60) If real GDP exceeds potential GDP, then employment is ________ full employment, and
the unemployment rate is ________ the natural unemployment rate.
A) below; above
B) equal to; below
C) above; below
D) above; above
E) equal to; equal to
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
61) According to Okun’s Law, if the natural unemployment rate is 5 percent, the actual
unemployment rate is 4 percent, and potential GDP is $15 trillion, then actual real GDP is
A) $12.0 trillion.
B) $15.0 trillion.
C) $14.7 trillion.
D) $15.4 trillion.
E) $15.3 trillion.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
62) When aggregate demand increases, there is a movement ________ along the AS curve
and ________.
A) up; a movement up along the short-run Phillips curve
B) up; a movement down along the short-run Phillips curve
C) up; an upward shift of the short-run Phillips curve
D) down; a downward shift of the short-run Phillips curve
E) down; a movement down along the short-run Phillips curve
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
21
15.2 Short-Run and Long-Run Phillips Curves
1) The curve that shows the relationship between inlation and unemployment when the
economy is at full employment is the
A) short-run Phillips curve.
B) long-run Phillips curve.
C) long-run Okun’s curve.
D) aggregate demand curve.
E) aggregate supply curve.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
2) In the long run, the unemployment rate
A) is zero.
B) is equal to the natural unemployment rate.
C) can take on any value.
D) is equal to the expected unemployment rate.
E) must be equal to the expected inlation rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
3) The long-run Phillips curve shows the relationship between
A) the inlation rate and the unemployment rate.
B) real GDP and potential GDP.
C) the nominal interest rate and real interest rate.
D) the inlation rate and the natural unemployment rate.
E) real GDP and the natural unemployment rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
22
4) If the economy is at full employment, then the inlation rate
A) exceeds the expected inlation rate.
B) is less than the expected inlation rate.
C) can be anywhere on a short-run Phillips curve.
D) is equal to the expected inlation rate.
E) is equal to zero.
Skill: Level 4: Applying models
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
5) At full employment,
A) real GDP exceeds potential GDP.
B) the unemployment rate is equal to the natural unemployment rate.
C) the unemployment rate is zero.
D) the inlation rate is zero.
E) the inlation rate must equal the natural unemployment rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
6) The long-run Phillips curve shows the relationship between the inlation rate and the
unemployment rate when the economy is
A) at full employment.
B) in expansion.
C) in recession.
D) at full inlation.
E) away from potential GDP.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
23
7) The long-run Phillips curve shows the relationship between ________ and ________ when
the economy is at full employment.
A) the natural inlation rate; the unemployment rate
B) the unemployment rate; real GDP
C) potential GDP; the natural unemployment rate
D) the inlation rate; the unemployment rate
E) the inlation rate; the nominal interest rate
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
8) The long-run Phillips curve shows the relationship between
A) inlation and unemployment at full employment.
B) aggregate demand and aggregate supply at full employment.
C) aggregate demand and interest rates at full employment.
D) inlation and interest rates at full employment.
E) the price level and real GDP when the economy is not at full employment.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
9) The long-run Phillips curve is a vertical line because
A) the unemployment rate decreases when the inlation rate increases.
B) there is no relationship between the natural unemployment rate and the inlation rate.
C) the natural unemployment rate only depends on the inlation rate.
D) real GDP does not depend on the unemployment rate.
E) in the long run, the natural unemployment rate increases when inlation increases.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
24
10) The lack of a long-run tradeof between the unemployment rate and the inlation rate
means the long-run Phillips curve is
A) upward sloping.
B) horizontal.
C) vertical.
D) downward sloping.
E) U-shaped, with higher inlation initially decreasing unemployment and then increasing it
back to the natural unemployment rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
11) The long-run Phillips curve is a
A) horizontal line indicating a positive relationship between inlation and unemployment.
B) vertical line indicating a positive relationship between inlation and unemployment.
C) vertical line that shows the relationship between inlation and unemployment when the
economy is at full employment.
D) horizontal line that shows the relationship between inlation and unemployment when
the economy is at full employment.
E) straight line with a 45 degree slope showing the long-run relationship between the
inlation rate and the expected inlation rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
12) The long-run Phillips curve is ________ curve, and moving along the long-run Phillips
curve, an increase in the inlation rate is associated with ________ in the natural
unemployment rate.
A) a vertical; no change
B) a downward sloping; a decrease
C) an upward sloping; an increase
D) a horizontal; no change
E) a downward sloping; no change
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
25
13) The lack of a long-run tradeof between the unemployment rate and the inlation rate
means that
A) only iscal policy is efective to lower the natural unemployment rate.
B) an increase in the inlation rate would not bring a reduction in the natural
unemployment rate.
C) only a decrease in the inlation rate would bring a reduction in the natural
unemployment rate.
D) only monetary policy is efective to lower the natural unemployment rate.
E) the natural unemployment rate cannot change.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
14) The long-run Phillips curve applies when the economy is at full employment, so the
long-run Phillips curve is
A) vertical.
B) horizontal.
C) upward sloping.
D) downward sloping.
E) unnecessary.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
15) On the long-run Phillips curve, the unemployment rate
A) and inlation rate can take any value.
B) can be any value, but the inlation rate equals the expected inlation rate.
C) equals the natural unemployment rate, but the inlation rate can be any value.
D) equals the natural unemployment rate, and the inlation rate equals the expected
inlation rate.
E) decreases when the inlation rate increases.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
26
16) In the long run, the inlation rate
A) is equal to the natural inlation rate.
B) is zero.
C) can take on any value.
D) must be equal to the natural unemployment rate.
E) cannot be negative.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
17) The long-run Phillips curve indicates that
A) any inlation rate is possible at the natural unemployment rate.
B) there is a tradeof between the inlation rate and the unemployment rate in the long-run.
C) there is no way to control the inlation rate in the long run.
D) potential GDP can never be achieved.
E) any unemployment rate is possible at the natural inlation rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
18) Along the long-run Phillips curve, the unemployment rate ________, and the inlation
rate ________.
A) is equal to the natural unemployment rate; can be any value
B) can be any value; is equal to the natural inlation rate
C) is equal to the natural unemployment rate; is equal to the natural inlation rate
D) can be any value; can be any value
E) None of the above answers is correct.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
27
19) The long-run Phillips curve applies when the economy is at full employment, so the
long-run Phillips curve is ________, which demonstrates that changes in the inlation rate
________ efect on unemployment.
A) vertical; have no
B) vertical; have an
C) a downward sloping straight line with a 45 degree slope; have an
D) an upward sloping straight line with a 45 degree slope; have an
E) horizontal; have no
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
20) Burger King is paying $9 an hour to its workers. If the expected inlation rate equals
the actual inlation rate and both are 10 percent a year, then to keep the real wage rate
constant in a year the money wage rate must
A) rise to $9.90 an hour.
B) fall to $8.10 an hour.
C) stay at $9.00 an hour.
D) rise to $10.00 an hour.
E) rise to $9.45 an hour.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
21) The short-run Phillips curve shows only a short-run tradeof between the
unemployment rate and the inlation rate because in the long run the
A) natural unemployment rate increases.
B) expected inlation rate increases.
C) unemployment rate returns to the natural unemployment rate and so there is no long-
run tradeof between the inlation rate and the unemployment rate.
D) inlation rate returns to the natural inlation rate and so there is no long-run tradeof
between the inlation rate and the unemployment rate.
E) inlation rate returns to the natural inlation rate and the unemployment rate returns to
the natural unemployment rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
28
22) The short-run Phillips curve is ________, and the long-run Phillips curve is ________.
A) upward sloping; vertical
B) vertical; upward sloping
C) vertical; downward sloping
D) downward sloping; vertical
E) downward sloping; downward sloping
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
23) The short-run Phillips curve shows ________ between the unemployment rate and the
inlation rate, and the long-run Phillips curve shows ________ between the unemployment
rate and the inlation rate.
A) a negative relationship; no relationship
B) a negative relationship; a positive relationship
C) no relationship; no relationship
D) no relationship; a negative relationship
E) a positive relationship; a negative relationship
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
24) The short-run Phillips curve is downward sloping because
A) the expected inlation rate is zero in the short run.
B) the unemployment rate can be above or below the natural unemployment rate.
C) reducing the unemployment rate will reduce the inlation rate in the short run.
D) the economy always returns to full employment.
E) in the long run, the expected inlation rate equals the actual inlation rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
29
25) In the long run, there is
A) a tradeof between unemployment and inlation.
B) a tradeof between unemployment and real GDP.
C) no tradeof between iscal policy and monetary policy.
D) no tradeof between unemployment and inlation.
E) a tradeof between unemployment and natural unemployment.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
26) In the igure above, the natural unemployment rate is
A) 0 percent.
B) 2 percent.
C) 4 percent.
D) 6 percent.
E) 8 percent.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
30