Unit 5: Long-Run Consequences of Policy
Macro · Unit 5 · Paper 2

Long-Run Consequences of Policy unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1Paper 2Paper 3
Each paper is built from this unit’s 31 terms and is the same for everyone, so a teacher can assign “Unit 5, Paper 2” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.
Suggested time 32 min 29 points0/17 attempted
1

Real interest rate and investment

2

Short-run Phillips curve (SRPC)

3

Productivity

4

Why saving matters for growth

5

Fiscal and monetary policy in combination

6

Investment in human capital

7

Costs of a growing national debt

8

Time inconsistency

9

Economic growth

10

Policy lag comparison

11

Showing crowding out on graphs

12

Disinflation and its cost

Short answer 1. Define or explain: Long-run Phillips curve (LRPC)

3 pts

Short answer 2. Define or explain: Crowding out

3 pts

Short answer 3. Define or explain: What shifts the LRPC

3 pts

Short answer 4. Define or explain: Adaptive expectations

3 pts

Free response

5 pts

This course has no free-response prompt tagged to this unit, so one from elsewhere in the course is used. It is still worth writing — the skill transfers.

SHORT FREE-RESPONSE. Assume the economy of Norlund is producing at full employment with an inflation rate of 2 percent and a natural rate of unemployment of 5 percent.

Draw a correctly labeled Phillips curve graph showing both the short-run and long-run Phillips curves, and identify Norlund’s current position.

Suppose the central bank unexpectedly increases the money supply substantially. Show and explain the short-run movement on your graph.

Explain what happens in the long run and why the long-run Phillips curve is vertical.

Explain how a permanent increase in labor productivity would affect long-run aggregate supply and the standard of living, and state whether it changes the natural rate of unemployment.