CLEP Macroeconomics chapter practice4 questions

18 Inflation, Unemployment, and Expectations

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

Aggregate demand expands while expected inflation holds steady. Which of the following describes the short-run result on the short-run Phillips curve (SRPC)?

With expectations pinned down, stronger spending buys lower unemployment at the cost of higher inflation, and that trade is a slide along the curve already drawn. A and C turn a movement into a shift, and C moves the long-run curve besides, which expectations alone cannot do. D reverses the unemployment effect, and E denies that any inflation results.
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B. Lower unemployment and higher inflation along the SRPC

With expectations pinned down, stronger spending buys lower unemployment at the cost of higher inflation, and that trade is a slide along the curve already drawn. A and C turn a movement into a shift, and C moves the long-run curve besides, which expectations alone cannot do. D reverses the unemployment effect, and E denies that any inflation results.

Question 2

Question 2 of 4

Expected inflation rises while the natural rate of unemployment holds steady. The short-run Phillips curve (SRPC)

Once wage and price setters build a higher rate into contracts and markups, every unemployment rate comes paired with more inflation than before, which lifts the whole curve. A and E move it the wrong way, and E also swaps expected inflation for actual inflation. B denies that expectations enter at all, and D changes the curve's slope instead of its position.
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C. shifts up at every unemployment rate

Once wage and price setters build a higher rate into contracts and markups, every unemployment rate comes paired with more inflation than before, which lifts the whole curve. A and E move it the wrong way, and E also swaps expected inflation for actual inflation. B denies that expectations enter at all, and D changes the curve's slope instead of its position.

Question 3

Question 3 of 4

The long-run Phillips curve is drawn as a vertical line. That line sits at

Expectations catch up in the long run, so unemployment settles at the rate produced by search and mismatch no matter which inflation rate the economy has adopted. B and C put a vertical line at a value of inflation, which locates nothing on the unemployment axis. A reads full employment as zero unemployment, though search and mismatch persist even at potential output, and E treats the natural rate as a record low rather than an equilibrium.
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D. the natural rate of unemployment

Expectations catch up in the long run, so unemployment settles at the rate produced by search and mismatch no matter which inflation rate the economy has adopted. B and C put a vertical line at a value of inflation, which locates nothing on the unemployment axis. A reads full employment as zero unemployment, though search and mismatch persist even at potential output, and E treats the natural rate as a record low rather than an equilibrium.

Question 4

Question 4 of 4

An adverse supply shock strikes the economy. Which of the following describes its effect on the short-run Phillips curve (SRPC)?

Higher production costs worsen the whole menu: every unemployment rate now comes with more inflation than it did before. B moves the curve the wrong way, A treats a shift as movement along a fixed curve, D reverses both variables at once, and C promotes a temporary cost shock into a change in the natural rate.
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E. The SRPC shifts up and to the right.

Higher production costs worsen the whole menu: every unemployment rate now comes with more inflation than it did before. B moves the curve the wrong way, A treats a shift as movement along a fixed curve, D reverses both variables at once, and C promotes a temporary cost shock into a change in the natural rate.

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