Question

75.The shift outward in the Phillips curve in the 1970s was caused by the

fall in the unemployment rate.

fall in the inflation rate.

rise in the trade deficit.

oil supply shocks of the mid-1970s and the rise in inflationary expectations.

72.Which of these would lead to increased oversight of financial firms?

lower capital requirements

fewer restrictions on leverage

much tighter regulations

higher returns on equity

70. Unanticipated inflation results in

decreasing nominal wages.

decreasing real wages.

increasing real wages.

increasing nominal and real wages.

63.Prior to the 2007–2009 recession, banks had an incentive to originate subprime mortgages because they could collect origination fees and then sell the mortgage.

False

True

59. Deflation can be good because it reduces the burden of existing debt.

False

True

55.Actions taken by the European Central Bank to address the European Union's financial crisis from 2009 to 2013 includes all of these EXCEPT

negotiating agreements for private banks to write off or restructure loans to governments.

reducing taxes to provide stimulus packages.

insisting that governments move closer toward balanced budgets.

providing loans to banks.

Answer 1

75. An upward shift of Philips curve indicates rise in inflation and unemployment. In 1970 a phenomenon occured called Stagflation which caused this crisis. Lets observe the options -

fall in unemployment rate - no this was not the cause for outward shift of Philips curve in the 1970s. A fall in just unemployment rate would be a recession and this would only cause a movement along Philips curve.

fall in inflation rate - Incorrect. Exactly the opposite happens here..when PC shifts upwards inflation rises.

rise in trade deficit - Incorrect. This wasn't the cause in 1970. A trade deficit would reflect a movement along the Philips curve.

oil supply shocks of the mid-1970s and the rise in inflationary expectations is Correct. The oil supply shock caused Aggregate Supply curve to shift upwards. This increased price level and unemployment (due to fall in output). This caused the upward shift in Philips curve. This phenomenon where both inflation and unemployment is high is called Stagflation.

So the last option is correct.