Question 1

Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have

Accepted Answer

A)   lower unemployment and higher inflation
B)   higher unemployment and higher inflation
C)   lower unemployment and lower inflation
D)   None of the above is necessarily correct.E) A) and C)
F) A) and B)

Question 2

If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run

Accepted Answer

A)   both the unemployment rate and the inflation rate would be lower.
B)   the unemployment rate would be lower and the inflation rate would be higher.
C)   the unemployment rate would be higher and the inflation rate would be lower.
D)   the unemployment rate and the inflation rate would be higher.E) A) and B)
F) A) and C)

Question 3

Which of the following is vertical?

Accepted Answer

A)   both the long-run Phillips curve and the long-run aggregate supply curve
B)   neither the long-run Phillips curve nor the long-run aggregate supply curve.
C)   the long-run Phillips curve, but not the long-run aggregate supply curve
D)   the long-run Phillips curve, but not the long-run aggregate supply curve.E) A) and C)
F) All of the above

Question 4

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

Accepted Answer

A)   increase the money supply growth rate which raises the inflation rate.
B)   increase the money supply growth rate which reduces the inflation rate.
C)   decrease the money supply growth rate which raises the inflation rate.
D)   decrease the money supply growth rate which reduces the inflation rate.E) All of the above
F) B) and C)

Question 5

What evidence does the Volcker disinflation provide concerning the importance of inflation expectations to the costs of disinflation?

Accepted Answer

Unemployment did rise. However, the sacr...

Question 6

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Accepted Answer

A)   0.4.
B)   1.5.
C)   2.5.
D)   5.0.E) A) and B)
F) None of the above

Question 7

A favorable supply shock causes output to

Accepted Answer

A)   rise. To counter this a central bank would increase the money supply.
B)   rise. To counter this a central bank would decrease the money supply.
C)   fall. To counter this a central bank would increase the money supply.
D)   fall. To counter this a central bank would decrease the money supply.E) C) and D)
F) A) and B)

Question 8

According to classical macroeconomic theory, in the long run

Accepted Answer

A)   monetary growth affects both real and nominal variables.
B)   the only real variable affected by monetary growth is the unemployment rate.
C)   a number of factors that affect unemployment are influenced by monetary growth.
D)   monetary growth affects nominal but not real variables.E) C) and D)
F) None of the above

Question 9

In the long run, inflation

Accepted Answer

A)   and unemployment are primarily determined by labor market factors.
B)   and unemployment are primarily determined by the rate of money supply growth.
C)   is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors.
D)   is primarily determined by labor market factors while unemployment is primarily determined by the rate of money supply growth.E) B) and C)
F) C) and D)

Question 10

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a × Αctual inflation - x) .In this equation,

Accepted Answer

A)   a is a parameter that measures how much actual inflation responds to expected inflation.
B)   a = 0 at the point of intersection of the short-run and long-run Phillips curves.
C)   x is the expected rate of inflation.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 11

If there is a large and sudden but temporary increase in the price of oil, which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

Accepted Answer

The short-run Phillips curve s...

Question 12

Neither monetary policy nor any government policy can change the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 13

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

Accepted Answer

A)   increasing the money supply.
B)   increasing government expenditures.
C)   raising taxes.
D)   None of the above is correct.E) None of the above
F) B) and C)

Question 14

If a central bank reduced inflation by 3 percentage points and in the short run this made output fall by 3 percentage points for 3 years and the unemployment rate rise from 3 percent to 9 percent for three years, the sacrifice ratio is

Accepted Answer

A)   1.
B)   2.
C)   3.
D)   None of the above is correct.E) B) and D)
F) A) and C)

Question 15

There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

Accepted Answer

A)   raise the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve right.
B)   raise the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve left.
C)   reduce the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve right.
D)   reduce the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve left.E) B) and D)
F) A) and D)

Question 16

If consumer confidence rises and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

Accepted Answer

Inflation rises and unemployment falls. ...

Question 17

In the nineteenth century, some countries were on a gold standard so that on average the money supply growth rate was close to zero and expected inflation was more or less constant. For these countries during this time period, we find that increases in actual inflation were generally associated with falling unemployment. These findings

Accepted Answer

A)   are consistent with Friedman and Phelps's theories, because they argued that when inflation was higher than expected, unemployment would fall.
B)   are consistent with Friedman and Phelps's theories, because they argued that when prices rose unemployment would fall whether actual inflation was higher than expected or not.
C)   are inconsistent with Friedman and Phelps's theories, because they argued that higher inflation would increase unemployment.
D)   are inconsistent with Friedman and Phelps's theories, because they argued that inflation and unemployment are unrelated.E) A) and D)
F) C) and D)

Question 18

If the government raises government expenditures, then in the short run prices

Accepted Answer

A)   rise and unemployment falls.
B)   fall and unemployment rises.
C)   and unemployment rise.
D)   and unemployment fall.E) A) and C)
F) A) and B)

Question 19

If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same, then policymakers

Accepted Answer

A)   can not exploit a tradeoff between inflation and unemployment in either the short or long run.
B)   can exploit a tradeoff between inflation and unemployment in the short run but not in the long run.
C)   can exploit a tradeoff between inflation and unemployment in both the short run and the long run.
D)   can exploit a tradeoff between inflation and unemployment in the long run, but not the short run.E) A) and D)
F) B) and C)

Question 20

Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS)  curve and two aggregate-demand AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."  
-Refer to Figure 35-9. Subsequent to the shift of the Phillips curve from PC1 to PC2, the curve will soon shift back to PC1 if people perceive the

Accepted Answer

A)   increase in the inflation rate as a temporary aberration.
B)   economic boom as a temporary aberration.
C)   increase in the inflation rate as a sign of a new era of higher inflation.
D)   economic boom as a sign of a new era of higher economic growth.E) A) and B)
F) A) and C)

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

Correct Answer
verified

Neither monetary policy nor any government policy can change the natural rate of unemployment.

Correct Answer
verified

Correct Answer
verified

In the long run, inflation

Correct Answer
verified

If a central bank reduced inflation by 3 percentage points and in the short run this made output fall by 3 percentage points for 3 years and the unemployment rate rise from 3 percent to 9 percent for three years, the sacrifice ratio is

Correct Answer
verified

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

Correct Answer
verified

Correct Answer
verified

If there is a large and sudden but temporary increase in the price of oil, which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

Correct Answer
verified
The short-run Phillips curve s...
View Answer

If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run

Correct Answer
verified

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Correct Answer
verified

According to classical macroeconomic theory, in the long run

Correct Answer
verified

What evidence does the Volcker disinflation provide concerning the importance of inflation expectations to the costs of disinflation?

Correct Answer
verified
Unemployment did rise. However, the sacr...
View Answer

If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same, then policymakers

Correct Answer
verified

A favorable supply shock causes output to

Correct Answer
verified

Which of the following is vertical?

Correct Answer
verified

Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have

Correct Answer
verified

If the government raises government expenditures, then in the short run prices

Correct Answer
verified

There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

Correct Answer
verified

If consumer confidence rises and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

Correct Answer
verified
Inflation rises and unemployment falls. ...
View Answer

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a × Αctual inflation - x) .In this equation,

Correct Answer
verified

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

Correct AnswerverifiedShow Answer

Neither monetary policy nor any government policy can change the natural rate of unemployment.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the long run, inflation

Correct AnswerverifiedShow Answer

If a central bank reduced inflation by 3 percentage points and in the short run this made output fall by 3 percentage points for 3 years and the unemployment rate rise from 3 percent to 9 percent for three years, the sacrifice ratio is

Correct AnswerverifiedShow Answer

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If there is a large and sudden but temporary increase in the price of oil, which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

Correct AnswerverifiedThe short-run Phillips curve s...View AnswerShow Answer

If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run

Correct AnswerverifiedShow Answer

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory, in the long run

Correct AnswerverifiedShow Answer

What evidence does the Volcker disinflation provide concerning the importance of inflation expectations to the costs of disinflation?

Correct AnswerverifiedUnemployment did rise. However, the sacr...View AnswerShow Answer

If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same, then policymakers

Correct AnswerverifiedShow Answer

A favorable supply shock causes output to

Correct AnswerverifiedShow Answer

Which of the following is vertical?

Correct AnswerverifiedShow Answer

Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have

Correct AnswerverifiedShow Answer

If the government raises government expenditures, then in the short run prices

Correct AnswerverifiedShow Answer

There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

Correct AnswerverifiedShow Answer

If consumer confidence rises and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

Correct AnswerverifiedInflation rises and unemployment falls. ...View AnswerShow Answer

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a × Αctual inflation - x) .In this equation,

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The short-run Phillips curve s...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Unemployment did rise. However, the sacr...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Inflation rises and unemployment falls. ...
View Answer

Correct Answer
verified