SOLVED

21) If Okun’s law is U – Un = – 0.5 (Y – YP), and potential output grows at 2% per year, then a recession that causes output to decrease by one percentage point will cause unemployment to increase by ________. A) 1 percentage point B) 1.5 percentage points C) 2 percentage points D) 3 percentage points E) one-half percentage point 22) If Okun’s law is U – Un = – 0.6 (Y – YP), and the Phillips curve is Ï€ = Ï€e – 2.5 (U – Un ) + ρ, then the short-run aggregate supply curve is ________. A) Ï€ = Ï€e – 1.5 (Y – YP) + ρ B) Ï€ = Ï€e + 4.2 (Y – YP) + ρ C) Ï€ = Ï€e – 2.5 (Y – YP) + ρ D) Ï€ = Ï€e – 2.5 (Y + YP) + ρ E) none of the above 23) If the short-run aggregate supply curve is Ï€ = Ï€e – 1.2 (Y – YP) + ρ, output equals potential output and there is a price shock of minus two, then the inflation rate is ________. A) 2 B) Ï€e – 2 C) minus 2 D) minus 2.4 E) none of the above 24) Technological advances lead to ________. A) a shift of the short run AS curve up B) a shift of the long run AS curve to the left C) an upward movement along the long run AS curve D) all of the above E) none of the above 25) If the natural rate of unemployment declines ________. A) labor is more heavily utilized B) potential output increases C) the long run aggregate supply curve shifts to the right D) all of the above E) none of the above 26) If the Fed were to announce that fighting inflation is not a high priority for the immediate future ________. A) households might expect higher inflation B) the short run aggregate supply would shift upwards C) firms might begin raising their prices to keep up with expected inflation D) all of the above E) none of the above 27) In 2005 hurricane Katrina devastated large portions of the Gulf Coast economy. Many refineries went offline disrupting oil refining and distribution. What do you think was a likely result? A) the restricted supply constituted a cost push shock that would have shifted the long run AS curve to the right B) the restricted supply constituted a cost push shock that would have shifted the short run AS curve to the left C) the restricted supply constituted a cost push shock that would have meant an upward movement along the Phillips curve D) all of the above E) none of the above 28) ________ may cause a shift of the long-run aggregate supply curve. A) A major earthquake B) A change in expected inflation C) A price shock D) all of the above E) none of the above 29) In the short run, if current output remains persistently above potential ________. A) inflation will rise causing a movement along the aggregate supply curve B) expected inflation will rise causing an upward shift of the aggregate supply curve C) the aggregate supply curve will shift until current output returns to its potential level D) all of the above E) none of the above 30) Based on the graph above, if the economy is at point 2, then (assuming no price shocks and no changes in actual and potential output) the inflation rate next period will be ________ percent. A) 5 B) 3.5 C) 4.5 D) 4 E) none of the above