STDQs_Chapt16

STDQs_Chapt16 - Chapter 16-The Trade-off between Inflation...

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Chapter 16—The Trade-off between Inflation and Unemployment MULTIPLE CHOICE Figure 16-1 1. Which of the following is true about the economy depicted in Figure 16-1? a. It is experiencing supply-side inflation. b. Policy makers have chosen to fight inflation rather than unemployment. c. The increase in aggregate demand has increased prices but not real GDP. d. The slope of the aggregate supply curve embodies the trade-off between unemployment and inflation. ANS: D DIF: Moderate TOP: Demand-Side Inflation Versus Supply-Side Inflation: A Review 2. Which of the following is true about the economy depicted in Figure 16-1? a. Tax incentives are being used to stimulate aggregate supply. b. Policy makers believe the costs of unemployment are higher than the costs of inflation. c. Contractionary monetary policy is being enacted to fight inflation. d. Prices are rising but real GDP is falling. ANS: B DIF: Moderate TOP: Demand-Side Inflation Versus Supply-Side Inflation: A Review 3. What is the crucial difference between inflation generated on the demand side versus inflation generated on the supply side? a. Demand-side inflation is short-lived, while supply-side inflation lasts for a long time. b. Demand-side inflation leads to budget surpluses, while supply-side inflation contributes to budget deficits. c. Supply-side inflation is subject to control of policy makers, while demand-side inflation is beyond their reach. d. Demand-side inflation is normally accompanied by rising real GDP, while supply-side inflation may be accompanied by falling real GDP.
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ANS: D DIF: Difficult TOP: Demand-Side Inflation Versus Supply-Side Inflation: A Review 4. The economy's self-correcting mechanism a. tends to push unemployment toward a specific point called the natural rate of unemployment. b. works better at correcting inflationary gaps than recessionary gaps. c. cannot work if the Phillips curve is vertical. d. ensures that the economy will not have to endure a long period of high unemployment. ANS: A DIF: Easy TOP: Demand-Side Inflation Versus Supply-Side Inflation: A Review 5. The economy's self-correcting mechanism to eliminate a recessionary gap relies on a. falling interest rates that shift the aggregate demand curve outward. b. falling wage rates that shift the aggregate supply curve outward. c. rising wage rates that shift the aggregate supply curve inward. d.
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This note was uploaded on 05/29/2008 for the course ECON 201 taught by Professor Joyce during the Spring '07 term at Drexel.

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STDQs_Chapt16 - Chapter 16-The Trade-off between Inflation...

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