Question 1

Each point on the Phillips curve represents a combination of the:

Accepted Answer

A)  consumption rate and the unemployment rate.
B)  savings rate and the inflation rate.
C)  interest rate and the savings rate.
D)  inflation rate and the unemployment rate.E) A) and B)
F) A) and C)

Question 2

U.S. macroeconomic data show that a stable Phillips curve existed during the 1960s.

Accepted Answer

A) True 
 B)False

Question 3

Wage and price controls imposed for an extended period of time are likely to result in:

Accepted Answer

A)  shortages.
B)  rationing.
C)  black markets.
D)  All of these.E) B) and C)
F) None of the above

Question 4

Exhibit 17-2 Aggregate demand and aggregate supply curves 1 to AD2 will cause the economy to move: A) directly from E1 to E3 and then remain at E3. B) directly from E1 to E2 and then remain at E2. C) from E1 to E2 initially and then eventually move back to E1. D) from E1 to E2 initially and then eventually move to E3." class="answers-bank-image d-inline" rel="preload" > As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the economy to move:

Accepted Answer

A)  directly from E1 to E3 and then remain at E3.
B)  directly from E1 to E2 and then remain at E2.
C)  from E1 to E2 initially and then eventually move back to E1.
D)  from E1 to E2 initially and then eventually move to E3.E) C) and D)
F) B) and C)

Question 5

Incomes policies reject wage-price controls and guidelines.

Accepted Answer

A) True 
 B)False

Question 6

If the economy is in recession, explain what advice you would give the President, if you were a monetarist economist. What if you were a Keynesian?

Accepted Answer

If you were a monetarist, you would tell...

Question 7

According to adaptive expectations theory, expansionary monetary and fiscal policies to reduce the unemployment rate are:

Accepted Answer

A)  useless in the long run.
B)  useless in the short run.
C)  ineffective on the price level.
D)  None of these.E) A) and B)
F) A) and D)

Question 8

The Phillips Curve shows the trade-off between:

Accepted Answer

A)  unemployment and output.
B)  inflation and output.
C)  unemployment and inflation.
D)  imports and exports.
E)  unemployment and imports.F) D) and E)
G) All of the above

Question 9

The "WIN" button approach to breaking a wage-price spiral was proposed by President Ford to a joint session of Congress.

Accepted Answer

A) True 
 B)False

Question 10

According to rational expectations theory,

Accepted Answer

A)  there is absolutely nothing government can do, even in the short run, to reduce the economy's unemployment rate.
B)  the government can use fiscal policy such as increased government spending or lower tax rates to reduce unemployment.
C)  a modern extension of Keynesian economics exists.
D)  discretionary fiscal policy is essential for prolonged growth.
E)  market participants can be fooled in the long run by monetary and fiscal policy rules.F) A) and B)
G) All of the above

Question 11

Most economists agree that the government should use incomes policies to control inflation during peacetime.

Accepted Answer

A) True 
 B)False

Question 12

The relationship between inflation and unemployment shown along a Phillips curve is a(n) :

Accepted Answer

A)  direct relationship.
B)  quadratic relationship.
C)  exponential relationship.
D)  inverse relationship.
E)  parabolic relationship.F) B) and D)
G) A) and B)

Question 13

The hypothesis that people use all available information to predict the future is known as:

Accepted Answer

A)  rational expectations.
B)  adaptive expectations.
C)  lagged expectations.
D)  trend expectations.E) All of the above
F) None of the above

Question 14

According to the adaptive expectations theory, people form their expectations of the future on the basis of future expectations.

Accepted Answer

A) True 
 B)False

Question 15

The long-run Phillips curve is a(n) ____ line at the natural rate of unemployment.

Accepted Answer

A)  horizontal
B)  vertical
C)  upward-sloping
D)  downward-slopingE) A) and D)
F) C) and D)

Question 16

Starting from an initial long-run equilibrium, under the rational expectations hypothesis, an anticipated shift to a more expansionary policy will increase:

Accepted Answer

A)  prices but not real output in the short run.
B)  real output but not prices in the short run.
C)  real output in the long run but not in the short run.
D)  real output in both the long run and the short run.E) B) and C)
F) All of the above

Question 17

Many economists argue that, in the long run, the economy self-corrects and achieves full employment. This argument is known as the:

Accepted Answer

A)  natural rate hypothesis.
B)  incomes policy approach.
C)  political business cycle theory.
D)  Keynesian cross model.E) C) and D)
F) B) and D)

Question 18

The natural rate hypothesis argues that the economy will:

Accepted Answer

A)  self-correct to the natural rate of inflation.
B)  require expansionary fiscal policy to reach the natural rate of unemployment.
C)  self-correct to the natural rate of unemployment.
D)  require expansionary monetary policy to reach the natural rate of unemployment.E) A) and B)
F) A) and C)

Question 19

The hypothesis that people believe the best indicator of the future is the recent past is known as:

Accepted Answer

A)  rational expectations.
B)  adaptive expectations.
C)  lagged expectations.
D)  trend expectations.E) C) and D)
F) All of the above

Question 20

According to the adaptive expectations theory, people form their expectations of the future on the basis of recent experiences.

Accepted Answer

A) True 
 B)False

Exam 17: The Phillips Curve and Expectations Theory

Many economists argue that, in the long run, the economy self-corrects and achieves full employment. This argument is known as the:

Correct AnswerverifiedShow Answer

According to adaptive expectations theory, expansionary monetary and fiscal policies to reduce the unemployment rate are:

Correct AnswerverifiedShow Answer

The "WIN" button approach to breaking a wage-price spiral was proposed by President Ford to a joint session of Congress.

Correct AnswerverifiedShow Answer

Most economists agree that the government should use incomes policies to control inflation during peacetime.

Correct AnswerverifiedShow Answer

If the economy is in recession, explain what advice you would give the President, if you were a monetarist economist. What if you were a Keynesian?

Correct AnswerverifiedIf you were a monetarist, you would tell...View AnswerShow Answer

Each point on the Phillips curve represents a combination of the:

Correct AnswerverifiedShow Answer

U.S. macroeconomic data show that a stable Phillips curve existed during the 1960s.

Correct AnswerverifiedShow Answer

According to the adaptive expectations theory, people form their expectations of the future on the basis of future expectations.

Correct AnswerverifiedShow Answer

The natural rate hypothesis argues that the economy will:

Correct AnswerverifiedShow Answer

The hypothesis that people use all available information to predict the future is known as:

Correct AnswerverifiedShow Answer

The long-run Phillips curve is a(n) ____ line at the natural rate of unemployment.

Correct AnswerverifiedShow Answer

The Phillips Curve shows the trade-off between:

Correct AnswerverifiedShow Answer

The relationship between inflation and unemployment shown along a Phillips curve is a(n) :

Correct AnswerverifiedShow Answer

According to rational expectations theory,

Correct AnswerverifiedShow Answer

Wage and price controls imposed for an extended period of time are likely to result in:

Correct AnswerverifiedShow Answer

Starting from an initial long-run equilibrium, under the rational expectations hypothesis, an anticipated shift to a more expansionary policy will increase:

Correct AnswerverifiedShow Answer

The hypothesis that people believe the best indicator of the future is the recent past is known as:

Correct AnswerverifiedShow Answer

Incomes policies reject wage-price controls and guidelines.

Correct AnswerverifiedShow Answer

According to the adaptive expectations theory, people form their expectations of the future on the basis of recent experiences.

Correct AnswerverifiedShow Answer

Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the economy to move:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If you were a monetarist, you would tell...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the economy to move:

Correct Answer
verified