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aggregate supply unemployment and inflation MCQs

Practise focused aggregate supply unemployment and inflation questions with marked answers for exam preparation and subject revision.

aggregate supply unemployment and inflation Mcqs
1. The classical view of the labor market is basically consistent with the assumption of _________ aggregate supply curve?
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A. an upward sloping

B. a vertical (or almost vertical)

C. a downward sloping

D. a horizontal (or almost horizontal)

2. The Phillips curve indicates that there is a ?
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A. positive relationship between labor supply and the inflation rate

B. negative relationship between the inflation rate and labor demand

C. negative relationship between the inflation rate and the unemployment rate

D. positive relationship between the inflation rate and the employment the

3. The classical model of macroeconomics assumes ?
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A. A and C

B. the economy may operate below full capacity

C. wages and prices are flexible

D. B and D

E. the economy is always at full capacity

F. wages and prices are sticky

4. In the events of an increase in the international price of oil that encouraged the central bank to accept lower real interest rates, inflation would most likely ?
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A. remain the same

B. fluctuates

C. increase

D. fall

5. The Keynesian model is a good guide to ____ behavior and the classical model describes behavior in ______?
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A. flexible imperfect markets

B. long run, imperfect markets

C. long run, short run

D. short-term long run
6. The natural rate of unemployment is generally thought to be the sum of ?
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A. frictional unemployment and cyclical unemployment

B. cyclical unemployment and structural unemployment

C. frictional unemployment and structural unemployment

D. frictional unemployment and seasonal unemployment

7. Doubts about the natural and the existences of the Phillips curve arose in the 1970s when the economy experienced ?
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A. simultaneously low rates of inflation and unemployment

B. a high rate of unemployment along with a low rate of inflation

C. simultaneously high rates of inflation and unemployment

D. a high rate of inflation: along with a low rate of unemployment

8. Governments may contribute to inflationary pressure because of building up large ?
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A. expenditures

B. numbers of employees

C. welfare plans

D. budget deficits
9. An advocate of the classical model of the economy would claim that unemployment is created when the ____ is above its equilibrium level in the ______?
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A. interest rate, market for loanable funds

B. wage rate, labor market

C. tax rate, government budget

D. price level, aggregate economy

10. The AD schedule indicates that _______ inflation is associated with ________ output?
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A. lower, lower

B. zero, zero

C. higher, lower

D. higher, higher

11. An unspoken agreement between workers and firms that the firm will not cut wages is known as ?
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A. a relative-wage contract

B. an implicit or social contract

C. employment at will

D. an explicit contract

12. The costs of inflation are ?
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A. menu costs

B. uncertainly

C. income redistribution

D. shoe leather costs

E. all of the above
13. Those who hold the classical view of the labor market are likely to believe that ?
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A. neither monetary nor fiscal policy will have an effect on output and employment

B. monetary but not fiscal policy will have an effect on output and employment

C. Fiscal, but not monetary policy will have an effect on output and employment

D. both monetary and fiscal policy will have an effect on output and employment

14. The long-run Phillips curve is ____ at the ____?
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A. vertical natural rate of inflation

B. horizontal natural rate of unemployment

C. vertical equilibrium rate of unemployment

D. horizontal, natural rate of inflation

15. The Phillips curve is a graph showing the relationship between ?
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A. the inflation rate and the level of aggregate demand

B. the price level and the unemployment rate

C. the inflation rate and the unemployment rate

D. the level of aggregate output and the price level

16. Policies to reduce unemployment by reducing union power, tax cuts, reductions in unemployment benefit and investment subsidies are examples of ?
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A. Monetarist Policies

B. Classical policies

C. Supply-side policies

D. Keynesian policies

17. In the long run, the Phillips curve will be vertical at the natural rate of unemployment if ?
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A. the long run aggregate demand curve is vertical at potential GDP

B. the long-run aggregate demand curve is horizontal at the natural rate of inflation

C. the long run aggregate demand curve is vertical at potential GDP

D. The long run supply curve is horizontal at the natural rate of inflation

18. The abolition of income tax would probably ______ the number of workers in employment and _______ the equilibrium rate of unemployment?
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A. increase reduce

B. increase, increase

C. reduce, increase

D. reduce, reduce

19. When economists use the term real business cycle theory they are suggesting that business cycles are caused by ?
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A. changes in export demand due to the state of the world economy

B. Shifts in aggregate supply

C. business expectations

D. business confidence

20. Which school of economic thought suggested that one possible cause of inflation was a push from the cost side ?
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A. New classical economists

B. Monetarists

C. Marxists

D. Keynesian.
21. We would normally expect the size of the labor force to be _____ than the number or workers willing to accepts job offers at any real wage rate ?
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A. Larger

B. the same size

C. Smaller

D. None of these

22. If a person thinks they are better off after a 10% wage increase, and all prices have risen 10% then they are experiencing ?
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A. inflation illusion

B. crowding out

C. a supply shock

D. inflation

23. At the intersection of AD and AS equilibrium is achieved in ?
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A. the goods market

B. the money markets

C. all of these

D. the labor markets

24. Even though explicit contracts may lead to layoffs during recessions explicit contracts may still be efficient because such contracts ?
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A. will equitable spread the layoffs among junior and senior workers

B. minimize negotiation costs

C. minimize unemployment effects

D. guarantee that only the least productive workers will be laid off.

25. Possible causes of involuntary unemployment are ?
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A. insider-outsider distinctions

B. trade

C. efficiency wages

D. all of the above

E. minimum wage agreements

F. scale economies

26. All the following are types of monetary policy expect ?
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A. The pursuit of a target real interest rate

B. a balanced budget

C. a nominal money stock target

D. an inflation target

27. The equilibrium rate of unemployment at any real wage, is the difference between ______ and ______?
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A. labor demand, labor supply

B. those willing to work at the going wage labor supply

C. those willing to work at the going wage labour demand

D. labour demand those willing to work at the going wage

28. The Short run Phillips curve can shift in response to changes in ?
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A. wage rates

B. unemployment

C. the inflation rates

D. Inflationary expectations
29. A person who is made redundant because of the contraction of an industry is a victim of ?
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A. structural unemployment

B. demand-deficient unemployment

C. classical unemployment

D. frictional unemployment

30. The expectations augmented Phillips curve was the Work of which group of economists ?
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A. Monetarists

B. Keynesian.

C. New classical economists

D. Marxists.

31. In the classical model, potential output cannot be increased by ?
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A. better technology

B. higher labor supply

C. more capital

D. monetary growth
32. The relative-wage explanation for the existence of downwardly sticky wages emphasizes ?
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A. unspoken agreements between workers and firms that firms will not cut wages

B. the contention that workers in one industry may be unwilling to accept a wage cut unless they know that workers in other industries are receiving similar cuts

C. employment contracts that stipulate workers wages usually for a period of one to three years

D. the incentive that firms may have to hold wages above the market clearing rate

33. If the income tax rate changes from 30% to 40% on income over Rs30,000 and a persons income is Rs 31,000 then her marginal tax rate is ?
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A. 70%

B. 30%

C. 10%

D. 40%
34. The equilibrium inflation rate is determined by the intersection of _____ and _____?
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A. IS, LM

B. demand, supply

C. AD, AS

D. Labor demand, labor supply

35. The Phillips curve shows the trade-off between _____ and _____?
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A. output, employment

B. interest rates, output

C. the inflation rate, the unemployment rate

D. the inflation rate, interest rates

36. one of the tenets of the classical view of the labor market is that the wage adjustments that are necessary to clear the labor market occur ?
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A. quickly

B. instantly

C. very infrequently

D. slowly

37. Expansionary fiscal policy in the classical model will cause aggregate demand to _______ potential output?
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A. fluctuate around

B. exceeds

C. fall below

D. remain equal to
38. If somebody is prepared to work at the going wage rate but cannot find work then they are victims of ?
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A. voluntary unemployment

B. voluntary unemployment

C. classical unemployment

D. Frictional unemployment

39. If input price prices adjusted very rapidly to output prices as classical economists argue the Philips curve would be ?
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A. downward sloping

B. Vertical or nearly vertical

C. horizontal or nearly horizontal

D. upward sloping

40. During Periods of rising inflation and rising interest rates we expect the demand for real cash to ?
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A. fluctuates

B. not changes

C. fall

D. rise
41. The quantity theory of money says that changes in ____lead to equivalent changes in ____ but have no effect on ______?
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A. prices, wages, output and employment

B. output prices, employment

C. nominal money output prices

D. nominal money, the price level, output and employment
42. According to the classical economists, those who are not working ?
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A. are unable to find a job at the current wage rate

B. have chosen not to work at the market wage

C. have given up looking for a job but would accept a job at the current wage if one were offered to them.

D. are too productive to be hired at the current wage

43. The measured unemployment rate can be pushed below the natural rate, but ?
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A. only in the short run, and not without inflation

B. only in the long run and only if the price level is constant

C. only is the short run and only if the price level is constant

D. only in the long run and not without inflation

44. Potential GDP is the level of aggregate output ?
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A. that can be sustained in the long run, if the inflation rate is zero

B. that can be produced at a zero-unemployment rate

C. that can be produced if structural unemployment is zero

D. that can be sustained in the long run without inflation
45. The view of the Phillips curve that prevailed in the 1960s implied that policies that ?
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A. lower unemployment rate will tend to raise the inflation rate

B. lower inflation rate will tend to raise the unemployment rate

C. raise inflation rate will tend to raise the unemployment rate

D. lower unemployment rate will tend to lower the inflation rate