Unit 5 - Long Run Stabilization Policies MC Practice Part 2

An inflation tax is the result of

• the federal government running a budget surplus

• the Federal Reserve raising the federal funds rate

• an increase in the demand for money

• printing money to cover a budget deficit

• contractionary fiscal policy

Which of the following is true when the output gap is negative?

• Aggregate output is above potential output

• The unemployment rate is below the natural rate

• The economy is experiencing inflation

• Potential output is above aggregate output

• The natural rate of unemployment is decreasing

An increase in the aggregate price level caused by a significant increase in the price of an input with economy-wide importance is called

• demand-pull inflation

• seignorage inflation

• supply-push inflation

• cost-push inflation

• input-pull inflation

The short-run Phillips curve shows the relationship between the inflation rate and the

• GDP growth rate

• unemployment rate

• employment rate

• real interest rate

• nominal interest rate

An increase in expected inflation has what effect on the short-run Phillips curve?

• a movement up and to the left along the curve

• a movement down and to the right along the curve

• an upward shift of the curve

• a downward shift of the curve

• an increase in the slope of the curve

The long-run Phillips curve is

• horizontal

• vertical

• upward sloping

• downward sloping

• U-shaped

The long-run Phillips curve illustrates which of the following?

• a positive relationship between unemployment and inflation

• a negative relationship between unemployment and inflation

• the unemployment will always return to the NAIRU

• that unemployment will adjust so that the economy experiences 2% inflation

• that output will adjust so that there is no unemployment or inflation in the long run

The process of bringing down the rate of inflation that has become embedded in expectations is known as

• disflation

• deflation

• negative inflation

• debt deflation

• monetary policy

A liquidity trap occurs when conventional monetary policy is ineffective because

• the short-run Phillips curve is negatively sloped

• the public will not buy or sell Treasury bills

• the unemployment rate can't go below 5%

• the nominal interest rate can't be negative

• the real interest rate can't be negative

According to the Quantity Theory of Money

• the money supply times velocity is equal to nominal GDP

• velocity varies significantly with the business cycle

• changes in the money supply have no long-run effect on the economy

• activist monetary policy is necessary to promote economic growth

• monetary policy rules promote business-cycle fluctuations