Question

1) If the Federal Reserve conducts an open market purchase, we can expect that

the short-run Phillips curve will shift left.

the short-run Phillips curve will shift right. t

here will be a movement to the right along the short-run Phillips curve.

there will be a movement to the left along the short-run Phillips curve.

the long-run Phillips curve will shift right.

2) In the long run, the Phillips Curve shows that

the natural rate of unemployment is independent of fiscal and monetary policy changes.

unemployment and inflation have a direct relationship.

an increase in unemployment leads to an increase in inflation.

there is an inverse relationship between inflation and unemployment.

unemployment increases when inflation decreases.

3) A leftward shift of short-run aggregate supply will result in

lower unemployment.

lower inflation.

higher inflation.

stagflation.

a smaller recession.

4) Which of the following statements about the consumer price index (CPI) is true?

I. It measures the weighted prices of a market basket of goods over a specified period of time.
II. It measures real gross domestic product (GDP) over time.
III. It measures the weighted wholesale price index over a specified period of time.

I only.

II only.

III only.

I and II only.

II and III only.

5) When inflation has reached a peak, economists would say that the economy has reached the

trough of the business cycle.

expansion of the business cycle.

peak of the business cycle.

contraction of the business cycle.

bottom of the business cycle.

6) A nation’s gross domestic product would increase if

a CEO purchased 1,000 shares of stock in a Fortune 500 company.

a heavy equipment company sold a new ditch digger from last year’s inventory at inventory value to a new customer.

the son of a business owner fixes a broken window for her.

an American company imported duty free goods from Mexico under the NAFTA agreement.

a computer company added computers to its inventory that weren’t sold by the end of the year.

7) Assume a nation’s economy is operating in equilibrium. If exports increase and imports decrease, how will output, employment, and price level likely change?

Output / Employment / Price Level

Increase / Increase / Increase

Increase / Increase / Decrease

Increase / Decrease / Increase

Decrease / Decrease / Increase

Decrease / Decrease / Decrease

8) Which of the following best explains why the aggregate demand curve is down sloping?

Purchasing power increases as wealth decreases.

Low interest rates make American goods appear cheaper which increases net exports and the quantity of real output purchased.

Rising interest rates cause investment to increase.

As price levels increase, consumer spending increases.

As price levels decrease, demand for imports increases.

9) Which of the following will cause the production possibilities frontier to shift outward?

An increase in aggregate demand.

An increase in transfer payments.

A decrease in long-run aggregate supply.

An increase in worker productivity.

An increase in government spending.

Answer 1

1. There will be a movement to the left along the short run Phillips curve.

When the federal reserve is purchasing back this will increase the supply of money in the market. This increasing supply will cause and inflation. This increase in inflation will cause and left movement along the Phillips curve.

2. Unemployment and inflation have a direct relationship.

The long run Phillips curve vertical line which physically denotes the natural rate of unemployment along various inflation rates.

3. Stagflation

Stagflation is a phenomena when the inflation rate is increasing along with the decrease in the real GDP.

4. I only

The CPI what the consumer price index measures the weighted average of goods purchased by consumers at the retail rate rather than the wholesale rate.

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