Question 1

Suppose that the money supply increases.According to the Phillips curve model,what are the effects of this policy change?

Accepted Answer

A)   It decreases unemployment in the short run.
B)   It decreases inflation in the long run.
C)   It decreases unemployment in the long run.
D)   It decreases inflation in the short run.

Question 2

Which change will move the economy to a point on the Phillips curve where unemployment is lower?

Accepted Answer

A)   lower inflation
B)   increased government spending
C)   a decrease the money supply
D)   higher expectations about inflation

Question 3

A decrease in expected inflation shifts which of the following curves,and in what direction?

Accepted Answer

A)   It shifts the short-run Phillips curve right.
B)   It shifts the short-run Phillips curve left.
C)   It shifts the long-run Phillips curve right.
D)   It shifts the long-run Phillips curve left.

Question 4

How does an increase in the aggregate demand translate in the Phillips curve model?

Accepted Answer

A)   as an upward movement along the short-run Phillips curve
B)   as a shift to the right of the short-run Phillips curve
C)   as a downward movement along the short-run Phillips curve
D)   as a shift to the left of the short-run Phillips curve

Question 5

Suppose a war disrupts the supply of oil to the country.What would we expect to happen to the short-run aggregate-supply curve,the short-run Phillips curve,and the long-run Phillips curve?

Accepted Answer

A)   We would expect the short-run aggregate-supply curve,short-run Phillips curve,and long-run Phillips curve to shift left.
B)   We would expect the short-run aggregate-supply curve,short-run Phillips curve,and long-run Phillips curve to shift right.
C)   We would expect the short-run aggregate-supply curve to shift left,and the short-run Phillips curve and long-run Phillips curve to shift right.
D)   We would expect the short-run aggregate-supply curve to shift left,the short-run Phillips curve to shift right,and the long-run Phillips curve to be unaffected.

Question 6

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 7

Suppose the minimum wage decreased.At any given rate of inflation,what would happen to output and employment?

Accepted Answer

A)   Both output and employment would be higher.
B)   Both output and employment would be lower.
C)   Output would be higher and unemployment would be lower.
D)   Unemployment would be higher and output would be lower.

Question 8

More flexible labour markets will shift the long-run Phillips curve and the long-run aggregate-supply curve in which direction?

Accepted Answer

A)   They will shift both the long-run Phillips curve and the long-run aggregate-supply curve to the right.
B)   They will shift both the long-run Phillips curve and the long-run aggregate-supply curve to the left.
C)   They will shift the long-run Phillips curve to the right and the long-run aggregate-supply curve to the left.
D)   They will shift the long-run Phillips curve to the left and the long-run aggregate-supply curve to the right.

Question 9

Proponents of rational expectations theory have argued that the sacrifice ratio could be as small as what?

Accepted Answer

A)   0
B)   2
C)   4
D)   6

Question 10

Which of the following would shift aggregate supply to the right?

Accepted Answer

A)   increasing commodity prices
B)   an increase in money supply
C)   an increase in wages
D)   an increase in the economy's capital stock

Question 11

If policymakers accommodate an adverse supply shock,what will happen to the unemployment rate and inflation?

Accepted Answer

A)   The unemployment rate and the inflation rate will rise.
B)   The unemployment rate and the inflation rate will fall.
C)   The unemployment rate will rise and the inflation rate will fall.
D)   The unemployment rate will fall and the inflation rate will rise.

Question 12

Which statement best characterizes the theory of rational expectations?

Accepted Answer

A)   It suggests that estimates of the sacrifice ratio should be used to guide policy.
B)   It concerns how people use information to predict the future.
C)   It explains why the long-run Phillips curve is vertical.
D)   It explains how people act when there is unemployment and workers must be rationed.

Question 13

Figure 16-4 
-Refer to the Figure 16-4.At point b,how do actual and expected inflation rates and unemployment rates compare?

Accepted Answer

A)   The actual inflation rate is less than the expected inflation rate,and the actual rate of unemployment exceeds the natural rate of unemployment.
B)   The actual inflation rate is greater than the expected inflation rate,and the actual rate of unemployment exceeds the natural rate of unemployment.
C)   The actual inflation rate is less than the expected inflation rate,and the actual rate of unemployment is less than the natural rate of unemployment.
D)   The actual inflation rate is greater than the expected inflation rate,and the actual rate of unemployment is less than the natural rate of unemployment.

Question 14

What will a favourable supply shock cause the price level and output to do?

Accepted Answer

A)   It will cause the price level and output to rise.
B)   It will cause the price level and output to fall.
C)   It will cause the price level to rise and output to fall.
D)   It will cause the price level to fall and output to rise.

Question 15

What happened to aggregate supply and the Phillips curve in the mid- and late 1990s?

Accepted Answer

A)   Aggregate supply and the Phillips curve shifted right.
B)   Aggregate supply and the Phillips curve shifted left.
C)   Aggregate supply shifted right and the Phillips curve shifted left.
D)   Aggregate supply shifted left and the Phillips curve shifted right.

Question 16

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Accepted Answer

A) True 
 B)False

Question 17

Figure 16-3 
-Refer to the Figure 16-3.Starting from c and 3,in the short run,where does an unexpected increase in money supply move the economy to?

Accepted Answer

A)   a and 1
B)   b and 2
C)   e and 5
D)   d and 4

Question 18

How could we transform the AD-AS model such that,instead of the price level and output it would show the relationship between the inflation rate (ð)and the rate of output growth (g)?

Accepted Answer

One can start from the AD-AS model in th...

Question 19

How will an adverse supply shock shift the short-run aggregate-supply curve,and what will be the effect on prices?

Accepted Answer

A)   It will shift the short-run aggregate-supply curve right,making prices rise.
B)   It will shift the short-run aggregate-supply curve left,making prices rise.
C)   It will shift the short-run aggregate-supply curve right,making prices fall.
D)   It will shift the short-run aggregate-supply curve left,making prices fall.

Question 20

What do the data for the period of 1973 through 1980 demonstrate?

Accepted Answer

A)   that there is a short-run tradeoff between inflation and unemployment in a stable economy
B)   that a supply shock changes the natural rate of unemployment
C)   that there is no long-run tradeoff between inflation and unemployment
D)   that a supply shock increases both inflation and unemployment

Exam 16: The Short-Run Tradeoff Between Inflation and Unemployment

Suppose the minimum wage decreased.At any given rate of inflation,what would happen to output and employment?

Correct AnswerverifiedShow Answer

Which of the following would shift aggregate supply to the right?

Correct AnswerverifiedShow Answer

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Correct AnswerverifiedShow Answer

What do the data for the period of 1973 through 1980 demonstrate?

Correct AnswerverifiedShow Answer

How could we transform the AD-AS model such that,instead of the price level and output it would show the relationship between the inflation rate (ð)and the rate of output growth (g)?

Correct AnswerverifiedOne can start from the AD-AS model in th...View AnswerShow Answer

Figure 16-3 -Refer to the Figure 16-3.Starting from c and 3,in the short run,where does an unexpected increase in money supply move the economy to?

Correct AnswerverifiedShow Answer

Which change will move the economy to a point on the Phillips curve where unemployment is lower?

Correct AnswerverifiedShow Answer

Suppose a war disrupts the supply of oil to the country.What would we expect to happen to the short-run aggregate-supply curve,the short-run Phillips curve,and the long-run Phillips curve?

Correct AnswerverifiedShow Answer

Suppose that the money supply increases.According to the Phillips curve model,what are the effects of this policy change?

Correct AnswerverifiedShow Answer

How does an increase in the aggregate demand translate in the Phillips curve model?

Correct AnswerverifiedShow Answer

More flexible labour markets will shift the long-run Phillips curve and the long-run aggregate-supply curve in which direction?

Correct AnswerverifiedShow Answer

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Correct AnswerverifiedShow Answer

What will a favourable supply shock cause the price level and output to do?

Correct AnswerverifiedShow Answer

If policymakers accommodate an adverse supply shock,what will happen to the unemployment rate and inflation?

Correct AnswerverifiedShow Answer

What happened to aggregate supply and the Phillips curve in the mid- and late 1990s?

Correct AnswerverifiedShow Answer

Figure 16-4 -Refer to the Figure 16-4.At point b,how do actual and expected inflation rates and unemployment rates compare?

Correct AnswerverifiedShow Answer

How will an adverse supply shock shift the short-run aggregate-supply curve,and what will be the effect on prices?

Correct AnswerverifiedShow Answer

Which statement best characterizes the theory of rational expectations?

Correct AnswerverifiedShow Answer

A decrease in expected inflation shifts which of the following curves,and in what direction?

Correct AnswerverifiedShow Answer

Proponents of rational expectations theory have argued that the sacrifice ratio could be as small as what?

Correct AnswerverifiedShow Answer

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One can start from the AD-AS model in th...
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