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WorksheetsLesson 11 MCQs: Aggregate Supply and Phillips Curve
Total questions: 15
Worksheet time: 8mins
In previous chapters, the price level (P) was assumed to be “stuck” in the short run. This implies a:
Vertical SRAS curve
Upward-sloping SRAS curve
Horizontal SRAS curve
Downward-sloping SRAS curve
Which of the following is a short-run aggregate supply model?
Rational expectations model
Imperfect-information model
Quantity theory model
Classical model
The sticky-price model explains the upward slope of SRAS because:
Prices never change
Firms cannot adjust all prices immediately
Money supply is fixed
Output is always at its natural rate
Reasons for sticky prices include all EXCEPT:
Long-term contracts
Menu costs
Firms avoiding frequent price changes
Perfect competition
According to the sticky-price model, when expected prices (EP) are high:
Firms that set prices in advance will set them low
Firms that set prices in advance will set them high
Output automatically falls
Inflation disappears
In the imperfect-information model, suppliers:
Know the overall price level exactly
Cannot distinguish between relative price changes and overall price changes
Set prices only after observing inflation
Always produce the natural level of output
The SRAS equation is:
Y=Y−α(P−EP)
Y=Y+α(P−EP)
P=Y+α(EP−P)
P=α(Y−EP)
The Phillips curve shows a short-run tradeoff between:
Money supply and output
Inflation and unemployment
Investment and saving
Exchange rate and exports
Inflation inertia means:
Inflation instantly adjusts to shocks
Past inflation affects current inflation expectations
Inflation never changes
Supply shocks have no effect
Cost-push inflation is caused by:
Positive demand shocks
Supply shocks that increase production costs
Monetary contraction
Increase in consumer savings
Demand-pull inflation occurs when:
Aggregate demand decreases
Aggregate demand increases
Supply shocks reduce output
Money supply contracts
The sacrifice ratio measures:
The percentage of GDP lost to reduce inflation by 1%
The increase in unemployment for a 1% rise in inflation
The natural rate of unemployment
The expected inflation rate
Adaptive expectations imply:
People base inflation expectations on all available information
People base inflation expectations on recently observed inflation
People ignore past inflation
Inflation is always zero
Rational expectations assume:
People expect inflation based only on past prices
People use all available information to form expectations
People cannot predict inflation
Inflation is always equal to zero
A negative supply shock may increase the natural rate of unemployment because:
Workers’ skills deteriorate during cyclical unemployment
Prices fall immediately
Inflation disappears
Money supply rises
