Chap006 - Chapter 06 Aggregate Supply Chapter 06 Aggregate...

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Chapter 06 - Aggregate Supply Chapter 06 Aggregate Supply Multiple Choice Questions 1. The theory of aggregate supply is one of the most controversial in macroeconomics because a. Modern models, while similar in their starting points, reach widely different results in explaining the AS-curve b. Economists cannot agree whether the Keynesian or the classical AS-curve is a better reflection of reality c. Economists cannot agree whether wages are completely flexible or rigid in the long run d. Economists cannot agree whether wages are completely flexible or rigid in the very short run E . Economists do not completely agree on the reasons for the slow adjustment of wages and prices after demand-side disturbances Difficulty: Medium 2. Friedman and Phelps argued that the Phillips curve is not stable over time because a. Any kind of stabilization policy immediately affects nominal wages b. Any shift in aggregate demand will immediately also shift the Phillips curve C . Workers' expectations about price changes are only wrong temporarily d. Firms change wage rates for workers as soon as product prices change, so profits will not suffer e. Firms always immediately change their product prices in response to a change in money supply Difficulty: Medium 6-1
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Chapter 06 - Aggregate Supply 3. For many government decision makers, the original Phillips curve implied A . A trade-off between lowering unemployment at the cost of higher inflation or lowering inflation at the cost of higher unemployment b. That active stabilization policy will always work if applied correctly c. That severe recessions were a thing of the past, as unemployment could easily adjust to its natural rate d. That the natural rate of unemployment can be lowered by expansionary monetary policy e. All of the above Difficulty: Easy 4. If we look at the annual U.S. unemployment rates over the last three decades, we see a. Peaks in 1982, 1992, and 2002, with each peak higher than the last b. Only very small variations around the natural rate of 5.2% c. Large variations, but after each peak the rate returned to about 4.5% D . That the unemployment rate exceeded 10% in 1982 e. That the unemployment rate never exceeded 8% Difficulty: Easy 5. The Phillips curve shows a relationship between a. The level of output and prices b. The level of output and unemployment c. The level of prices and employment D . The rate of change in prices and the rate of unemployment e. The level of prices and wage rate changes Difficulty: Easy 6-2
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Chapter 06 - Aggregate Supply 6. According to the Phillips curve relationship, if unemployment is at the natural rate, then a. The rate of inflation is zero b. Nominal wages will always be equal to real wages c. The labor supply will be totally price elastic d. Prices will always immediately adjust to changes in money supply E . None of the above Difficulty: Easy 6-3
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Chapter 06 - Aggregate Supply 7. The newer view of the Phillips curve implies that a. The natural rate of unemployment can be reduced by expansionary monetary policy
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This note was uploaded on 12/05/2011 for the course ECON 201 taught by Professor Dr.matin during the Spring '09 term at Charleston.

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Chap006 - Chapter 06 Aggregate Supply Chapter 06 Aggregate...

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