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30) According to ________, when real GDP is ________ percentage points greater than
potential GDP, the unemployment rate is one percentage point ________ the natural
unemployment rate.
A) Keynes' Law; two; below
B) Okun's Law; two; below
C) Phillip's Law; four; above
D) Say's Law; two; above
E) Okun's Law; four; below
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
31) According to Okun's Law, for each 1 percentage point that the unemployment rate is
above the natural unemployment rate, then
A) the inlation rate is less than the expected inlation rate by 1 percentage point.
B) real GDP is below potential GDP by 2 percent.
C) real GDP is above potential GDP by 2 percent.
D) the inlation rate is greater than the expected inlation rate by 2 percentage points.
E) the real interest rate is below the natural real interest rate by 1 percentage point.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
32) Okun's Law states that for each percentage point that the unemployment rate is above
its natural rate, there is a ________ percent gap between real GDP and potential GDP.
A) 2
B) 4
C) 6
D) 8
E) random
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
11
33) If the natural unemployment rate is 5 percent and the actual unemployment is 3
percent, then Okun's Law concludes that real GDP is
A) 2 percent greater than potential GDP.
B) 4 percent greater than potential GDP.
C) 2 percent less than potential GDP.
D) 4 percent less than potential GDP.
E) 3 percent greater than potential GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
34) According to Okun's Law, if the unemployment rate is 7 percent and the natural
unemployment rate is 5 percent, potential GDP is ________ than real GDP.
A) 2 percent less
B) 4 percent less
C) 7 percent less
D) 2 percent greater
E) 4 percent greater
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
35) Suppose the natural unemployment rate is 5 percent, the actual unemployment rate is
6 percent, and potential GDP is $5,000 billion. Based on Okun's Law, real GDP is equal to
________ billion.
A) $5,000
B) $5,100
C) $4,900
D) $4,000
E) $5,900
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
12
36) If the natural unemployment rate is 5 percent, the actual unemployment rate is 8
percent, and potential GDP is $15 trillion, then according to Okun's Law, real GDP is
A) $14.25 trillion.
B) $14.1 trillion.
C) $13.8 trillion.
D) $13.05 trillion.
E) $15.9 trillion.
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
37) If the natural unemployment rate is 4 percent and potential GDP is $30 billion, then
according to Okun's Law, when the unemployment rate falls to 3 percent, real GDP
A) decreases to $29.4 billion.
B) remains constant at $30 billion.
C) irst decreases by 4 percent and then increases by 4 percent.
D) increases to $30.6 billion.
E) increases to $60 billion.
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
38) Suppose the unemployment rate is 8 percent and the natural unemployment rate is 6
percent. If potential GDP is $8 trillion, using Okun's Law what does real GDP equal?
A) $7.68 trillion
B) $8.32 trillion
C) $7.84 trillion
D) $8.16 trillion
E) $8.00 trillion
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
13
39) According to Okun's Law, when the natural employment rate is 6 percent and potential
GDP is $10 trillion, then when actual employment is 7 percent, real GDP is
A) $10.2 trillion.
B) $9.8 trillion.
C) $9.9 trillion.
D) $10.1 trillion.
E) $8 trillion.
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
40) According to Okun's Law, when the natural employment rate is 6 percent and potential
GDP is $10 trillion, then when actual employment is 5 percent, real GDP is
A) $10.2 trillion.
B) $9.8 trillion.
C) $9.9 trillion.
D) $10.1 trillion.
E) $8 trillion.
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
41) Suppose potential GDP is $100 billion and the natural unemployment rate is 5 percent.
If the unemployment rate is 6 percent, then according to Okun's Law real GDP is
A) $98 billion.
B) $101 billion.
C) $99 billion.
D) $102 billion.
E) $100 billion.
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
14
42) If the price level is 100 in one year and rises to 102 the next year, then the inlation
rate is
A) 2.0 percent.
B) 0.02 percent.
C) 102 percent.
D) 100 percent.
E) unable to be determined without knowing potential GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
43) If the price level rises from 100 to 110 then the inlation rate is
A) 1.0 percent.
B) 10.0 percent.
C) 100 percent.
D) 110 percent.
E) None of the above answers is correct.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
44) When the aggregate demand curve shifts,
A) the short-run Phillips curve shifts.
B) there is a movement along the short-run Phillips curve.
C) there is a change in potential GDP.
D) there is a change in the natural unemployment rate.
E) the inlation rate does not change.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
15
45) A rightward shift of the aggregate demand curve leads to
A) a leftward shift of the short-run Phillips curve.
B) a rightward shift of the short-run Phillips curve.
C) an upward movement along the short-run Phillips curve.
D) a downward movement along the short-run Phillips curve.
E) neither a movement along nor a shift in the short-run Phillips curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
46) When the aggregate demand curve shifts rightward, the price level ________ and the
unemployment rate ________.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
E) does not change; does not change
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
47) An increase in aggregate demand results in
A) a higher unemployment rate and a lower price level.
B) a lower unemployment rate and a higher price level.
C) an increase in real GDP and a decrease in the price level.
D) a decrease in real GDP and a decrease in the price level.
E) a lower unemployment rate and a lower price level.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
16
48) If aggregate demand decreases, the
A) short-run Phillips curve shifts rightward.
B) short-run Phillips curve shifts leftward.
C) economy moves to a higher inlation rate along its short-run Phillips curve.
D) economy moves to a lower inlation rate along its short-run Phillips curve.
E) short-run Phillips curve does not shift nor is there a movement along it.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
49) When an economy experiences a recession there is
A) a leftward shift of the short-run Phillips curve.
B) a rightward shift of the short-run Phillips curve.
C) an upward movement along the short-run Phillips curve.
D) a downward movement along the short-run Phillips curve.
E) no change in the short-run Phillips curve.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
50) In the short run, a decrease in aggregate demand will lead to
A) a decrease in the price level and an increase in real GDP.
B) an increase in the price level and a decrease in real GDP.
C) a decrease in the price level and an increase in the unemployment rate.
D) an increase in the price level and an increase in real GDP.
E) no change in the price level and a decrease in real GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
17
51) If the economy moves upward along its short-run Phillips curve, in the AS-AD diagram,
this movement is shown by a
A) movement upward along the AS curve as a result of a rightward shift of the AD curve.
B) rightward shift of potential GDP.
C) movement downward along the AS curve as a result of a leftward shift of the AD curve.
D) rightward shift of the AS curve and a movement along the AD curve.
E) leftward shift of the AS curve and a movement along the AD curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
52) If aggregate demand increases, thereby leading to an increase in real GDP and
inlation, there is
A) a movement downward along the short-run Phillips curve.
B) a movement upward along the short-run Phillips curve.
C) a rightward shift in the short-run Phillips curve.
D) a leftward shift in the short-run Phillips curve.
E) neither a movement along nor a shift in the short-run Phillips curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
53) The relationship between the AS-AD model and the Phillips curve points out that as
aggregate demand increases, the unemployment rate
A) decreases and the inlation rate rises.
B) increases and the inlation rate falls.
C) decreases and the price level falls.
D) increases and the inlation rate rises.
E) decreases and the inlation rate does not change, only the price level rises.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
18
54) Data from the United States and the United Kingdom show that the short-run Phillips
curve exhibits
A) a great deal of shifting.
B) stability with shifts occurring only when external forces are strong.
C) stability with shifts occurring only when there is an internal change of government.
D) shifts that occur every ive years or so.
E) positive slopes in both nations.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
55) Changes in which of the following shift the short-run Phillips curve?
i. changes in the natural unemployment rate
ii. changes in the expected inlation rate
iii. changes in the inlation rate
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
56) The short-run Phillips curve shows a relationship between the
A) inlation rate and the interest rate.
B) inlation rate and real GDP.
C) unemployment rate and the interest rate.
D) inlation rate and the unemployment rate.
E) price level and real GDP.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
19
57) The short-run Phillips curve is
A) vertical at the natural unemployment rate.
B) upward sloping.
C) downward sloping.
D) horizontal at the expected inlation rate.
E) U-shaped.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
58) Moving along the short-run Phillips curve, as the unemployment rate increases, the
inlation rate
A) decreases.
B) increases.
C) remains unchanged.
D) initially decreases and then increases.
E) initially increases and then decreases.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
59) When a movement up along the aggregate supply curve occurs, there is also
A) a movement down along the short-run Phillips curve.
B) a movement up 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) no movement along nor a shift in the short-run Phillips curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
20
