Multiple Choice Questions:
1. If output prices rise faster than money wages, the likely result will be that?
a. Real wages will fall, as will the unemployment rate.
b. Real wages will fall, and the unemployment rate will rise.
c. Real wages will rise, as will the unemployment rate.
d. Real wages will rise, and the unemployment rate will fall.
2. Society faces a?
a. Long-run trade-off between price inflation and unemployment.
b. Short-run trade-off between inflation and unemployment.
c. Short-run trade-off between the actual unemployment rate and the natural rate of unemployment.
d. Long-run trade-off between inflation and real output.
e. Both b and d are correct.
3. If policymakers expand aggregate demand, they can lower unemployment ________, but only by _________?
a. Temporarily; decreasing inflation.
b. Temporarily; increasing inflation.
c. Permanently; decreasing inflation.
d. Permanently; increasing inflation.
4. If the Phillips curve is steeper at higher rates of inflation, it suggests that?
a. Once the economy has relatively low unemployment rates, further reductions in the unemployment rate can occur only by accepting larger increases in the inflation rate.
b. Once the economy has relatively low unemployment rates, further reductions in the unemployment rate can occur only by reducing the rate of inflation.
c. Only reducing the rate of inflation can reduce the high unemployment rate.
d. When the economy is experiencing low inflation rates, the unemployment rate can be reduced only by accepting lower rates of inflation.
5. If decision makers underestimate inflation, the real wage will?
a. Rise, increasing unemployment.
b. Rise, reducing unemployment.
c. Fall, increasing unemployment.
d. Fall, reducing unemployment.
6. At the natural rate of unemployment, the long-run Phillips curve is
a. Horizontal.
b. Upward sloping.
c. Downward sloping.
d. Vertical.
7. An increase in aggregate demand will cause a larger increase in the price level when the economy?
a. Is operating at or near full employment.
b. Is operating with substantial excess capacity.
c. Is operating with high unemployment.
d. Is in a depression.
8. Which of the following is consistent with a movement along a short-run Phillips curve?
a. A decrease in the inflation rate with no change in unemployment.
b. A decrease in unemployment with no change in the inflation rate.
c. A decrease in inflation with an increase in unemployment.
d. A decrease in unemployment and a decrease in inflation.