Question

which of the following statements is (are) correct?
(x) During the early 1960s, inflation was about 1 to 3 percent in the United States, compared to about 4 to
6 percent in the late 1960s and early 1970s.
(y) In 1980, the U.S. unemployment rate was about 7 percent and inflation was above 8 percent at the
same time.
(z) In the United States, the inflation rate has been consistently below 4 percent during the period from
2000 to 2015.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

10. Many economists during the 1960s believed the implications of the Phillips curve, which
A. indicated that low unemployment was associated with high inflation and high unemployment was
associated with low inflation.
B. offered policymakers a menu of possible economic outcomes from which to choose and the choice for
expansionary policy would lead to inflationary pressure but reduced unemployment.
C. indicated that there was upward pressure on wages and prices when unemployment was high.
D. All of the above are correct.
E. A and B, only

11. Which of the following would a student of economics expect if government policy had moved the economy
up along a given short-run Phillips curve?
A. Roscoe reads in the newspaper that the central bank had been increasing the purchase of bonds.
B. Bernadette loses her job because the factory shut down due to declining economic conditions.
C. Jasmine’s nominal wage falls because the manager, filled with jealousy, is stealing her tips.
D. Tim the “tool guy” cuts prices at his hardware store because of falling sales.
E. Both B and D

Answer 1

Q1)answer): (A) :: x, y, and z

Inflation peaked in April 1980 at 14.76% and fell to “only” 6.51% the following April. By December 1989 inflation had decreased drastically to 4.65% and unemployment had declined to 5.4%. At the beginning of the decade the American auto industry was suffering partially due to the poor economy.

Q10)answer): (A)

The original concept of the Phillips curve implied that policymakers could maintain a lower unemployment rate forever, as long as they were willing to pay the price of a higher inflation rate. It suggests the extent to which monetary and fiscal policies can be used to control inflation without high levels of unemployment. In other words, it provides a guideline to the authorities about the rate of inflation which can be tolerated with a given level of unemployment.

Q11)answer): (B)

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