Question 1

Excess demand occurs when:

Accepted Answer

A)  there is a surplus in the market.
B)  supply is in excess of demand at the market price.
C)  demand is in excess of supply at the market price.
D)  demand and supply are equal at the market price.E) A) and D)
F) A) and B)

Question 2

Suppose the Kenyan markets are experiencing insufficient demand. Which figure shows the effect on the Phillips curve in Kenya?

Accepted Answer

A)  
B)  
C)  
D)  E) A) and C)
F) B) and C)

Question 3

What is excess demand?

Accepted Answer

A)  too many buyers for too few goods
B)  too much supply for too few buyers
C)  fast-changing consumer preferences
D)  higher equilibrium quantityE) A) and B)
F) A) and C)

Question 4

An increase in unexpected inflation is seen graphically as _____ the labor market Phillips curve.

Accepted Answer

A)  a movement to the left along
B)  a movement to the right along
C)  a left shift of
D)  a right shift ofE) A) and B)
F) A) and C)

Question 5

Suppose that the Indian rupee loses value against the U.S. dollar. Which figure shows the effect on the Phillips curve in India?

Accepted Answer

A)  
B)  
C)  
D)  E) C) and D)
F) B) and C)

Question 6

Consider the labor market Phillips curve. A negative supply shock will cause _____ the labor market Phillips curve.

Accepted Answer

A)  a movement to the left along
B)  a movement to the right along
C)  a left shift of
D)  a right shift ofE) A) and B)
F) All of the above

Question 7

When the output gap becomes more positive:

Accepted Answer

A)  prices fall due to surpluses.
B)  demand-pull inflation rises.
C)  unemployment rises.
D)  negative supply shocks come about.E) A) and B)
F) A) and C)

Question 8

Insufficient demand occurs when:

Accepted Answer

A)  there is a shortage in the market.
B)  supply is in excess of demand at the market price.
C)  demand is in excess of supply at the market price.
D)  demand and supply are equal at the market price.E) All of the above
F) C) and D)

Question 9

If managers expect inflation to approach the Federal Reserve's target, they have _____ expectations.

Accepted Answer

A)  adaptive
B)  anchored
C)  zero
D)  rationalE) C) and D)
F) B) and D)

Question 10

The Treasury inflation-protected security (TIPS)  is a bond with a principal value that fluctuates relative to changes in the consumer price index. The interest on the bond is calculated on the adjusted principal. This instrument has an advantage over a regular bond because it:

Accepted Answer

A)  has a real return that is zero.
B)  protects the saver against inflation.
C)  has a return that matches the economic growth rate.
D)  protects the saver against supply-side shocks.E) All of the above
F) C) and D)

Question 11

Which figure shows the correct effect on the Phillips curve when the domestic currency depreciates?

Accepted Answer

A)  
B)  
C)  
D)  E) None of the above
F) A) and C)

Question 12

Forecasts expect inflation to be 2%. Actual inflation ends up being 1.75%. Holding all else equal, if there is no supply-side change in the economy, these statistics indicate inflation is ____ less than expected.

Accepted Answer

A)  3.75%
B)  0.25%
C)  1.75%
D)  2.0%E) C) and D)
F) A) and B)

Question 13

Insufficient demand leads to a:

Accepted Answer

A)  surplus and falling prices.
B)  shortage and falling prices.
C)  shortage and rising prices.
D)  surplus and rising prices.E) A) and D)
F) A) and C)

Question 14

Consider the Phillips curve shown here. In region B:

Accepted Answer

A)  there is excess demand.
B)  inflation falls below expected inflation.
C)  there is insufficient demand.
D)  the output gap is negative.E) B) and C)
F) A) and D)

Question 15

Which of the graphs shows the correct shape of the labor market Phillips curve?

Accepted Answer

A)  
B)  
C)  
D)  E) All of the above
F) B) and C)

Question 16

What is insufficient demand?

Accepted Answer

A)  too many buyers for too few goods
B)  too much supply for too few buyers
C)  slow-changing consumer preferences
D)  lower equilibrium quantityE) A) and B)
F) A) and C)

Question 17

Why do the unexpected inflation and output gap axes need to extend into the negative regions in the Phillips curve diagram?

Accepted Answer

A)  Both output gaps and unexpected inflation can be negative or positive.
B)  Both output gaps and unexpected inflation always begin by being negative.
C)  Negative inflation gaps are very common.
D)  Negative output gaps are very common.E) A) and B)
F) All of the above

Question 18

If expected inflation is 1.75% and actual inflation is 2.30%, then unexpected inflation is:

Accepted Answer

A)  4.05%.
B)  2.30%.
C)  1.75%.
D)  0.55%.E) B) and C)
F) C) and D)

Question 19

Suppose that the euro depreciates. Which figure shows the effect on the Phillips curve in Germany?

Accepted Answer

A)  
B)  
C)  
D)  E) C) and D)
F) All of the above

Question 20

Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Next year, you expect GDP to be 3% above potential GDP. Current inflation expectations are at 2%. How much does your salary have to change, in nominal terms, in order to maintain your purchasing power?

Accepted Answer

A)  3%
B)  2%
C)  1%
D)  4%E) C) and D)
F) B) and C)

Exam 31: Phillips Curve

Suppose the Kenyan markets are experiencing insufficient demand. Which figure shows the effect on the Phillips curve in Kenya?

Correct AnswerverifiedShow Answer

Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Next year, you expect GDP to be 3% above potential GDP. Current inflation expectations are at 2%. How much does your salary have to change, in nominal terms, in order to maintain your purchasing power?

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Consider the Phillips curve shown here. In region B:

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What is excess demand?

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If expected inflation is 1.75% and actual inflation is 2.30%, then unexpected inflation is:

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Excess demand occurs when:

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What is insufficient demand?

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Why do the unexpected inflation and output gap axes need to extend into the negative regions in the Phillips curve diagram?

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An increase in unexpected inflation is seen graphically as _____ the labor market Phillips curve.

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Suppose that the euro depreciates. Which figure shows the effect on the Phillips curve in Germany?

Correct AnswerverifiedShow Answer

Suppose that the Indian rupee loses value against the U.S. dollar. Which figure shows the effect on the Phillips curve in India?

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Insufficient demand occurs when:

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Which figure shows the correct effect on the Phillips curve when the domestic currency depreciates?

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Insufficient demand leads to a:

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When the output gap becomes more positive:

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Which of the graphs shows the correct shape of the labor market Phillips curve?

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If managers expect inflation to approach the Federal Reserve's target, they have _____ expectations.

Correct AnswerverifiedShow Answer

Consider the labor market Phillips curve. A negative supply shock will cause _____ the labor market Phillips curve.

Correct AnswerverifiedShow Answer

Forecasts expect inflation to be 2%. Actual inflation ends up being 1.75%. Holding all else equal, if there is no supply-side change in the economy, these statistics indicate inflation is ____ less than expected.

Correct AnswerverifiedShow Answer

The Treasury inflation-protected security (TIPS) is a bond with a principal value that fluctuates relative to changes in the consumer price index. The interest on the bond is calculated on the adjusted principal. This instrument has an advantage over a regular bond because it:

Correct AnswerverifiedShow Answer

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