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Discussion Problems On Chapter 9 Set1

The document presents discussion problems related to economic concepts such as the Phillips curve, Okun's law, disposable income, and the IS-LM-PC model. It includes multiple-choice questions that test understanding of relationships between unemployment, inflation, interest rates, and economic output. Additionally, it addresses the implications of policy changes like tax increases on economic adjustments in both the short and medium run.

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Smiksha Karnavat
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3 views2 pages

Discussion Problems On Chapter 9 Set1

The document presents discussion problems related to economic concepts such as the Phillips curve, Okun's law, disposable income, and the IS-LM-PC model. It includes multiple-choice questions that test understanding of relationships between unemployment, inflation, interest rates, and economic output. Additionally, it addresses the implications of policy changes like tax increases on economic adjustments in both the short and medium run.

Uploaded by

Smiksha Karnavat
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Discussion Problems on Chapter 9

1) The Phillips curve shows that when the unemployment rate is lower than the natural rate,
A) inflation is higher than expected.
B) inflation is lower than expected.
C) policy rate is higher than expected.
D) policy rate is lower than expected.

2) Okun's law shows that when the unemployment rate is above the natural rate,
A) inflation is higher than expected.
B) inflation is lower than expected.
C) output is below potential.
D) output is above potential.

3) Disposable income equals


A) income minus saving.
B) income minus both saving and taxes.
C) consumption minus taxes.
D) the sum of consumption and saving.
E) none of the above.

4) In the IS-LM-PC model, which of the following is assumed to be exogenous?


A) G
B) C
C) I
D) Y

5) In the IS-LM-PC model, investment does not depend on


A) T.
B) Y.
C) r.
D) x.

6) The change in the unemployment rate is approximately equal to


A) the negative of the growth rate of output.
B) the negative policy rate.
C) the negative inflation rate.
D) the negative of the growth rate of money supply.

7) The natural rate of interest is not


A) zero.
B) the neutral rate of interest.
C) Wicksellian rate of interest.
D) associated with the natural rate of unemployment.

8) The zero lower bound refers to the situation that


A) the lowest the central bank can decrease the nominal policy rate is 0%.
B) real interest rate is 0%.
C) inflation rate is 0%.
D) risk premium is 0%.

9) When the policy rate decreases,


A) IS curve does not change.
B) IS curve shifts to the right.
C) IS curve shifts to the left.
D) LM curve shifts upward.
E) LM curve shifts downward.

10) Use the IS-LM-PC model to illustrate how the economy adjusts to an increase in taxes
both in the short run and in the medium run.

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