightward continuously and SAS curves will shift leftward continuously.
B) the AD curve will shift rightward continuously and the SAS curve will not shift.
C) there will be a one-time shift in the AD and the SAS curves.
D) the SAS curve will shift leftward continuously and the AD curve will not shift.
10) An increase in the money wage rate shifts the SAS curve ________ and an increase in the money prices of raw
materials shifts the SAS curve ________.
A) rightward; leftward
B) rightward; rightward
C) leftward; rightward
D) leftward; leftward
11) A movement along the SAS curve that brings a lower price level and a decrease in real GDP is equivalent to a
A) movement along a short-run Phillips curve that brings an increase in the inflation rate and an increase in
the unemployment rate.
B) shift in the short-run Phillips curve that brings a decrease in the inflation rate and an increase in the
unemployment rate.
C) movement along a short-run Phillips curve that brings a decrease in the inflation rate and an increase in
the unemployment rate.
D) shift in the short-run Phillips curve that brings an increase in the inflation rate and an increase in the
unemployment rate.
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12) In the above figure, suppose that the economy currently is at point A. If the inflation rate falls and this fall is
unanticipated by the public, the economy moves to a point such as point
A) D.
B) E.
C) C.
D) B.
13) The long-run Phillips curve is ________.
A) horizontal at the actual inflation rate
C) horizontal at the expected inflation rate
B) vertical at the actual inflation rate
D) vertical at the natural unemployment rate
14) The short-run Phillips curve and the long-run Phillips curve intersect at the ________ and ________.
A) expected inflation rate; the natural unemployment rate
B) natural inflation rate; the expected employment rate
C) expected inflation rate; the expected employment rate
D) expected inflation rate; the expected unemployment rate
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15) The figure above shows an economyʹs Phillips curves. Currently, the inflation rate is 6 percent a year. The
natural unemployment rate is ________ percent and the expected inflation rate is ________ percent a year.
A) 6; 6
B) 6; 4
C) 4; 6
D) 6; 10
Inflation rate
(percent per year)
8
6
4
2
Unemployment rate
(percent)
3
4
5
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16) An economyʹs natural unemployment rate is 4 percent. The table above gives some points on the economyʹs
short-run Phillips curve. If the expected inflation rate becomes 8 percent per year, then the ________.
A) long-run Phillips curve shifts rightward
B) long-run Phillips curve shifts leftward
D) short-run Phillips curve shifts downward
C) short-run Phillips curve shifts upward
17) ʺIntertemporal substitutionʺ in labor supply describes changes in labor supply in response to changes in
A) the real interest rate.
B) consumer demand for goods.
C) investment spending.
D) personal tax rates.
18) According to real business cycle theory, a fall in the real interest rate ________ current labor supply and
________ current employment.
A) increases; decreases
B) decreases; increases
C) decreases; decreases
D) increases; increases
19) In real business cycle theory, the factor leading to a business cycle is
A) changes in investment.
B) fluctuations in the pace of technological change.
C) unexpected changes in aggregate demand.
D) changes in the quantity of money.
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20) In real business cycle theory, a decrease in productivity leads to all of the following events EXCEPT ________.
A) a decrease in the demand for labor
B) a decrease in the demand for loanable funds
C) a fall in the real interest rate
D) a rise in the real wage rate
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Answer Key
Testname: Q7F08 ONLINETST
1) C
2) B
3) D
4) C
5) D
6) A
7) B
8) D
9) A
10) D
11) C
12) B
13) D
14) A
15) B
16) C
17) A
18) C
19) B
20) D
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