1.The coordination approach to the Phillips curve focuses on the fact that

A) administrations have problems coordinating fiscal policy with the monetary policy of the central bank

B) long-term labor contracts tend to expire at different times, so firms cannot coordinate their hiring

C) unemployed workers are not organized enough to influence wage negotiations

D) firms are unsure about their competitors' behavior and are therefore reluctant to change wages and prices following a change in aggregate demand

E) workers have only imperfect information about their real wages

2.The inverse relationship between inflation and unemployment is called

A) Okun's law

B) the Lucas curve

C) the Phillips curve

D) the replacement ratio

E) the sacrifice ratio

3.The insider-outsider model refers to

A) policy making in White House

B) the fact that the unemployed do not take part in collective bargaining

C) the fact that wages do not respond significantly to changes in the unemployment rate

D) slow price adjustments in an imperfectly competitive business environment

E) both B) and C)

4.Wages are considered to be sticky rather than flexible since

A) firms encounter menu costs when changing wages but not when changing prices

B) labor contracts contain cost-of-living adjustments

C) firms tend to look at labor as an expendable resource

D) firms are unsure about their competitors' behavior and only reluctantly change prices and wages following a change in aggregate demand

E) all of the above

5.The fact that nominal wages are fixed by a contract at the beginning of a period while prices of goods may change within that period, implies that

A) unanticipated changes in the money supply do not affect the level of output

B)there is no trade-off between unemployment and inflation

C) firms want to supply more output when prices increase since the real wage rate is lower

D) anticipated monetary policy changes will not affect the level of inflation

E) money supply changes affect prices but not unemployment in the short run

6.The efficiency wage theory of aggregate supply implies that

A) the AS-curve is vertical

B) paying employees higher wages won't induce them to work harder

C) even unanticipated changes in monetary or fiscal policy have no effect on the level of output

D) since the cost of changing wages and prices is low, wages can easily be adjusted in proportion to price changes to maintain full employment

E) none of the above

7.The upward-sloping AS-curve will shift eventually to the left if

A) labor productivity increases

B) actual output is lower than the full-employment level

C) actual output is higher than the full-employment level

D) the markup over labor cost falls

E) the level of potential output increases

8.What sort of event could lead to a simultaneous decrease in the rates of inflation and unemployment?

A) a decrease in money supply

B) an increase in money supply

C) an adverse supply shock

D) a decrease in material prices

E) restrictive monetary policy following an adverse supply shock

Conceptual

9.Explain how the aggregate supply and Phillips curves are related to each other. Can any information be derived from one that cannot be derived from the other?

10.How do short- and long-term Phillips curves differ? ( Hint: In the long run, we return to a

classical world.)

11.Explain how the ability of inflation expectations to shift the Phillips curve helps the economy to adjust, automatically, to aggregate supply and demand shocks.