SOLVED

11) The short-run aggregate supply curve shows that inflation will change as a result of changes in ________. A) output B) potential output C) expected inflation D) price shocks E) all of the above 12) The short-run aggregate supply curve shows that a change in inflation will cause (a) change(s) in ________. A) output B) potential output C) expected inflation D) price shocks E) all of the above 13) According to the short-run aggregate supply curve, if output minus potential output equals zero, then ________. A) unemployment might be zero B) inflation might be stable C) expected inflation must be stable D) price shocks must be zero E) none of the above 14) In the short run ________. A) inflation is negatively related to the output gap B) if output rises above its potential level, the unemployment rate falls and firms will lower wages C) if the labor market tightens, firms will raise prices more rapidly to keep up with upward wage pressures and inflation will ensue D) all of the above E) none of the above 15) Which statement(s) is (are) consistent with a positive relationship between inflation and the output gap? A) If output rises above its potential level, the unemployment rate falls and firms will raise wages and prices more rapidly. B) In the short run, the AS curve is upward sloping. C) Through Okun’s law, the negative relationship between the output and unemployment gaps allows the modern Phillips curve to be translated into the AS curve. D) all of the above E) none of the above 16) In the short run ________. A) the more flexible wages and prices are, the more inflation responds to the output gap B) the more sticky wages and prices are, the more difficult to tell the difference between the short run and long run aggregate supply curves C) if wages and prices are sticky, aggregate output is always at its potential level D) all of the above E) none of the above 17) If the output gap is constant at minus 2 and the inflation rate has fallen from 6 percent to 5 percent, then next period’s short-run aggregate supply curve might be ________. A) Ï€ = 5 – 0.5 (13 – 15) B) Ï€ = 5 + 0.5 (13 – 15) C) Ï€ = 4 + 0.5 (13 – 15) D) Ï€ = 5 + 2 (11 – 15) E) none of the above 18) When a price shock occurs, the inflation rate is affected ________. A) only in the period of the price shock B) only in the period after the price shock C) only if the price shock causes a change in output D) only if the price shock persists for more than one period E) none of the above 19) When a price shock has occurred, inflation returns to its pre-shock rate ________. A) in the period following the price shock B) in the period when output has returned to its pre-shock rate C) once the output gap has returned to zero D) only in the long run E) none of the above 20) Suppose the output gap is zero, and policy makers wish to reduce the inflation rate from 10 percent to 5 percent. Which of these policies seems best? A) contractionary policies to reduce output at least 5 percent below potential output B) a convincing declaration of the inflation rate target, so that expected inflation falls to 5 percent C) no policy action; inflation will fall on its own, eventually D) no policy action; inflation will converge to its long-run rate, regardless of policy E) price and wage controls to counteract their stickiness