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886 Miller Economics Today, 16th Edition
55) We observe the duration of unemployment falling and wage rates rising. It is likely that
A) the government has initiated expansionary fiscal policy but the policies haven t taken
effect yet.
B) summer has arrived.
C) aggregate demand has increased.
D) aggregate supply has increased.
56) Suppose the government abolished the minimum wage law and the law that requires union
wage rates to be paid on all government contract jobs. We would expect to see
A) a decline in the natural rate of unemployment.
B) an increase in claims for unemployment benefits.
C) the duration of unemployment to increase.
D) a recession.
57) Suppose there was an unexpected increase in aggregate demand. We would expect to observe
A) frictional unemployment to increase.
B) the duration of unemployment and the amount of unemployment to decrease.
C) higher wages, with the duration of unemployment and the amount of unemployment
unchanged.
D) a decrease in aggregate demand.
58) An unexpected increase in aggregate demand causes
A) the unemployment rate to fall, with no change in the price level.
B) the price level to rise, but the duration of unemployment will remain constant, so the
unemployment rate remains constant.
C) simultaneously the price level to rise and the unemployment rate to fall.
D) simultaneously the price level to fall and the unemployment rate to fall.
59) Refer to the above figure. Unexpected expansionary monetary policy has caused the aggregate
demand curve to shift to AD2. In the short run,
A) real GDP will be Y1
,
and the price level will be P1.
B) real GDP will be Y2
,
and the price level will be P2.
C) real GDP will be Y1
,
and the price level will be above P2.
D) real GDP will be between Y1and Y2, and the price level will be between P1and P2.
60) Refer to the above figure. Unexpected expansionary monetary policy has caused the aggregate
demand curve to shift to AD2. In the long run,
A) real GDP will be Y1
,
and the price level will be P1.
B) real GDP will be Y2
,
and the price level will be P2.
C) real GDP will be Y1
,
and the price level will be above P2.
D) real GDP will be between Y1and Y2
,
and the price level will be between P1and P2.
61) Refer to the above figure. Unexpected expansionary monetary policy has caused the aggregate
demand curve to shift to AD2. In the short run,
A) the unemployment rate will be the same rate as before the expansionary monetary policy.
B) the unemployment rate will be larger than the rate before the expansionary monetary
policy.
C) the unemployment rate will be smaller than the rate before the expansionary monetary
policy.
D) the unemployment rate can increase or decrease depending upon how much the LRAS
will shift.
62) Refer to the above figure. Unexpected expansionary monetary policy has caused the aggregate
demand curve to shift to AD2. In the long run,
A) the unemployment rate will be the same rate as before the expansionary monetary policy.
B) the unemployment rate will be larger than the rate before the expansionary monetary
policy.
C) the unemployment rate will be smaller than the rate before the expansionary monetary
policy.
D) the unemployment rate can increase or decrease depending upon how much the LRAS
will shift.
63) Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate
demand curve to shift to AD2. In the short run,
A) real GDP will be Y1
,
and the price level will be P1.
B) real GDP will be Y2
,
and the price level will be P2.
C) real GDP will be between Y1and Y2
,
and the price level will be above P1.
D) real GDP will be between Y1
,
and the price level will be below P2.
64) Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate
demand curve to shift to AD2. In the long run,
A) real GDP will be Y1
,
and the price level will be P1.
B) real GDP will be Y2
,
and the price level will be P2.
C) real GDP will be between Y1and Y2
,
and the price level will be above P1.
D) real GDP will be between Y1
,
and the price level will be below P2.
65) Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate
demand curve to shift to AD2. In the short run,
A) the unemployment rate will be the same rate as before the expansionary monetary policy.
B) the unemployment rate will be larger than the rate before the expansionary monetary
policy.
C) the unemployment rate will be smaller than the rate before the expansionary monetary
policy.
D) the unemployment rate can increase or decrease depending upon how much the LRAS
will shift.
66) Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate
demand curve to shift to AD2. In the long run,
A) the unemployment rate will be the same rate as before the expansionary monetary policy.
B) the unemployment rate will be larger than the rate before the expansionary monetary
policy.
C) the unemployment rate will be smaller than the rate before the expansionary monetary
policy.
D) the unemployment rate can increase or decrease depending upon how much the LRAS
will shift.
67) The inflation rate has been constant for several years at 4 percent, and the unemployment rate
has been stable at 6 percent over the same time period. Changes in government policy that cause
the inflation rate to rise to 6 percent will
A) have no effect on the unemployment rate.
B) cause the unemployment rate to fall in the short run.
C) cause the unemployment rate to rise to 9 percent in the short run.
D) cause the unemployment rate to rise in the short run, but we cannot tell by how much.
68) The trade off between unemployment and inflation is known as
A) the Keynesian mechanism. B) the Phillips curve.
C) an expansionary gap. D) passive policy making.
69) The Phillips curve is thought to reflect the relationship between
A) unemployment and real GDP. B) unemployment and inflation.
C) inflation and real GDP. D) the price level and inflation.
70) The nonaccelerating inflation rate of unemployment (NAIRU) is
A) another name for the natural rate of unemployment.
B) the unemployment rate associated with a steady rate of inflation.
C) the unemployment rate associated with a decreasing rate of inflation.
D) when the number of people entering the job market equals the number leaving the job
market.
71) At one time, many economists believed that
A) the government could determine what the Phillips curve should be.
B) the government could determine the slope of the Phillips curve.
C) the government could make the Phillips curve vertical.
D) the government could decide at which point on the Phillips curve the economy should be.
72) Refer to the above figure. Line ABCD is a(n)
A) aggregate demand curve. B) Phillips curve.
C) discretionary policy curve. D) natural rate of unemployment curve.
73) Refer to the above figure. Government policy that moved the economy from A to B would be
accomplished by
A) an expansionary fiscal policy combined with a contractionary monetary policy.
B) a contractionary fiscal policy combined with an expansionary monetary policy.
C) a contractionary policy that would reduce the rate of inflation and would cause workers to
remain unemployed longer than they were before.
D) raising the minimum wage.
74) Refer to the above figure. Suppose the economy is at C. If the government tried to reduce the
unemployment rate to 3 percent, the new long run outcome will be at point
A) A. B) C. C) D. D) H.
75) Refer to the above figure. Suppose the natural rate of unemployment is 5 percent. If the
government tried to reduce unemployment to 4 percent and keep it there, it must
A) raise unemployment benefits.
B) accept a permanent inflation rate of 1 percent.
C) generate higher and higher inflation rates or else people will adjust their behavior and the
unemployment rate will return to 5 percent.
D) use contractionary fiscal and expansionary monetary policy.
76) Policymakers attempts to use the Phillips curve to reduce the unemployment rate below the
natural rate
A) will be successful since the Phillips curve shows the relationship between the inflation rate
and the unemployment rate.
B) will be successful if monetary policy is used.
C) will be unsuccessful if monetary policy is used since monetary policy leads to higher
prices.
D) will be unsuccessful since workers expectations adjust to attempts to reduce
unemployment below the natural rate.
77) Refer to the above figure. The economy initially is at point A. The Fed unexpectedly increases
the money supply. Which of the following statements are true?
A) In the short run, the economy will move from point A to point C. In the long run, the
economy will move to point B.
B) In the short run, the economy will move from point A to point C. In the long run, the
economy will move back to point A.
C) In the short run, the economy will move from point A to point B. In the long run, the
economy will stay at point B.
D) In the short run, the economy will move from point A to point B. In the long run, the
economy will move back to point A.
78) If everyone in the economy correctly anticipates the inflation rate, the unemployment rate
A) will be the natural rate of unemployment.
B) will be the cyclical rate of unemployment.
C) will be inversely related to the expected inflation rate.
D) will be positively related to the expected inflation rate.
79) Unemployment that deviates from the natural rate of unemployment is referred to as
A) frictional unemployment. B) cyclical unemployment.
C) seasonal unemployment. D) structural unemployment.
80) Suppose the Fed permanently increases the money supply by a given amount. Which of the
following is (are) most likely to occur in the long run as a result of this monetary policy action?
A) an increase in employment
B) a reduction in the real interest rate
C) a decrease in unemployment
D) all of the above
E) none of the above
81) The rate of unemployment below which the rate of inflation tends to rise and above which the
rate of inflation tends to fall is called the
A) FOMC unemployment rate.
B) GDP gap unemployment rate.
C) inflation stabilizing equilibrium rate of unemployment.
D) nonaccelerating inflation rate of unemployment.
82) The nonaccelerating inflation rate of unemployment (NAIRU) is the rate of unemployment that
A) is consistent in each time period with a steady rate of inflation.
B) is identical to the natural rate of unemployment.
C) includes only structural and cyclical rates of unemployment when there is no inflation.
D) includes only frictional and cyclical rates of unemployment when there is no inflation.
83) NAIRU stands for
A) national inflation rate when unemployment is low.
B) nonaccelerating inflation rate of unemployment.
C) normal average rate of inflation when unemployment rate is zero.
D) national average inflation rate at zero unemployment rate.
84) When the economy is at its natural rate of unemployment,
A) it is still experiencing frictional and cyclical unemployment.
B) it is still experiencing structural and cyclical unemployment.
C) it is still experiencing frictional, seasonal, and structural unemployment.
D) it is still experiencing frictional, structural, and cyclical unemployment.
85) NAIRU is the rate of unemployment at which
A) the rate of inflation will be constant.
B) the price level will be constant.
C) the money supply will be constant.
D) the labor force participation rate will be constant.
86) All of the following would increase the natural rate of unemployment EXCEPT
A) union activity restricts the mobility of labor.
B) government licensing of teachers restricts employment.
C) a mismatch of skills and jobs.
D) a downturn in the economy.
87) In the above figure, what does the line U represent?
A) the Phillips curve
B) the Natural Rate of Unemployment
C) nominal inflation rate of unemployment (NAIRU)
D) full inflation rate of unemployment
88) Use the above figure. Assuming that policy actions are unanticipated, if the economy is at point
A and the policy makers want to get to point B, they could
A) increase the money supply. B) decrease taxation.
C) decrease the money supply. D) increase government spending.
89) According to A.W. Phillips, an inverse relationship has existed between
A) unemployment and interest rates.
B) the rate of growth of the money supply and the unemployment rate.
C) the inflation rate and unemployment rate.
D) the inflation rate and the money supply.
90) Which of the following curves shows the relationship
b
etween the unemployment rate and the
rate of change in the price level?
A) the new Keynesian aggregate supply curve
B) the real business cycle curve
C) the aggregate demand curve
D) none of the above
91) According to the Phillips curve,
A) there is a direct relationship between price level changes and the level of unemployment
rate.
B) the unemployment rate is not affected by changes in the price level.
C) price level changes are not affected by changes in the unemployment rate.
D) there is an inverse relationship between price level changes and the unemployment rate.
92) The Phillips curve shows the relationship between
A) the rate of growth in real GDP and the unemployment rate.
B) the inflation rate and the unemployment rate.
C) aggregate demand and the unemployment rate.
D) aggregate supply and the unemployment rate.
93) The downward slope of the Phillips curve suggests that
A) an increase in the price level will depress nominal wages.
B) an increase in the price level will increase the money supply.
C) a decrease in the money supply will stimulate aggregate demand.
D) policy makers face a trade off between inflation and unemployment.
94) Use the above figure. This graph is known as
A) the Laffer curve. B) the short run Phillips curve.
C) the NAIRU relationship. D) the Keynesian curve.
95) Use the above figure. Graph ________ correctly depicts the short run Phillips Curve.
A) A B) B C) C D) D
96) Use the above figure. The long run Phillips curve is best depicted by graph
A) A. B) B. C) C. D) D.
97) Which one of the following would likely reduce the level of structural unemployment?
A) increasing the minimum wage to encourage more people to work
B) increasing the level of union bargaining power
C) limiting unemployment insurance benefits
D) strengthening restrictions on who can be licensed to enter certain professions
98) According to economists who support passive policy making,
A) there is no difference between the effect of an anticipated change in aggregate demand and
the effect of an unanticipated change in aggregate demand of an identical amount.
B) workers always consider a change in nominal wages to be a change in real wages.
C) expansionary policies can reduce unemployment without increasing the price level.
D) policies that attempt to exploit the Phillips curve trade off will eventually become
ineffective for reducing unemployment.
99) The historical record suggests that
A) the Phillips curve is horizontal.
B) once policy makers attempted to exploit a short run Phillips curve trade off, it
disappeared.
C) shifts in long run aggregate supply do not affect real output.
D) inflation rates are lowest when unemployment rates are also low.
100) Cyclical unemployment is positive when
A) the inflation rate is positive.
B) the economy is at the peak of a business expansion.
C) the natural rate of unemployment exceeds the actual rate.
D) the actual unemployment rate exceeds the natural rate.
101) Expansionary fiscal policy can be used to reduce unemployment by
A) increasing long run aggregate supply so as to raise real GDP.
B) increasing aggregate demand so as to raise real GDP.
C) reducing nominal wages so as to encourage firms to hire more workers.
D) eliminating inefficiencies from labor markets.
102) An unexpected increase in aggregate demand
A) causes the price level to fall and the unemployment rate to rise.
B) causes the price level to fall and the unemployment rate to fall.
C) causes the price level to rise and the unemployment rate to rise.
D) causes the price level to rise and the unemployment rate to fall.
103) An unexpected decrease in aggregate demand
A) causes the price level to fall and the unemployment rate to rise.
B) causes the price level to fall and the unemployment rate to fall.
C) causes the price level to rise and the unemployment rate to rise.
D) causes the price level to rise and the unemployment rate to fall.
104) An unexpected decrease in aggregate demand
A) will decrease long run aggregate supply.
B) will decrease the average duration of unemployment.
C) will decrease the price level.
D) will decrease real GDP, but will not affect the rate and duration of unemployment.
105) Refer to the above figure. Suppose the economy is at point B and the central bank adopts
expansionary monetary policy. In the short run, this will result in
A) the economy moving towards point A.
B) the economy staying at point B.
C) the economy moving towards point C.
D) an outcome that cannot be predicted, as not enough information is given.
106) Refer to the above figure. Suppose the economy is at point B and the central bank adopts
contractionary monetary policy. In the short run, this will result in
A) the economy moving towards point A.
B) the economy staying at point B.
C) the economy moving towards point C.
D) an outcome that cannot be predicted, because not enough information is given.
107) The short run Phillips curve and the long run Phillips curve are different because
A) the expected rate of inflation is always zero in the long run, while it is a positive number in
the short run.
B) the expected rate of inflation is always zero in the short run, while it is a positive number
in the long run.
C) the actual and expected rate of inflation are equal in the short run.
D) the actual and expected rate of inflation are equal in the long run.
108) What kinds of unemployment are associated with the natural rate of unemployment?
109) What is the Phillips curve? What does the Phillips curve suggest about optimal policy?
110) Suppose the economy has been experiencing zero inflation and 5 percent unemployment for
several years. The government decides to lower the unemployment by generating some
inflation. Using a graph, show what the short run effects would be and what would happen in
the long run. What would the government have to do to keep the unemployment rate at 3
percent?
111) What is meant by the natural rate of unemployment?
