Question 1

As the proportion of labour contracts that index wages to prices declines, we would expect that:

Accepted Answer

A)   nominal wages will become more sensitive to changes in unemployment.
B)   an increase in the unemployment rate will now have a smaller effect on inflation.
C)   the natural rate of unemployment will decrease.
D)   the natural rate of unemployment will increase.
E)   an increase in the unemployment rate will now have a larger effect on inflation.F) C) and E)
G) A) and B)

Question 2

Assume that the Phillips curve equation is represented by nt - nt- 1 = (m + z)  - aut. An increase in the unemployment rate will cause:

Accepted Answer

A)   an increase in the markup over labour costs.
B)   an increase in the inflation rate over time.
C)   a decrease in the markup over labour costs.
D)   a decrease in the inflation rate over time.
E)   an increase in expected inflation.F) C) and D)
G) A) and C)

Question 3

Which of the following will cause an increase in the natural rate of unemployment?

Accepted Answer

A)   A decrease in a.
B)   A decrease in the expected inflation rate.
C)   A decrease in z.
D)   A decrease in m.
E)   An increase in actual unemployment.F) A) and C)
G) D) and E)

Question 4

The data suggest that in the European Union countries, the natural rate of unemployment:

Accepted Answer

A)   is no longer a relevant concept.
B)   has become less "natural", since it is now almost entirely determined by the policies of a few large corporations.
C)   has steadily declined over the past three decades.
D)   is now higher than its Australian counterpart.
E)   will soon exceed the percentage of the labour force that is working.F) A) and D)
G) C) and D)

Question 5

When a worker's nominal wage is indexed, the nominal wage is usually automatically adjusted based on movements in which of the following variables?

Accepted Answer

A)   The average wage in the country.
B)   The average wage in the industry.
C)   The price of the firm's product.
D)   The price level.
E)   Productivity.F) A) and B)
G) B) and C)

Question 6

Assume that the Phillips curve equation is represented by nt - nt- 1 = (m + z)  - aut. Given this information, the natural rate of unemployment will be equal to:

Accepted Answer

A)   (m + z) /a.
B)   m + z.
C)   (m + z)  - a.
D)   (m - z) /a.
E)   a(m + z) .F) B) and E)
G) C) and D)

Question 7

For 1970- 2011, the evidence for Australia suggests that the average rate of unemployment required to keep inflation constant has been:

Accepted Answer

A)   between 6% and 7%.
B)   between 3% and 4%.
C)   between 2% and 3%.
D)   between 4% and 5%.
E)   between 5% and 6%.F) A) and B)
G) D) and E)

Question 8

Explain how a decrease in the proportion of contracts that are indexed affects the relationship between changes in the unemployment rate and inflation.

Accepted Answer

As the proportion of labour contracts th...

Question 9

A permanent increase in nominal money growth will, in the medium run, cause which of the following?

Accepted Answer

A)   An increase in the actual growth rate of output.
B)   An increase in the natural level of output.
C)   An increase in the growth rate of output.
D)   An increase in the inflation rate.
E)   An increase in the natural rate of unemployment.F) C) and E)
G) A) and B)

Question 10

Assume that individuals form expectations of inflation according to : n e = 8nt- 1. From 1970 on,the value of 8 for this equation:

Accepted Answer

A)   decreased over time and approached zero.
B)   became negative.
C)   increased over time and approached 1.
D)   remained constant at zero.
E)   remained constant at negative one.F) None of the above
G) B) and C)

Question 11

Economists sometimes refer to the neutrality of changes in nominal money growth. This neutrality implies that changes in nominal money growth have no medium- run effect on which of the following?

Accepted Answer

A)   The inflation rate.
B)   Output growth.
C)   The price level.
D)   Nominal money.
E)   Nominal wages.F) A) and B)
G) C) and D)

Question 12

The original Phillips curve implied or assumed that:

Accepted Answer

A)   the actual and expected rates of inflation would always be unequal.
B)   a lower rate of unemployment causes a decreasing rate of inflation.
C)   the expected inflation rate is equal to last year's inflation rate.
D)   the markup over labour costs was zero.
E)   the expected rate of inflation would be zero.F) B) and C)
G) B) and E)

Question 13

Which of the following has exhibited the most stable relationship over the past four decades in Australia?

Accepted Answer

A)   The unemployment rate and the change in the rate of inflation.
B)   The change in the unemployment rate and the change in the rate of inflation.
C)   The rate of inflation and the change in the unemployment rate.
D)   The inverse of the unemployment rate and the rate of inflation.
E)   The unemployment rate and the rate of inflation.F) C) and E)
G) A) and B)

Question 14

In the medium run, an increase in the target rate of inflation will cause:

Accepted Answer

A)   an increase in the rate of inflation.
B)   a decrease in the size of the sacrifice ratio.
C)   an increase in nominal money growth.
D)   an increase in the size of the sacrifice ratio.
E)   both A and C.F) A) and C)
G) A) and B)

Question 15

If the Phillips curve equation is ut - ut- 1 = - (ut - un) , which of the following will increase the inflation rate by 8 percentage points?

Accepted Answer

A)   A 1 percentage point decrease in unemployment for 8 years.
B)   A 8 percentage point decrease in unemployment for 1 year.
C)   A 2 percentage point decrease in unemployment for 4 years.
D)   A 4 percentage point decrease in unemployment for 2 years.
E)   All of the above.F) C) and D)
G) B) and E)

Question 16

Which of the following explains why the original Phillips curve relation disappeared or, as some economists have remarked, "broke down" in the 1970s?

Accepted Answer

A)   Monetary policy became contractionary.
B)   More labour contracts became indexed to changes in inflation.
C)   Individuals assumed that expected inflation would be zero.
D)   Individuals changed the way they formed expectations of inflation.
E)   Individuals assumed the expected price level for the current year would be equal to the actual price level from the previous year.F) A) and E)
G) C) and D)

Question 17

As of 2012, when was the last year that Australia experienced deflation?

Accepted Answer

A)   2003.
B)   1973.
C)   1933.
D)   1993.
E)   1955.F) None of the above
G) C) and D)

Question 18

Which of the following would be most likely to cause a change in the natural rate of unemployment?

Accepted Answer

A)   A change in the price of oil.
B)   A change in monetary policy.
C)   A change in the rate of inflation.
D)   A change in the composition of jobs.
E)   A change in fiscal policy.F) A) and B)
G) C) and D)

Question 19

Data for which country were first used to illustrate the relationship between unemployment and inflation (i.e., the original Phillips curve) ?

Accepted Answer

A)   Canada.
B)   United States.
C)   France.
D)   United Kingdom.
E)   Australia.F) A) and B)
G) A) and C)

Question 20

Assume that expected inflation is based on u e = 8nt- 1. An increase in 8 will cause:

Accepted Answer

A)   an increase in the natural rate of unemployment.
B)   inflation in period t to be more responsive to changes in unemployment in period t.
C)   a decrease in the natural rate of unemployment.
D)   inflation in period t to be less responsive to changes in unemployment in period t.
E)   no change in the natural rate of unemployment.F) B) and C)
G) A) and B)

Exam 8: The Phillips Curve, the Natural Rate of Unemployment and Inflation

As the proportion of labour contracts that index wages to prices declines, we would expect that:

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For 1970- 2011, the evidence for Australia suggests that the average rate of unemployment required to keep inflation constant has been:

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Explain how a decrease in the proportion of contracts that are indexed affects the relationship between changes in the unemployment rate and inflation.

Correct AnswerverifiedAs the proportion of labour contracts th...View AnswerShow Answer

As of 2012, when was the last year that Australia experienced deflation?

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The original Phillips curve implied or assumed that:

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The data suggest that in the European Union countries, the natural rate of unemployment:

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Assume that the Phillips curve equation is represented by nt - nt- 1 = (m + z) - aut. An increase in the unemployment rate will cause:

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Which of the following explains why the original Phillips curve relation disappeared or, as some economists have remarked, "broke down" in the 1970s?

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Which of the following has exhibited the most stable relationship over the past four decades in Australia?

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Assume that individuals form expectations of inflation according to : n e = 8nt- 1. From 1970 on,the value of 8 for this equation:

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If the Phillips curve equation is ut - ut- 1 = - (ut - un) , which of the following will increase the inflation rate by 8 percentage points?

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In the medium run, an increase in the target rate of inflation will cause:

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Economists sometimes refer to the neutrality of changes in nominal money growth. This neutrality implies that changes in nominal money growth have no medium- run effect on which of the following?

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Data for which country were first used to illustrate the relationship between unemployment and inflation (i.e., the original Phillips curve) ?

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When a worker's nominal wage is indexed, the nominal wage is usually automatically adjusted based on movements in which of the following variables?

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Assume that expected inflation is based on u e = 8nt- 1. An increase in 8 will cause:

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A permanent increase in nominal money growth will, in the medium run, cause which of the following?

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Which of the following would be most likely to cause a change in the natural rate of unemployment?

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Which of the following will cause an increase in the natural rate of unemployment?

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Assume that the Phillips curve equation is represented by nt - nt- 1 = (m + z) - aut. Given this information, the natural rate of unemployment will be equal to:

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