An economy is at potential GDP and the price level is 100 in the figure. If aggregate demand unexpectedly increases, the inflation rate is _______________.

0 percent a year
1.02 percent a year
2 percent a year
1.96 percent a year

An economy is in long-run equilibrium and the price level is 100 in the figure. If the increase in aggregate demand is expected, then the inflation rate is _________________.

4.7 percent a year
7.0 percent a year
4.9 percent a year
6.5 percent a year

A cost-push inflation begins when the percentage increase in _______ is greater than the percentage increase in _______.

the quantity of money demanded; the quantity of money supplied
resource prices; aggregate demand
aggregate demand; resource prices
the quantity of money supplied; the quantity of money demanded

Suppose that the economy is at full employment and aggregate demand increases by less than it is anticipated to increase. Other things remaining the same, ____________________.

real GDP remains at potential GDP
real GDP decreases below potential GDP
real GDP increases above potential GDP
long-run aggregate supply decreases

An economy's natural rate of unemployment is 4 percent. The table gives some points on the economy's short-run Phillips curve. When the unemployment rate is 4 percent ______________.

actual inflation is less than expected inflation
and the inflation rate is 6 percent a year, the short-run and long-run Phillips curves intersect
actual inflation is greater than expected inflation
and the expected inflation rate is 8 percent a year, the short-run Phillips curve shifts downward

An economy's natural rate of unemployment is 4 percent. The table gives some points on the economy's short-run Phillips curve. Currently, real GDP equals potential GDP and the value of the GDP deflator is 125. Now, aggregate demand increases by more than expected, and the GDP deflator increases to 135. The economy's unemployment rate __________________.

increases to 5 percent
decreases to 3 percent
remains at 4 percent
increases to 6 percent

An economy's natural rate of unemployment is 4 percent. The table gives some points on the economy's short-run Phillips curve. If the expected inflation rate falls to 4 percent per year, then the ___________.

long-run Phillips curve shifts rightward
long-run Phillips curve shifts leftward
short-run Phillips curve shifts upward
short-run Phillips curve shifts downward

If both the unemployment rate and the inflation rate decrease, you predict that ______________________.

the economy has moved along its short-run Phillips curve
the natural rate of unemployment has decreased
the expected inflation rate has increased
the natural rate of unemployment has increased

When the inflation rate is expected to be zero, Steve plans to lend money if the interest rate is at least 4 percent a year and Cindy plans to borrow money if the interest rate is no more than 4 percent a year. Steve and Cindy make a loan agreement for one year at an interest rate of 4 percent a year when inflation is zero. But if Steve and Cindy expect an inflation rate of 1 percent a year, they would be willing to make a loan agreement at _________ a year.

1 percent
4 percent
3 percent
5 percent

When the rate of inflation is expected to be zero, Steve wants to lend money if the interest rate is at least 4 percent per year, and Cindy wants to borrow money if the interest rate is no more than 4 percent per year. Steve and Cindy make a loan agreement for one year anticipating the inflation rate to be 2 percent. During the year, the inflation rate is actually 3 percent. As a result, _____________.

Steve and Cindy both gain
Cindy loses
Steve gains
Steve loses

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