55) When the natural unemployment rate ________, the short-run Phillips curve shifts
________ and the long-run Phillips curve shifts ________.
A) increases; leftward; leftward
B) decreases; rightward; rightward
C) decreases; leftward; rightward
D) increases; rightward; rightward
E) increases; rightward; leftward
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
56) Both the long-run and the short-run Phillips curves shift if
A) the expected inlation rate changes.
B) expected real GDP changes.
C) the expected unemployment rate changes.
D) the natural unemployment rate changes.
E) the actual inlation rate changes.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
57) Which of the following decreases the natural unemployment rate?
A) many young people entering the labor force
B) a recession
C) higher oil prices
D) rapid technological change that increases the demand for labor
E) a decrease in aggregate demand so that fewer workers are needed
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
41
58) Changes in which of the following do NOT afect the natural unemployment rate?
A) the quantity of money
B) unemployment beneits
C) structural change
D) the minimum wage
E) the birth rate or other demographic data
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
59) Due to a “baby bust” in the 1960s and 1970s, fewer people entered the labor market in
the 1980s and 1990s. This demographic event ________ the natural unemployment rate
thereby shifting the short-run Phillips curve ________ and shifting the long-run Phillips
curve ________.
A) increased; rightward; rightward
B) decreased; leftward; leftward
C) increased; rightward; leftward
D) increased; leftward; rightward
E) decreased; rightward; rightward
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
60) The baby boomers born in the 1940s and 1950s began entering the work force in the
1960s and 1970s . This demographic event ________ the natural unemployment rate,
thereby shifting the short-run Phillips curve ________ and shifting the long-run Phillips
curve ________.
A) increased; rightward; rightward
B) decreased; leftward; leftward
C) increased; rightward; leftward
D) increased; leftward; rightward
E) decreased; rightward; rightward
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
42
61) The shifts of the short-run and long-run Phillips curves in the igure above are 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) an increase in the actual inlation rate.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
62) When inlation expectations changed during the 1967-1971 period, this change led to
A) the long-run Phillips curve shifting rightward.
B) the short-run Phillips curve shifting upward.
C) an increase in the natural unemployment rate.
D) the short-run and the long-run Phillips curve both shifting upward.
E) the long-run Phillips curve shifting leftward.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
43
63) The short-run Phillips curve tradeof becomes less favorable if either
A) the expected inlation rate increases or the natural unemployment rate decreases.
B) the expected inlation rate or the natural unemployment rate increases.
C) potential GDP or the natural unemployment rate increases.
D) the level of real GDP decreases or the natural unemployment rate decreases.
E) potential GDP or the natural unemployment rate decreases.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
64) The long-run Phillips curve is the relationship between
A) unemployment and the price level at full employment.
B) unemployment and the inlation rate at the expected price level.
C) inlation and real GDP at full employment.
D) inlation and unemployment when the economy is at full employment.
E) inlation and the expected inlation rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
65) The long-run Phillips curve is
A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.
E) upside-down U-shaped
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
44
66) The inlation rate that is used to set the money wage rate and other money prices is the
A) natural inlation rate.
B) actual inlation rate.
C) expected inlation rate.
D) cost of living inlation rate.
E) wage inlation rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
67) When the expected inlation rate ________, the short-run Phillips curve ________.
A) falls; shifts upward
B) rises; shifts upward
C) rises; shifts downward
D) falls; does not shift
E) rises; might shift upward or downward depending on how the long-run Phillips curve
shifts
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
68) The natural rate hypothesis states that
A) only natural economic policies can bring a permanent reduction in the unemployment
rate.
B) changes in the inlation rate temporarily change the unemployment rate.
C) it is natural for the unemployment rate to exceed the inlation rate.
D) it is natural for the unemployment rate to be less than the natural unemployment rate.
E) changes in the inlation rate temporarily change the natural unemployment rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
45
69) If the natural unemployment rate decreases, then the short-run Phillips curve ________
and the long-run Phillips curve ________.
A) does not shift; shifts leftward
B) shifts leftward; shifts leftward
C) shifts rightward; shifts leftward
D) shifts rightward; shifts rightward
E) shifts leftward; does not shift
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
70) The natural unemployment rate
A) increases when job search increases.
B) never changes.
C) always increases.
D) decreases when the inlation rate rises.
E) increases when the expected inlation rate rises.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
15.3 Inluencing Inlation and Unemployment
1) The expected inlation rate is the
A) inlation rate that people forecast and use to set the money wage and other money
prices.
B) rate that people expect the Bureau of Labor Statistics to announce each month, on
which bookies take bets.
C) inter-annual, non-energy inlation rate.
D) inlation rate that the Federal Reserve system announces as the policy goal for the year.
E) same as the actual inlation rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.3
Status: Old
AACSB: Relective thinking
46
2) When people use all the relevant data and principles of economics to forecast inlation,
they are making
A) a mistake.
B) what is called a “rational expectation.”
C) an exaggerated forecast.
D) an always accurate forecast.
E) what is called a “data-based forecast.”
Skill: Level 1: Deinition
Section: Checkpoint 15.3
Status: Old
AACSB: Relective thinking
3) A major factor in determining the rational expectation of inlation is
A) forecasts of iscal policy.
B) forecasts of the Fed’s monetary policy.
C) the previous month’s unemployment rate.
D) the recent past behavior of the stock market.
E) the size of the budget deicit.
Skill: Level 1: Deinition
Section: Checkpoint 15.3
Status: Old
AACSB: Relective thinking
4) When all relevant information is used to forecast inlation, the resulting forecast is called
A) a rational expectation.
B) an expected forecast.
C) a natural expectation.
D) an expansionary expectation.
E) the expected expectation.
Skill: Level 1: Deinition
Section: Checkpoint 15.3
Status: Old
AACSB: Relective thinking
47
5) A country reports that its inlation rate and unemployment rate have both increased.
These changes could be the result of
A) a movement upward along the short-run Phillips curve.
B) a movement downward 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) a leftward shift of the long-run Phillips curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.3
Status: Old
AACSB: Relective thinking
6) During early 2001, the Fed unexpectedly increased the money supply. The efect of this
policy was a
A) movement downward along the short-run Phillips curve.
B) movement upward along the short-run Phillips curve.
C) upward shift of the short-run Phillips curve.
D) downward shift of the short-run Phillips curve.
E) rightward shift of the long-run Phillips curve.
Skill: Level 4: Applying models
Section: Checkpoint 15.3
Status: Old
AACSB: Analytical thinking
7) In the short run, an increase in inlation by the Fed not matched by an increase in the
expected inlation rate results in ________ in the long-run Phillips curve and ________ in the
short-run Phillips curve.
A) no change; no change
B) a leftward shift; an upward shift
C) no change; a downward shift
D) a rightward shift; an upward shift
E) a rightward shift; a downward shift
Skill: Level 2: Using deinitions
Section: Checkpoint 15.3
Status: Old
AACSB: Relective thinking
48
8) If the Fed raises the inlation rate and initially expected inlation does not change, in the
short run the unemployment rate ________ the natural unemployment rate, and in the long
run the unemployment rate ________ the natural unemployment rate.
A) is less than; is less than
B) is larger than; equals
C) is larger than; is larger than
D) is less than; is larger than
E) is less than; equals
Skill: Level 2: Using deinitions
Section: Checkpoint 15.3
Status: Old
AACSB: Relective thinking
9) If the Fed lowers the inlation rate and initially expected inlation does not change, in the
short run the unemployment rate ________, and in the long run the unemployment rate
________ the natural unemployment rate.
A) does not change; is equal to
B) falls; is equal to
C) rises; is equal to
D) rises; is greater than
E) does not change; is greater than
Skill: Level 4: Applying models
Section: Checkpoint 15.3
Status: Old
AACSB: Relective thinking
10) The inlation-reduction episode of the early 1980s was an example of an
A) unexpected inlation reduction iscal policy by Congress.
B) unexpected inlation reduction by the Fed.
C) expected inlation reduction by the Fed.
D) expected inlation reduction iscal policy by Congress.
E) unexpected inlation reduction by the Fed combined with an expected inlation reduction
iscal policy by Congress.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.3
Status: Old
AACSB: Relective thinking
49
11) A rational expectation of the inlation rate is
A) a forecast based on the forecasted actions of the Fed and other relevant determinant
factors.
B) an expected inlation rate between 1 percent and 5 percent.
C) a forecast based only on the historical evolution of inlation over the last 100 years.
D) an expected inlation rate between 5 percent and 10 percent.
E) always correct.
Skill: Level 1: Deinition
Section: Checkpoint 15.3
Status: Old
AACSB: Relective thinking
12) Because money growth is a major component determining the inlation rate, in order to
forecast inlation we should forecast actions by the
A) Oice of the Treasury.
B) President.
C) Congress.
D) Fed.
E) U.S. Mint.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.3
Status: Old
AACSB: Relective thinking
13) If the Fed tries to lower the unemployment rate so it is lower than the natural
unemployment rate, before the expected inlation rate changes, the inlation rate ________
and the unemployment rate ________.
A) does not change; falls
B) falls; falls
C) rises; falls
D) rises; does not change
E) falls; rises
Skill: Level 2: Using deinitions
Section: Checkpoint 15.3
Status: Old
AACSB: Analytical thinking
50