Question 1. Inflation lowers the standard of living of the poor people because in inflation___________
a. There is a redistribution of assets from the financial sector to the real sector.
b. There is high population growth causing the per capita GDP to decrease.
c. The inflation rate is higher than the rate of wage increase
d. There is an increase in the cost of production as expected profit rate declines
Question 2. According to the modern Phillips curve relationship, one percent decrease in the wage rate is equivalent to----
a. One percent increase in the marginal product
b. One percent decrease in the price level so that the percentage change in price level is same as percentage change in money wage rate
c. One percent increase in the price level
d. One percent decrease in the unemployment rate so that the Phillips Curve is a 45 degree angle line
Question 3. An implication of the Phillips curve relationship is that-----
a. The government policies can decrease inflation and unemployment simultaneously
b. Increases in wage rates are offset by decreases in inflation rate
c. If the government chooses to decrease inflation, unemployment will increase and vice versa.
d. The expansionary government policies will lead to high Inflation and high unemployment simultaneously.
Question 4. Under neo-classical (or monetarists’) economists’ arguments the shape of the Phillips curve is a vertical line because:
a. There is flexibility in the aggregate supply
b. No amount of inflation can lower unemployment therefore economy is always at a constant rate of unemployment.
c. There is no wage or price flexibility
d. There is flexibility in prices but not in wages, so that unemployment can go down but will not increase.
Question 5. According to the Accelerationist Hypothesis, the long-run Phillips curve is:
a. A vertical line because future inflation expectations do not allow for curing unemployment with increased inflation
b. A horizontal line because there is flexibility in the aggregate supply
c. A vertical line because of classical assumptions such as wage rigidity
d. A horizontal line because future inflation expectations do not allow for curing unemployment with increased inflation.
Question 6. If policy makers want to decrease inflation at the cost of higher unemployment, then the policy action choice is to adopt-------
a. Contractionary monetary policy and contractionary fiscal policy
b. Expansionary monetary policy and expansionary fiscal policy
c. Expansionary fiscal policy, and contractionary monetary policy
d. Contractionary fiscal policy and expansionary monetary policy
Question 7. Monetarists and Accelerationists agree that:
a. Unemployment that cannot be cured by higher inflation is the artificial rate of unemployment.
b. Unemployment can be cured by expansionary monetary and fiscal policy on a long-run basis
c. Government should abstain from trying to solve unemployment through changes in fiscal and/or monetary policy.
d. The shape of the Phillips curve is a downward sloping curve from left to right.
Question 8. The expectation augmented Phillips curve differs from the original Phillips curve in that:
a. Expectation augmented curve takes into account future inflation expectations. This implies that increased inflation cannot lower unemployment in the long run
b. Expectation augmented curve takes into account future inflation expectations. This implies that increased inflation cannot lower unemployment in the short run
c. Original Phillips curve takes into account future inflation expectations. This implies that the curve becomes a vertical line at a certain point
d. The expectation augmented curve takes into account future inflation expectations. This implies the curve becomes a horizontal line at a certain point
Question 9. Consider the long-run Phillips curve according to the Accelerationist Hypothesis. The vertical portion represents----
a. Stagflation but declining prices
b. Inflation but declining unemployment
c. Natural rate of unemployment, but it is with declining inflation rate
d. Unemployment rate that is unaffected by changes in government policy
Question 10. When a government uses price controls to fight inflation, which of the following is true?
a. Government needs to have quantity controls
b. Government needs to establish quality controls
c. Government needs to establish effective enforcement mechanisms
d. All of the above