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Exploring Macroeconomics 5th Edition Robert L. Sexton - Solutions
31. Rational expectations theory implies that accurately anticipating aggregate demanda. will increase RGDP in the short run.b. will affect RGDP and inflation only in the long run.c. may affect RGDP but not nominal GDP in the short run.d. will do none of the above.
30. Employment will be affected by inflation only ifa. the inflation rate gets above a certain level.b. the inflation is expected.c. the inflation rate is different from what was expected.d. unemployment is above the natural rate.
29. If expectations are rational, is it possible to reduce inflation without causing increased unemployment?a. Yes, simply by using monetary policy to reduce aggregate demand instead of fiscal policy.b. No, no economic theory assumes that this is possible under any conditions.c. Yes, simply by
28. If expectations are rational, can fiscal and monetary policy control real output?a. Yes, provided policies are announced in advance.b. Yes, both policies are effective in altering real output in the desired way.c. No, because policymakers can’t accurately predict how people’s expectations
27. The theory of rational expectations says thata. workers make excellent choices of places to work.b. economists expect workers to always correctly forecast the inflation rate.c. economists, but not workers, are expected to always correctly forecast the inflation rate.d. workers and consumers
26. According to the rational expectations view, the government can change real outputa. with appropriate, well-publicized fiscal and monetary policies.b. with appropriate, well-publicized fiscal and monetary policies in the short run, but not in the long run.c. only by making unexpected changes in
25. If expectations are rational,a. a predictable change in inflation can make the expected inflation rate deviate from the actual inflation rate.b. unemployment can exceed the full-employment rate even in the long run.c. the inflation rate cannot be reduced without a sustained period of high
24. If increased inflation exceeds forecast inflation in the short run but not in the long run, what are the shapes of the aggregate supply curves?a. AS is vertical in the short run and long run.b. AS is vertical in the short run, and upward sloping in the long run.c. AS is upward sloping in the
23. According to rational expectations, if workers and firms forecast inflation accurately,a. the real wage will not decline as the price level rises.b. workers will not lose from inflation, and firms will not gain.c. the aggregate supply curve will be vertical.d. all of the above are correct.
22. In the long run, an increase in the actual annual rate of inflation from 8 percent to 10 percent willa. not affect the natural rate of unemployment.b. not affect the actual rate of unemployment.c. increase the natural rate of unemployment.d. increase the actual rate of unemployment.e. not
21. Whenever the actual rate of inflation is less than the expected rate of inflation,a. the unemployment rate will fall.b. the unemployment rate will exceed the natural rate of unemployment.c. the unemployment rate will rise.d. the unemployment rate will be below the natural rate of
20. A decrease in inflation expectations causes producers to push for _____ input prices, which results in a(n) _____ shift in the short-run Phillips curve.a. lower; rightwardb. lower; leftwardc. higher; rightwardd. higher; leftward
19. An increase in the expected level of inflation will cause short-run aggregate supply to _____ and the short-run Phillips curve to ______.a. shift left; shift rightb. shift left; shift leftc. shift right; shift rightd. shift right; shift lefte. none of the above
18. If the actual unemployment rate exceeds the natural rate of unemployment, there will be a tendency towarda. increased inflation and a leftward shift of the short-run Phillips curve.b. decreased inflation and a rightward shift of the short-run Phillips curve.c. increased inflation and a
17. As the economy moves up and to the right along a short-run aggregate supply curve, ita. moves up and to the right along the short-run Phillips curve.b. moves up and to the left along the short-run Phillips curve.c. moves down and to the right along the short-run Phillips curve.d. moves down and
16. A current short-run Phillips curve can remain stable over timea. only if there is no inflation.b. if inflation remains steady at its current rate.c. if inflation is accelerating.d. if inflation is decelerating.
15. If people expect a higher inflation rate, thea. short-run Phillips curve will shift to the right.b. long-run Phillips curve will shift to the right.c. short-run and long-run Phillips curves will both shift to the right.d. short-run Phillips curve will shift to the left.
14. The short-run Phillips curve could shift to the right as a result of either ____________ or ____________.a. rising oil prices; increasing inflation expectationsb. rising wages; falling pricesc. declining oil prices; falling inflation expectationsd. falling wages; rising pricese. none of the
13. Which of the following is true?a. Inflation and unemployment rates can both increase in the short run in response to adverse supply shocks.b. Inflation and unemployment rates can both decrease in the short run in response to reduced aggregate demand.c. Inflation and unemployment rates can both
12. If the inflation rate is increasing while unemployment is increasing,a. the short-run Phillips curve must have shifted right.b. the short-run Phillips curve must have shifted left.c. it involved a movement along the short-run Phillips curve.d. it would be inconsistent with any possible Phillips
11. Which of the following would shift the Phillips curve to the left?a. an adverse supply shockb. an increase in inflationary expectationsc. a favorable supply shockd. all of the above
10. The short-run Phillips curve trade-off impliesa. that if the curve shifts over time, society must accept decreases in unemployment for decreases in inflation.b. that if the curve is stable, society must accept increases in inflation for increases in unemployment.c. that if the curve shifts over
9. Most economists today believe that the Phillips curve isa. downward sloping in the short run but vertical in the long run.b. vertical in the short run but downward sloping in the long run.c. upward sloping in the short run but vertical in the long run.d. vertical in the short run but upward
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 unemploymentb. a decrease in unemployment with no change in the inflation ratec. a decrease in inflation with an increase in unemploymentd. a decrease in
7. An increase in aggregate demand will cause a larger increase in the price level when the economya. 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.
6. At the natural rate of unemployment, the long-run Phillips curve isa. horizontal.b. upward sloping.c. downward sloping.d. vertical.
5. If decision makers underestimate inflation, the real wage willa. rise, increasing unemployment.b. rise, reducing unemployment.c. fall, increasing unemployment.d. fall, reducing unemployment.
4. If the Phillips curve is steeper at higher rates of inflation, it suggests thata. 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
3. If policymakers expand aggregate demand, they can lower unemployment ________, but only by _________.a. temporarily; decreasing inflationb. temporarily; increasing inflationc. permanently; decreasing inflationd. permanently; increasing inflation
2. Society faces aa. 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
1. If output prices rise faster than money wages, the likely result will be thata. 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
30. True or False. As a practical matter, indexing can only be used with wage contracts.
29. True or False. Some economists oppose widespread indexing on the grounds that it could worsen inflation.
28. True or False. An example of indexing is an escalator clause, linking wage rates to a cost-of-living measure.
27. True or False. Monetary policy rules have the advantage of giving the Fed discretion to deal with sudden shocks and crises.
26. True or False. One of the advantages of monetary policy rules is to increase the Federal Reserve System’s credibility in its fight against inflation.
25. True or False. If monetary authorities respond to political pressures during a recession, the result could be a decrease in interest rates and a decrease in unemployment in the short run, but higher inflation in the long run.
24. True or False. For many economists, monetary policy’s shorter outside lag is an advantage in using monetary policy for stabilization efforts.
23. True or False. Real business cycle theorists agree with rational expectations economists that wages and prices are flexible and that markets adjust quickly to economic shocks.
22. True or False. Most economists think that unemployment will remain close to the natural rate of unemployment in the short run.
21. True or False. Activist economists believe that discretionary macroeconomic policy can make the economy less unstable.
20. True or False. In real business cycle theory, shocks change the long-run aggregate supply curve rather than leading real output to deviate from the long-run aggregate supply curve.
19. True or False. The occurrence of productivity shocks tends to change the marginal productivity of labor, real wages, average hours worked, and the level of investment all in the same direction.
18. True or False. Unexpected productivity improvements would tend to increase both real wages and average hours worked.
17. True or False. According to real business cycle theorists, rapid productivity growth causes economic expansions and productivity slowdowns cause recessions.
16. True or False. Real business cycle theorists believe the business cycle is primarily caused by aggregate demand shocks.
15. True or False. Rational expectations theory suggests that government economic policies have limited effectiveness. As a result, monetary and fiscal policy will affect output and employment only if people are fooled by policy moves.
14. True or False. Rational expectations economists believe that wages and prices are relatively rigid.
13. True or False. Rational expectations models assert that in an effort to protect themselves from a higher anticipated inflation rate, workers ask for higher wages, suppliers increase input prices, and producers raise their product prices.
12. True or False. If people’s expectations instantly and accurately reflected the likely result of government policy changes, the SRAS and LRAS curves would be the same.
11. True or False. Rational expectations economists tend to believe that people anticipate the results of government policy moves.
10. True or False. If the government tried to maintain unemployment below its natural rate for a sustained period of time, it would accelerate inflation.
9. True or False. The natural rate of unemployment is the level that will occur after the economy completely self-corrects from a change in aggregate demand.
8. True or False. The Phillips curve shows the relationship between the rate of inflation and the rate of growth in real GDP.
7. True or False. If aggregate demand stimulus occurs in a fully employed economy, the result will mostly be higher prices in the economy, even in the short run, if the Phillips curve is steep over the relevant range.
6. True or False. A single short-run Phillips curve can accurately describe the behavior of the economy since 1969.
5. True or False. The Phillips curve concept was developed by looking at the relationship between inflation and wage rates.
4. True or False. Along any particular Phillips curve, the slope and therefore the trade-off between unemployment and inflation is constant.
3. True or False. According to the short-run Phillips curve, the cost of lower unemployment appears to be greater inflation, and the cost of lower inflation appears to be higher unemployment.
2. True or False. If output prices rise faster than money wages, real wages will fall, as will the unemployment rate.
1. True or False. The inverse relationship between the rate of unemployment and the rate of inflation is called the Phillips curve.
63. Another problem with indexing is that it reduces the ability for __________ changes to efficiently allocate resources.
62. If __________ becomes rapid, it could be almost impossible to administer an indexing scheme.
61. One main argument against indexing is that it can __________ inflation, by making one price increase lead to others.
60. __________ is a way of protecting parties against unanticipated changes in inflation by using contracts that automatically adjust to changes in purchasing power.
59. Under a Taylor rule, for each one percentage point deviation from potential GDP or from the target inflation rate, the federal funds rate should change by __________ point.
47. With __________ expectations, but not __________ expectations, inflation could potentially be lowered by macroeconomic policy without causing a recession.
46. The rational expectations school, the form that assumes instant adjustment, believes that government __________ impact real output in the short run.
45. Most economists accept the notion that unemployment will be close to the natural rate of unemployment in the __________ run.
44. Activist macroeconomists believe that in the short run, discretionary macroeconomic policy can __________ economic fluctuations.
43. If aggregate demand is insufficient, policymakers can stimulate aggregate demand by __________ government spending, __________ taxes, or __________ the growth rate of the money supply.
42. In real business cycle analysis, the key is that the longrun aggregate supply curve __________, rather than short-run __________ deviating from the long-run aggregate supply curve.
41. In real business cycle analysis, several quarters of below-average productivity would cause real output, investment, and average hours worked to __________, and the economy would tend toward __________.
40. A productivity boom would tend to __________ the marginal productivity of labor, __________ real wages, __________ average hours worked, __________ investment, leading to an economic __________.
39. In real business cycle analysis, negative shocks cause __________ and positive shocks cause __________.
38. Real business cycle theorists believe that __________ shocks due to __________ changes are the cause of business cycles.
37. If input prices adjust __________, the rational expectations view that changes in government policy would have no effect on real output in the short run would be incorrect.
36. If people expect a larger increase in aggregate demand than the actual increase in aggregate demand that occurs, the price level would __________ and real output would __________ in the short run.
35. In the short run, an increase in aggregate demand will __________ the price level, whether it is anticipated or not, but it will increase real output only if it is __________.
34. Whether a macroeconomic policy change is anticipated or unanticipated it will not change real output or unemployment in the __________ run.
33. When expansionary macroeconomic policy is unanticipated, the short-run aggregate supply curve __________ in the short run, but when it is correctly anticipated, the short-run aggregate supply curve __________.
31. If changes in the inflation rate are quickly reflected in expectations, unemployment or real output from macroeconomic policy would experience __________ effect.
30. According to rational expectations, when policy targets become public, people will alter their behavior to largely __________ the intended effects.
29. Rational expectations economists think the economy tends to be inherently __________ and that government policy has the desired effects only when consumers and workers are caught __________.
28. Rational expectations economists believe that wages and prices are __________ and workers __________ incorporate the likely consequences of government policy changes into their expectations.
27. The theory of rational expectations leads to a(n)__________ conclusion about macroeconomic policy’s ability to achieve our economic goals.
26. If people could __________ to policy changes, it might not be possible to increase real output or employment through policy actions.
25. An increase in oil prices is considered a(n) __________ supply shock.
24. If people expect supply shocks to be permanent, the result would be inflation and unemployment both __________ for adverse supply shocks and both __________ for favorable supply shocks.
23. A favorable supply shock can result in both unemployment and inflation __________ at the same time.
22. An adverse supply shock __________ cause inflation to increase and unemployment to increase at the same time.
21. Higher production costs due to adverse supply shocks shift the short-run Phillips curve __________.
20. When people adapt their inflationary expectations after actual inflation changes, it is called __________ expectations.
19. If inflation is steady, actual inflation __________ expected inflation.
18. A decrease in inflation will __________ real wages at first, __________ real output and __________ unemployment.
17. In the long run, when inflation increases, there is __________ in unemployment.
16. When actual inflation equals expected inflation, real output equals its __________ level and unemployment equals the __________.
15. In the long run, when expected inflation rises, workers adjust to the higher rate of inflation by shifting the short-run Phillips curve __________.
14. An unanticipated increase in inflation will __________ real wages, resulting in a __________ unemployment rate.
13. An increase in the growth rate of the money supply __________ aggregate demand, __________ output, __________ inflation, and __________ unemployment.
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