Free Practice Quiz Question List

Inflation, Unemployment, and Stabilization Trade-offs Online Quiz Questions

Use this free practice quiz with 20 questions to review Inflation, Unemployment, and Stabilization Trade-offs, test your knowledge, and prepare for your next test or exam.

20 questions

Choose one

1 point

In the short run, what is the most likely effect of an expansionary aggregate-demand shock on inflation and unemployment?

A
Inflation decreases and unemployment increases
B
Inflation increases and unemployment decreases
C
Both inflation and unemployment increase
D
Both inflation and unemployment decrease

Choose one

1 point

Which combination of unemployment is included in the natural rate of unemployment?

A
Frictional and cyclical unemployment only
B
Cyclical and structural unemployment only
C
Frictional and structural unemployment
D
Only unemployment caused by recessions

Choose one

1 point

Workers and firms revise expected inflation upward while the economy's unemployment rate is unchanged. What happens to the short-run Phillips curve?

A
The short-run Phillips curve shifts upward
B
The short-run Phillips curve shifts downward
C
The economy moves down and right along the existing curve
D
The long-run Phillips curve becomes horizontal

Choose all

1 point

Which two simultaneous outcomes are most directly associated with an adverse supply shock? Select all correct choices.

A
Inflation rises
B
Unemployment rises
C
Inflation falls
D
Unemployment falls

Choose all

1 point

Which two statements accurately describe demand-side policy trade-offs during stagflation? Select all that apply.

A
Expansionary policy reduces both inflation and unemployment
B
Contractionary policy can reduce inflation but increase unemployment
C
Expansionary policy necessarily lowers production
D
Contractionary policy can worsen an output decline

True or false

1 point

True or false: In the long run, policymakers can permanently reduce unemployment below its natural rate by maintaining a higher inflation rate.

A
True
B
False

True or false

1 point

True or false: A temporary, one-time increase in oil prices must produce permanently higher inflation.

A
True
B
False

Written response

1 point

An economy's natural rate of unemployment is 7%. Enter that rate as a percentage value.

Written response

1 point

Expected inflation is 2%, the natural unemployment rate is 5%, and actual unemployment is 4%. Enter the actual unemployment rate as a percentage value.

Fill in the blank

1 point

Complete the statements: The unemployment rate consistent with stable inflation in the absence of unusual supply shocks is the . Unemployment caused by downturns in aggregate demand is called .

Fill in the blank

1 point

When high or rising inflation occurs together with high unemployment and weak growth, the condition is called . A sudden increase in production costs that can cause this combination is an .

Open ended

1 point

Explain why expansionary monetary or fiscal policy may temporarily lower unemployment but cannot permanently keep unemployment below its natural rate. Include the roles of aggregate demand, inflation expectations, and wage-price adjustment.

Choose one

1 point

A major disruption raises firms' energy and transportation costs. Which Phillips-curve interpretation best describes the immediate effect?

A
Inflation falls at every unemployment rate
B
Inflation rises at every unemployment rate
C
Unemployment falls at every inflation rate
D
The long-run Phillips curve shifts permanently left

Choose one

1 point

Which statement best defines the natural rate of unemployment?

A
The unemployment rate caused only by temporary business-cycle downturns
B
The unemployment rate consistent with stable inflation in the absence of unusual supply shocks
C
The unemployment rate at which inflation must equal zero
D
The unemployment rate that policymakers can permanently eliminate through expansionary policy

Choose one

1 point

Which event would most directly move the economy along a given short-run Phillips curve rather than shift the curve?

A
A permanent reduction in expected inflation
B
An adverse supply shock that raises firms’ costs
C
An increase in aggregate demand that temporarily lowers unemployment
D
An increase in the natural rate of unemployment

True or false

1 point

True or false: Cyclical unemployment is included in the natural rate of unemployment.

A
True
B
False

Choose one

1 point

Workers and firms revise expected inflation upward while the economy's structural conditions remain unchanged. What is the most likely Phillips-curve effect?

A
The short-run Phillips curve shifts upward
B
The short-run Phillips curve shifts downward
C
The economy moves downward along the existing short-run Phillips curve
D
The long-run Phillips curve becomes negatively sloped

Written response

1 point

What single economic term describes the simultaneous occurrence of high or rising inflation, high unemployment, and weak or stagnant economic growth?

Choose one

1 point

A sudden, sustained increase in energy prices raises firms’ production costs. In the short run, what combination of outcomes is most likely?

A
Inflation decreases and unemployment decreases
B
Inflation decreases and unemployment increases
C
Inflation increases and unemployment decreases
D
Inflation increases and unemployment increases

Written response

1 point

Use the short-run Phillips-curve equation $\pi = \pi^e - \alpha(u-u_n)$ . If expected inflation is 2%, $\alpha=1$ , actual unemployment is 4%, and the natural rate of unemployment is 5%, what is actual inflation in percentage points?