Question 1

Where does the short-run Phillips curve intersect the long-run Phillips curve?

Accepted Answer

A)  at the point where the rate of inflation and the unemployment rate are equal 
B)  at the natural rate of inflation 
C)  at the point where actual inflation is equal to expected inflation 
D)  There is no intersection between the short-run and long-run Phillips curves. 
A)  at the point where the rate of inflation and the unemployment rate are equal 
B)  at the natural rate of inflation 
C)  at the point where actual inflation is equal to expected inflation 
D)  There is no intersection between the short-run and long-run Phillips curves.

Question 2

If the rate of inflation in the economy is steady at 5 percent per year, how does the short-run Phillips curve predict that the unemployment rate will be changing, if at all? Does your answer change if inflation in the economy is 0 percent? Illustrate your answer with a Phillips curve.

Accepted Answer

If the rate of inflation is constant at

Question 3

Figure 28-2  
-Refer to Figure 28-2. Suppose the economy is at point B in the figure above. Which of the following is true?

Accepted Answer

A)  The expected rate of inflation is 3%. 
B)  The natural rate of unemployment is 3.8%. 
C)  The current unemployment rate is 5%. 
D)  The economy is producing at potential GDP. 
E)  Expected inflation and actual inflation are the same. 
A)  The expected rate of inflation is 3%. 
B)  The natural rate of unemployment is 3.8%. 
C)  The current unemployment rate is 5%. 
D)  The economy is producing at potential GDP. 
E)  Expected inflation and actual inflation are the same.

Question 4

The curve showing the short-run relationship between the unemployment rate and the inflation rate is called

Accepted Answer

A)  the monetary policy curve. 
B)  the Phillips curve. 
C)  the Sargent curve. 
D)  the unemployment curve. 
A)  the monetary policy curve. 
B)  the Phillips curve. 
C)  the Sargent curve. 
D)  the unemployment curve.

Question 5

Figure 28-1  
-Refer to Figure 28-1. Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above, and the unemployment rate at A is the natural rate. If the economy was to move to point B, which of the following must be true?

Accepted Answer

A)  The economy is producing a level of GDP equal to potential GDP. 
B)  Aggregate demand must have increased. 
C)  Equilibrium GDP at point B must be below potential GDP. 
D)  The Fed conducted expansionary policy to cause the move. 
E)  The Fed purchased treasury bills to cause the move. 
A)  The economy is producing a level of GDP equal to potential GDP. 
B)  Aggregate demand must have increased. 
C)  Equilibrium GDP at point B must be below potential GDP. 
D)  The Fed conducted expansionary policy to cause the move. 
E)  The Fed purchased treasury bills to cause the move.

Question 6

If the current unemployment rate is 5%, under which of the following circumstances would you expect the Fed to use expansionary monetary policy?

Accepted Answer

A)  if the natural rate of unemployment is below 5% 
B)  if the natural rate of unemployment is above 5% 
C)  if the inflation rate is above 5% 
D)  if the inflation rate is below 5% 
A)  if the natural rate of unemployment is below 5% 
B)  if the natural rate of unemployment is above 5% 
C)  if the inflation rate is above 5% 
D)  if the inflation rate is below 5%

Question 7

If the long-run aggregate supply curve is vertical

Accepted Answer

A)  the economy stays at the natural rate of inflation in the long run. 
B)  the short-run Phillips curve must be vertical. 
C)  unemployment and inflation are positively related in the long run. 
D)  the trade-off between unemployment and inflation cannot be permanent. 
A)  the economy stays at the natural rate of inflation in the long run. 
B)  the short-run Phillips curve must be vertical. 
C)  unemployment and inflation are positively related in the long run. 
D)  the trade-off between unemployment and inflation cannot be permanent.

Question 8

According to economists Robert Lucas and Thomas Sargent, the apparent short-run trade-off between unemployment and inflation in the 1950s and 1960s was the result of

Accepted Answer

A)  unexpected changes in monetary policy. 
B)  expected changes in monetary policy. 
C)  unexpected changes in fiscal policy. 
D)  expected changes in fiscal policy. 
A)  unexpected changes in monetary policy. 
B)  expected changes in monetary policy. 
C)  unexpected changes in fiscal policy. 
D)  expected changes in fiscal policy.

Question 9

In the dynamic AD-AS model, when will an increase in aggregate demand not result in lower unemployment rates in the short run?

Accepted Answer

An increase in aggregate demand will not

Question 10

The expansionary monetary and fiscal policies of the 1960s resulted in

Accepted Answer

A)  high inflation rates and high rates of unemployment. 
B)  low inflation rates and low rates of unemployment. 
C)  low inflation rates and high rates of unemployment. 
D)  high inflation rates and low rates of unemployment. 
A)  high inflation rates and high rates of unemployment. 
B)  low inflation rates and low rates of unemployment. 
C)  low inflation rates and high rates of unemployment. 
D)  high inflation rates and low rates of unemployment.

Question 11

Monetary policy can

Accepted Answer

A)  shift the short-run trade-off between inflation and unemployment if it affects expected inflation. 
B)  shift the long-run trade-off between inflation and unemployment through changes in cyclical unemployment. 
C)  shift neither the short-run nor long-run Phillips curve trade-offs between inflation and unemployment. 
D)  shift both the short-run and long-run trade-offs between inflation and unemployment if changes in policy are credible. 
A)  shift the short-run trade-off between inflation and unemployment if it affects expected inflation. 
B)  shift the long-run trade-off between inflation and unemployment through changes in cyclical unemployment. 
C)  shift neither the short-run nor long-run Phillips curve trade-offs between inflation and unemployment. 
D)  shift both the short-run and long-run trade-offs between inflation and unemployment if changes in policy are credible.

Question 12

If the current unemployment rate is 5%, under which of the following circumstances would you expect the Fed to use contractionary monetary policy?

Accepted Answer

A)  if the natural rate of unemployment is below 5% 
B)  if the natural rate of unemployment is above 5% 
C)  if the inflation rate is above 5% 
D)  if the inflation rate is below 5% 
A)  if the natural rate of unemployment is below 5% 
B)  if the natural rate of unemployment is above 5% 
C)  if the inflation rate is above 5% 
D)  if the inflation rate is below 5%

Question 13

During a time when the inflation rate is increasing each year for a number of years, are adaptive expectations or rational expectations likely to give the more accurate forecasts? Briefly explain.

Accepted Answer

Rational expectations are likely to give

Question 14

A decrease in the level of cyclical unemployment will shift the long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 15

If expectations are adaptive, how will the economy adjust to a new long-run equilibrium in response to contractionary monetary policy? Support your answer with a graph of the Phillips curve.

Accepted Answer

Contractionary monetary policy reduces t

Question 16

Monetary policy has ________ impact on the long-run Phillips curve.

Accepted Answer

A)  a positive 
B)  a negative 
C)  an unpredictable 
D)  no 
A)  a positive 
B)  a negative 
C)  an unpredictable 
D)  no

Question 17

Which of the following would be the source of a "real" business cycle?

Accepted Answer

A)  changes in technology 
B)  anticipated expansionary monetary policy 
C)  unanticipated expansionary monetary policy 
D)  unanticipated contractionary monetary policy 
A)  changes in technology 
B)  anticipated expansionary monetary policy 
C)  unanticipated expansionary monetary policy 
D)  unanticipated contractionary monetary policy

Question 18

What impact does monetary policy have on the long-run Phillips curve?

Accepted Answer

A)  Monetary policy can only shift the long-run Phillips curve to the left. 
B)  Monetary policy shifts the long-run Phillips curve to the right or left, depending on whether monetary policy is expansionary or contractionary. 
C)  Monetary policy can only shift the long-run Phillips curve to the right. 
D)  Monetary policy has no impact on the long-run Phillips curve. 
A)  Monetary policy can only shift the long-run Phillips curve to the left. 
B)  Monetary policy shifts the long-run Phillips curve to the right or left, depending on whether monetary policy is expansionary or contractionary. 
C)  Monetary policy can only shift the long-run Phillips curve to the right. 
D)  Monetary policy has no impact on the long-run Phillips curve.

Question 19

Growth in aggregate demand will

Accepted Answer

A)  cause deflation. 
B)  increase unemployment. 
C)  move the economy to a higher point on the short-run Phillips curve. 
D)  cause the short-run Phillips curve to shift to the left. 
A)  cause deflation. 
B)  increase unemployment. 
C)  move the economy to a higher point on the short-run Phillips curve. 
D)  cause the short-run Phillips curve to shift to the left.

Question 20

If the Federal Reserve wants to reduce inflation from 4 percent to 3 percent permanently, how can that goal be achieved, and what impact will that have on employment in the short run and the long run? Support your answer with a graph of the Phillips curve in the short run and the long run.

Accepted Answer

If the Fed wants to reduce inflation, it

Exam 28: Inflation, Unemployment, and Federal Reserve Policy

Where does the short-run Phillips curve intersect the long-run Phillips curve?

If the rate of inflation in the economy is steady at 5 percent per year, how does the short-run Phillips curve predict that the unemployment rate will be changing, if at all? Does your answer change if inflation in the economy is 0 percent? Illustrate your answer with a Phillips curve.

Figure 28-2 -Refer to Figure 28-2. Suppose the economy is at point B in the figure above. Which of the following is true?

The curve showing the short-run relationship between the unemployment rate and the inflation rate is called

Figure 28-1 -Refer to Figure 28-1. Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above, and the unemployment rate at A is the natural rate. If the economy was to move to point B, which of the following must be true?

If the current unemployment rate is 5%, under which of the following circumstances would you expect the Fed to use expansionary monetary policy?

If the long-run aggregate supply curve is vertical

According to economists Robert Lucas and Thomas Sargent, the apparent short-run trade-off between unemployment and inflation in the 1950s and 1960s was the result of

In the dynamic AD-AS model, when will an increase in aggregate demand not result in lower unemployment rates in the short run?

The expansionary monetary and fiscal policies of the 1960s resulted in

Monetary policy can

If the current unemployment rate is 5%, under which of the following circumstances would you expect the Fed to use contractionary monetary policy?

During a time when the inflation rate is increasing each year for a number of years, are adaptive expectations or rational expectations likely to give the more accurate forecasts? Briefly explain.

A decrease in the level of cyclical unemployment will shift the long-run Phillips curve.

If expectations are adaptive, how will the economy adjust to a new long-run equilibrium in response to contractionary monetary policy? Support your answer with a graph of the Phillips curve.

Monetary policy has ________ impact on the long-run Phillips curve.

Which of the following would be the source of a "real" business cycle?

What impact does monetary policy have on the long-run Phillips curve?

Growth in aggregate demand will

If the Federal Reserve wants to reduce inflation from 4 percent to 3 percent permanently, how can that goal be achieved, and what impact will that have on employment in the short run and the long run? Support your answer with a graph of the Phillips curve in the short run and the long run.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

The International Financial System

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