Download Mankiw 5e Chapter 13

Mankiw 5e Chapter 13
Consider the following aggregate supply equation:
Y = Y + a*(P - P )
Based on this equation, the slope of the AS curve is
A. a.
B. Y.
C. -a.
D. 1/a.
0 out of 1
Incorrect. The correct answer is D. Since P is on the vertical axis and
Y is on the horizontal axis in an aggregate supply diagram, the above
equation should be solved for P and the coefficient on Y will be the
slope. See Section 13-1.
The positive relationship between the price level and the amount of output means
that the aggregate supply curve is
A. horizontal.
B. upward sloping.
C. vertical.
D. downward sloping.
1 out of 1
Correct. The answer is B. See Section 13-1.
When the nominal wage is stuck, a higher price level will cause the real wage to
A. fall.
B. stay the same.
C. rise.
D. rise and then fall.
1 out of 1
Correct. The answer is A. The real wage is defined as the nominal
wage divided by the price level, so if the price level increases, the real
wage will fall. See Section 13-1.
In the sticky-wage model, output deviates from the natural rate through
A. unexpected changes in the nominal wage.
B. expected changes in the price level.
C. unexpected changes in the price level.
D. expected changes in the real wage.
0 out of 1
Incorrect. The correct answer is C. This model implies an aggregate
supply curve for which the difference between prices and expected
prices is proportionate to the difference between the actual level of
output and its natural rate. See Section 13-1.
In the sticky-wage model, employment is assumed to be determined by the
A. equilibrium between supply and demand for labor.
B. supply of labor.
C. demand for labor.
D. level of the nominal wage.
0 out of 1
Incorrect. The correct answer is C. See Section 13-1.
The sticky wage model predicts that
A. employment falls as the real wage falls.
B. employment rises as the real wage falls.
C. employment does not change when the real wage falls.
D. wages remain stable.
0 out of 1
Incorrect. The correct answer is B. See section 13-1.
According to the data
A. the real wage is somewhat countercyclical.
B. the real wage is somewhat procyclical.
C. the real wage is neither procyclical or countercyclical.
D. the real wage is both procyclical or countercyclical.
0 out of 1
Incorrect. The correct answer is B. See Figure 13-2.
In the imperfect-information model, it is assumed that firms
A. can observe both the price of their output and the overall price level.
B. can observe the price of their output but cannot observe the overall price
level.
C. cannot observe the price of their output but can observe the overall price
level.
D. cannot observe either the price of their own output or the overall price level.
1 out of 1
Correct. The answer is B. See Section 13-1.
In the sticky-price model, if the fraction of firms in the economy that set prices in
advance rises, then it would be expected that the aggregate supply curve
A. shifts upward.
B. shifts downward.
C. becomes steeper.
D. becomes flatter.
0 out of 1
Incorrect. The correct answer is D. See Section 13-1.
All three models of aggregate supply presented in Chapter 13 share the feature that,
if the price level is above the expected price level, then
A. nominal wages will fall.
B. nominal wages will rise.
C. output will be below its natural rate.
D. output will be above its natural rate.
1 out of 1
Correct. The answer is D. The models imply an aggregate supply
curve for which the difference between prices and expected prices is
proportionate to the difference between the actual level of output and
its natural rate. See Section 13-1.
The Phillips curve represents the trade-off between
A. inflation and expected inflation.
B. output and unemployment.
C. inflation and unemployment.
D. output and interest rates.
1 out of 1
Correct. The answer is C. See Section 13-2.
The modern Phillips curve posits that the inflation rate depends on three forces. On
which of the following does it NOT depend?
A. The money supply
B. Expected inflation
C. Cyclical unemployment
D. Supply shocks
0 out of 1
Incorrect. The correct answer is A. See Section 13-2.
If expected inflation rises, the Phillips curve
A. shifts upward.
B. shifts downward.
C. becomes steeper.
D. becomes flatter.
1 out of 1
Correct. The answer is A. An increase in expected inflation causes the
Phillips curve to shift upward. See Section 13-2.
The inflation that tends to occur when unemployment is below the natural rate is
called
A. expected inflation.
B. wage inflation.
C. demand-pull inflation.
D. cost-push inflation.
1 out of 1
Correct. The answer is C. See Section 13-2.
The inflation caused by supply shocks is called
A. expected inflation.
B. wage inflation.
C. demand-pull inflation.
D. cost-push inflation.
1 out of 1
Correct. The answer is D. See Section 13-2.
In the country of Stabilia, the monetary authorities particularly dislike inflation. The
current inflation of 5 percent is considered rampant. If the sacrifice ratio in Stabilia
is five, the percentage of a year's GDP that has to be forgone to bring inflation down
to 1 percent is
A. 0.8 percent.
B. 1.25 percent.
C. 20 percent.
D. 25 percent.
1 out of 1
Correct. The answer is C. The sacrifice ratio represents the percent of
one year's GDP which must be forgone to reduce inflation by 1 percent.
If the sacrifice ratio is five, then to reduce inflation by 4 percent, 20
percent of a year's GDP must be forgone. See Section 13-2.
The approach that assumes that people optimally use all the available information
to forecast the future is called
A. the sacrifice ratio.
B. expected inflation.
C. adaptive expectations.
D. rational expectations.
0 out of 1
Incorrect. The correct answer is D. See Section 13-2.
The idea that, in the long run, the economy returns to the levels of output and
unemployment described by the classical model is called
A. the natural-rate hypothesis.
B. hysteresis.
C. rational expectations.
D. coordination failure.
0 out of 1
Incorrect. The correct answer is A. See Section 13-2.
Hysteresis is the effect of history on
A. expected inflation.
B. the sacrifice ratio.
C. cyclical inflation.
D. the natural rate of unemployment.
1 out of 1
Correct. The answer is D. See Section 13-2.