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Question 1

The negative relationship between the gap between actual GDP and its trend value and the difference between actual unemployment rate and its equilibrium value is called:

a) The Aggregate Supply Curve

b) The Battle of the Markups

c) The Phillips Curve

d) Okun's Law

Question 2

The reason for the long-run stability of the labour share is:

a) Price mark-ups over labour costs have remained relatively constant.

b) Real wages increase with technical progress resulting in a reduction in labour demand so the product of real wages and employment remains constant.

c) Productivity gains reduce labour costs for given wages making up for losses due to price inflation.

d) Technical progress has continuously generated higher incomes

Question 3

Dividing nominal wages (W) by labour productivity (Y/L) yields:

a) Real unit labour costs.

b) Nominal unit labour costs.

c) Total factor productivity.

d) Labour share of total income.

Question 4

At point A, inflation is equal to the underlying rate of inflation and output is at the level of output consistent with the equilibrium unemployment rate. If the economy were at point B, you would expect...

a) ...the underlying rate of inflation to accelerate because the actual inflation rate exceeds the underlying rate of inflation.

b) ...prices to decline because there is an excess supply of goods (neoclassical assumption).

c) ...output to decline because there is an excess supply of goods (Keynesian assumption).

d) ...consumer spending to decline because goods are more expensive.

Question 5

The critical macroeconomic policy implication of a vertical long-run Phillips Curve is that...

a) ...inflation is everywhere and always a monetary phenomenon.

b) ...big inflations will be stopped by big recession.

c) ...money illusion is the source of the unemployment in the long-run.

d) ...demand policies cannot move the actual unemployment rate permanently away from its equilibrium level.

Question 6

"It is better for an economy to have a 5% rate of inflation over a 5% rate of unemployment."
Without getting into a debate on the relative costs of unemployment and inflation yet, why do we know this statement is not helpful for policy makers, even if the prime minister says this explicitly?

a) The economy is dichotomized in the short-run because of the Taylor rule.

b) Wage-negotiations are subject to money illusion so that real wages would fall to an unsustainable level.

c) Even if we could reduce unemployment to 0% today at a cost of an increase in inflation of 5%, there is no guarantee that underlying inflation in the economy would remain unchanged.

d) The battle of the mark-ups determines wages and prices only so long as there is no supply shock.

Question 7

Which of the following events would not involve a supply shock that would shift the aggregate supply curve?

a) The OPEC cartel for oil prices collapses due to political disagreements.

b) Financial crisis results in a freezing of interbank lending.

c) Drought destroys half of a country's crops.

d) Tax for energy use introduced to help reduce global emissions.

Oxford University Press, Online Resource Centre, Chapter 12.

Chapter 12