Question

QUESTION 1

According to the classical economists, those who are not working

		have chosen not to work at the market wage.
		are unable to find a job at the current wage rate.
		have given up looking for a job but would accept a job at the current wage if one were offered to them.
		are too productive to be hired at the current wage.

QUESTION 2

Which of the following explains why the long-run Phillips curve is drawn as a vertical line?

		Because in the long run, government policies will ensure that unemployment is at its natural rate.
		Because its true shape is unknown.
		Because there are no permanent shocks.
		Because in the long run, the labour market will settle so that unemployment is at its natural rate.

QUESTION 3

If inflationary expectations increase, the Phillips curve will

		become upward sloping
		shift to the left
		shift to the right
		become vertical

QUESTION 4

Figure 16.1 in the book is a graph of unemployment rates for 16 OECD countries from 1960 to 2014. Based on this information, which of the following statements is correct?

		The unemployment rates of different countries were affected very differently by the oil shocks of the 1970s.
		The unemployment rate rose in all countries following the 2008 global financial crisis.
		There has been a clear upward trend in unemployment in all countries in the last 30 years.
		There is no correlation between unemployment rates across countries.

QUESTION 5

Figure 15.6 in the book is a scatter plot of the inflation rate and the unemployment rate for the US for each year between 1960 and 2014. Based on this information, which of the following statements is correct?

		The Phillips curve shifted higher over the period.
		In the most recent period, the US economy has been able to lower its inflation rate with little effect on the unemployment rate.
		In the 1960s, the Phillips curve suggests a trade-off of a 2% fall in the unemployment rate and a 2–3% rise in the inflation rate.
		The Phillips curve is stable over the years.

QUESTION 6

Which of the following statements is false?

		The GDP deflator includes also imports.
		The CPI includes foreign goods.
		The CPI is a price index that covers a wide range of goods and services bought by households.
		The GDP deflator is a price index that covers all goods and services included in GDP.

QUESTION 7

Which of the following statements is correct?

		There is no unemployment when the inflation rate is zero.
		The Phillips curve shows a positive correlation between the unemployment rate and inflation rate.
		The long run Philipps curve is vertical.
		There is no inflation when the unemployment rate is zero.

QUESTION 8

The Phillips curve shows the relationship between inflation and what?

		Unemployment.
		The rate of growth in an economy.
		The balance of trade.
		The rate of price increases.

QUESTION 9

Which of the following statements is true?

		The Beveridge curve depicts the positive relationship between the vacancy rate and the unemployment rate.
		The Beveridge curve is vertical.
		The Beveridge curve can move as a consequence of the improvement in the matching system.
		The Beveridge curve depicts the negative relationship between the vacancy rate and the employment rate.

QUESTION 10

Keynes suggested several reasons why the government should not rely on flexible real wages to remove demand-deficient unemployment. Which of the following was not one of these reasons?

		Any efforts by the government to increase demand in the economy would lead to higher real wages and so increase unemployment.
		Even if nominal wages fell, there might then be falls in prices, and this could lead to a further fall in demand in the economy if people deferred some purchases until they felt prices would fall no further.
		Workers would resist cuts in nominal wages which reduced their wages relative to those paid in other occupations.
		Trade unions would resist cuts in nominal wages.

Answer 1

Answer 1:

Option a. According to the classical economists, those who are not working have chosen not to work at the market wage. This is because according to Classical economists the economy is always at full employment level and those who are willing to work have work with them.

Answer 2:

Option d. In the long, the Philips curve is a vertical line because  in the long run, the labour market will settle so that unemployment is at its natural rate due to wage price flexibility in the economy.

Answer 3:

Option C. As inflationary expectations increase in the economy, the Philips curve will shift rightwards.

Answer 4:

Option C. There has been a clear upward trend in unemployment in all countries in the last 30 years.