27) In the igure above, the expected inlation 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
28) 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
31
29) In the igure above, the expected inlation 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) Comparing the short-run Phillips curve and the long-run Phillips curve, we see that
there is
A) a tradeof in both curves.
B) only a long-run tradeof between inlation and unemployment but not a short-run
tradeof.
C) no tradeof in either curve.
D) only a short-run tradeof between inlation and unemployment but not a long-run
tradeof.
E) no relationship between the two curves.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
31) The expected inlation rate is the inlation rate that people forecast and use to help set
A) the money wage rate.
B) the real wage rate.
C) the natural rate of unemployment.
D) real GDP.
E) the price level.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
32
32) At full employment, the expected inlation rate is
A) equal to the inlation rate.
B) higher than the inlation rate.
C) lower than the inlation rate.
D) unrelated to the inlation rate.
E) unknown.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
33) In order to keep the real wage rate constant, the
A) money wage rate must increase by the same amount as the inlation rate.
B) inlation rate must be exactly one half of the expected inlation rate.
C) nominal interest rate must be equal to the inlation rate.
D) money wage rate must increase when the price level falls.
E) money wage rate must decrease by the same amount as the inlation rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
34) Based on the above table, if the current price level is 100 and the natural
unemployment rate is 5 percent, what is the expected inlation rate?
A) 2 percent
B) 3 percent
C) 5 percent
D) 8 percent
E) 12 percent
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
33
35) Based on the above table, if the current price level is 100 and the unemployment rate is
4 percent, then the
A) inlation rate is 8 percent.
B) expected inlation rate is 8 percent.
C) inlation rate is 2.8 percent.
D) expected inlation rate is 2.8 percent.
E) inlation rate is 108 percent.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
36) According to the natural rate hypothesis, in the short run an increase in the inlation
rate brings
A) a decrease in the unemployment rate.
B) an increase in the unemployment rate.
C) no change in the unemployment rate.
D) a decrease in the natural unemployment rate.
E) an increase in the natural unemployment rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
37) The natural rate hypothesis asserts that
A) when prices change, the inlation rate changes temporarily and then returns to its
natural rate.
B) changes in the unemployment rate are natural and long-lasting.
C) price changes occur at a natural rate, near a 6 percent average inlation rate.
D) changes in the unemployment rate from changes in the inlation rate are temporary.
E) changes in the natural unemployment rate are only temporary.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
34
38) The natural rate hypothesis states that when the inlation rate ________, in the short run
the unemployment rate ________ and in the long run the unemployment rate ________.
A) rises, decreases; returns to the natural unemployment rate
B) rises, decreases; decreases
C) falls, decreases; decreases
D) falls, decreases; returns to the natural unemployment rate
E) falls, increases; decreases
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
39) The natural rate hypothesis states that when the inlation rate
A) increases, the unemployment rate will decrease permanently.
B) decreases, the inlation rate will decrease permanently.
C) changes, the unemployment rate changes temporarily and eventually returns to the
natural unemployment rate.
D) changes, the change is only temporary, and eventually the inlation rate returns to the
natural inlation rate.
E) increases, the natural unemployment rate increases.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
40) The natural rate hypothesis concludes that the inlation rate increases, then in the
short run there is
A) an upward movement along the short-run Phillips curve.
B) a downward movement along the short-run Phillips curve.
C) an upward shift of the short-run Phillips curve.
D) a downward shift of the short-run Phillips curve.
E) no change at all in the short-run Phillips curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
35
41) The natural rate hypothesis concludes that when the inlation rate increases, then in
the long run there is
A) an upward movement along the short-run Phillips curve.
B) a downward movement along the short-run Phillips curve.
C) an upward shift of the short-run Phillips curve.
D) a downward shift of the short-run Phillips curve.
E) no change at all in the short-run Phillips curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
42) The natural rate hypothesis concludes that when the inlation rate unexpectedly
increases, the unemployment rate ________. But when the higher inlation rate becomes the
expected inlation rate, the unemployment rate then ________ until it reaches the ________
unemployment rate.
A) decreases; increases; maximum
B) increases; decreases; minimum
C) decreases; increases; natural
D) decreases; decreases; natural
E) increases; decreases; natural
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
43) According to the natural rate hypothesis, if the economy begins at full employment with
an unemployment rate of 5 percent and then the inlation rate increases from 2 percent to
4 percent, then the economy will
A) have lower unemployment but then return to its natural rate with an inlation rate of 4
percent.
B) stay at the 4 percent inlation rate and the natural unemployment rate will fall.
C) not see any lower unemployment, even temporarily, just higher inlation.
D) eventually return to its natural rate of 2 percent inlation and a new lower
unemployment rate.
E) eventually return to its natural rate of 2 percent inlation and its natural unemployment
rate of 5 percent.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
36
44) If the expected inlation rate changes, the long-run Phillips curve ________, and the
short-run Phillips curve ________.
A) does not shift; does not shift
B) does not shift; shifts upward
C) shifts rightward; shifts upward
D) shifts rightward; shifts downward
E) shifts rightward; does not shift
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
45) The short run Phillips curve
A) shows the tradeof between the inlation rate and the unemployment rate and it shifts
when the inlation rate changes.
B) shows that any inlation rate can co-exist with the natural unemployment rate.
C) shows the tradeof between the inlation rate and the unemployment rate, and it shifts
when the expected inlation rate changes.
D) shows the relationship between the inlation rate and the expected inlation rate, and it
shifts when the natural unemployment rate changes.
E) shows the relationship between the inlation rate and the nominal interest rate, and it
shifts when the natural unemployment rate changes.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
46) If the expected inlation rate rises, then the short-run Phillips curve ________ and the
long-run Phillips curve ________.
A) shifts; shifts
B) shifts; does not shift
C) does not shift; shifts
D) does not shift; does not shift
E) might shift; shifts only if the short-run Phillips curve shifts
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
37
47) An increase in the expected inlation rate
A) leads to a movement downward along the short-run Phillips curve.
B) leads to a movement upward along the short-run Phillips curve.
C) shifts the short-run Phillips curve upward.
D) shifts the short-run Phillips curve downward.
E) shifts the long-run Phillips curve upward.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
48) Suppose an economy experiences a permanent increase in its expected inlation rate.
As a result, there is
A) an upward movement along the short-run Phillips curve.
B) a downward movement along the short-run Phillips curve.
C) a downward shift of the short-run Phillips curve.
D) an upward shift of the short-run Phillips curve.
E) no change at all to the short-run Phillips curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
49) Economies with higher expected inlation rates have short-run Phillips curves that are
A) upward sloping.
B) further to the left.
C) further to the right.
D) always vertical.
E) closer to being horizontal.
Skill: Level 5: Critical thinking
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
38
50) The shift of the short-run Phillips curve in the igure above is the result of
A) an increase in the natural unemployment rate.
B) a decrease in the natural unemployment rate.
C) an increase in the expected inlation rate.
D) a decrease in the expected inlation rate.
E) a decrease in the actual inlation rate.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
51) The short-run Phillips curve shifts when
A) the actual unemployment rate changes and also when the expected unemployment rate
changes.
B) the expected unemployment rate changes and also when the expected inlation rate
changes.
C) the inlation rate increases and also when the unemployment rate decreases.
D) the natural unemployment rate changes and also when the expected inlation rate
changes.
E) the actual inlation rate changes and also when the expected inlation rate changes.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
39
52) Suppose an economy experiences a permanent increase in its natural unemployment
rate. This change leads to
A) an upward movement along the short-run Phillips curve.
B) a downward movement 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 change in the short-run Phillips curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
53) When the natural unemployment rate increases, the short-run Phillips curve ________
and the long-run Phillips curve ________.
A) shifts rightward; does not shift
B) shifts leftward; does not shift
C) does not shift; shifts leftward
D) shifts rightward; shifts rightward
E) shifts leftward; shifts rightward
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
54) When the natural unemployment rate increases,
A) both the long-run Phillips curve and the short-run Phillips curve shift rightward.
B) the long-run Phillips curve shifts rightward, and the short-run Phillips curve shifts
leftward.
C) the long-run Phillips curve shifts leftward, and the short-run Phillips curve shifts
rightward.
D) both the long-run Phillips curve and the short-run Phillips curve shift leftward.
E) there are no shifts of either the long-run Phillips curve or the short-run Phillips curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
40