Question 1

Figure 35-3   ​
​
-Refer to Figure 35-3. The inflation rate is greatest at

Accepted Answer

A) D. 
B) B. 
C) C. 
D) A. 
A) D. 
B) B. 
C) C. 
D) A.

Question 2

By raising aggregate demand more than anticipated, policymakers

Accepted Answer

A) reduce unemployment temporarily. 
B) raise unemployment temporarily. 
C) reduce unemployment permanently. 
D) raise unemployment permanently. 
A) reduce unemployment temporarily. 
B) raise unemployment temporarily. 
C) reduce unemployment permanently. 
D) raise unemployment permanently.

Question 3

The theory by which people optimally use all available information when forecasting the future is known as

Accepted Answer

A) rational expectations. 
B) perfect expectations. 
C) credible expectations. 
D) predictive expectations. 
A) rational expectations. 
B) perfect expectations. 
C) credible expectations. 
D) predictive expectations.

Question 4

Scenario 35-2
​
In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years.
-Refer to Scenario 35-2. Suppose that the Flosserland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% but that it actually leaves inflation at 25%. Suppose that the public had expected that the Department of Finance would reduce inflation, but only to 20%. Then

Accepted Answer

A) unemployment falls, but it would have fallen more if people had been expecting 12.5% inflation. 
B) unemployment falls, but it would have fallen more if people had been expecting 22% inflation. 
C) unemployment rises, but it would have risen more if people had been expecting 12.5% inflation. 
D) unemployment rises, but it would have risen more if people had been expecting 22% inflation. 
A) unemployment falls, but it would have fallen more if people had been expecting 12.5% inflation. 
B) unemployment falls, but it would have fallen more if people had been expecting 22% inflation. 
C) unemployment rises, but it would have risen more if people had been expecting 12.5% inflation. 
D) unemployment rises, but it would have risen more if people had been expecting 22% inflation.

Question 5

If there is an increase in the price of oil, then

Accepted Answer

A) unemployment rises.If the central bank tries to counter this increase, inflation rises. 
B) unemployment rises.If the central bank tries to counter this increase, inflation falls. 
C) unemployment falls.If the central bank tries to counter this decrease, inflation falls. 
D) unemployment falls.If the central bank tries to counter this decrease, inflation rises. 
A) unemployment rises.If the central bank tries to counter this increase, inflation rises. 
B) unemployment rises.If the central bank tries to counter this increase, inflation falls. 
C) unemployment falls.If the central bank tries to counter this decrease, inflation falls. 
D) unemployment falls.If the central bank tries to counter this decrease, inflation rises.

Question 6

Figure 35-2    
-Refer to Figure 35-2. Assume the figure depicts possible outcomes for the year 2022. In 2022, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2021 was

Accepted Answer

A) 144. 
B) 150. 
C) 152. 
D) 156. 
A) 144. 
B) 150. 
C) 152. 
D) 156.

Question 7

If taxes rise, then aggregate demand shifts

Accepted Answer

A) right, making unemployment higher than otherwise. 
B) right, making unemployment lower than otherwise. 
C) left, making unemployment higher than otherwise. 
D) left, making unemployment lower than otherwise. 
A) right, making unemployment higher than otherwise. 
B) right, making unemployment lower than otherwise. 
C) left, making unemployment higher than otherwise. 
D) left, making unemployment lower than otherwise.

Question 8

Some economists argue suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real fiscal reforms, people will expect the government will eventually need to expand the money supply to pay for its expenditures. Thus, the promise to fight inflation will not be credible. Explain why credibility is important to a reduction in the inflation rate.

Accepted Answer

If people believe that the government re

Question 9

Use the sticky-wage theory of aggregate demand to explain the short-run Phillips curve.

Accepted Answer

According to the sticky-wage theory, nom

Question 10

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Accepted Answer

In the long run the natural rate of unem

Question 11

An increase in the natural rate of unemployment shifts the short-run Phillips curve to the _____. If the central bank sees the increase in the unemployment rate, but thinks the natural rate has remained the same and so wants to reduce unemployment, it would ________ the money supply growth rate. If it maintains this money supply growth rate, eventually the short run Phillips curve will shift _____ and unemployment will be _____.

Accepted Answer

right, increase, rig

Question 12

If asset prices fall and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

Accepted Answer

Inflation falls and unemployment rises.

Question 13

In the Friedman-Phelps analysis, when inflation is less than expected, the unemployment rate is less than the natural rate.

Accepted Answer

A) True 
 B)False

Question 14

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,

Accepted Answer

A) unemployment equals the natural rate and expected inflation equals actual inflation. 
B) unemployment is above the natural rate and expected inflation equals actual inflation. 
C) unemployment equals the natural rate and expected inflation is greater than actual inflation. 
D) there is no unemployment or inflation. 
A) unemployment equals the natural rate and expected inflation equals actual inflation. 
B) unemployment is above the natural rate and expected inflation equals actual inflation. 
C) unemployment equals the natural rate and expected inflation is greater than actual inflation. 
D) there is no unemployment or inflation.

Question 15

If there is a decline in business confidence and the Fed desires to return unemployment towards its natural rate, what should it do? If business confidence eventually returns to normal but the Fed does not reverse its policy, what eventually happens to the inflation rate?

Accepted Answer

Increase the money s

Question 16

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

Accepted Answer

A) True 
 B)False

Question 17

Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation.

Accepted Answer

A) True 
 B)False

Question 18

Figure 35-1     ​
​
​
​
​
-Refer to Figure 35-1. Suppose points F and G on the right-hand graph represent two possible outcomes for an imaginary economy in the year 2020, and those two points correspond to points B and C, respectively, on the left-hand graph. Also, suppose we know that the price index equaled 120 in 2019. Then the numbers 115 and 130 on the vertical axis of the left-hand graph would have to be replaced by

Accepted Answer

A) 155 and 175, respectively. 
B) 138 and 156, respectively. 
C) 137.5 and 154.75, respectively. 
D) 135 and 150, respectively. 
A) 155 and 175, respectively. 
B) 138 and 156, respectively. 
C) 137.5 and 154.75, respectively. 
D) 135 and 150, respectively.

Question 19

An adverse supply shock shifts the short-run Phillips curve to the left.

Accepted Answer

A) True 
 B)False

Question 20

Suppose the price level is 115.00 at the end of 2020, 112.02 at the end of 2021, and 109.08 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

Accepted Answer

No. Since the price level is f

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

Figure 35-3 ​ ​ -Refer to Figure 35-3. The inflation rate is greatest at

By raising aggregate demand more than anticipated, policymakers

The theory by which people optimally use all available information when forecasting the future is known as

If there is an increase in the price of oil, then

Figure 35-2 -Refer to Figure 35-2. Assume the figure depicts possible outcomes for the year 2022. In 2022, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2021 was

If taxes rise, then aggregate demand shifts

Use the sticky-wage theory of aggregate demand to explain the short-run Phillips curve.

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

If asset prices fall and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

In the Friedman-Phelps analysis, when inflation is less than expected, the unemployment rate is less than the natural rate.

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,

If there is a decline in business confidence and the Fed desires to return unemployment towards its natural rate, what should it do? If business confidence eventually returns to normal but the Fed does not reverse its policy, what eventually happens to the inflation rate?

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation.

An adverse supply shock shifts the short-run Phillips curve to the left.

Suppose the price level is 115.00 at the end of 2020, 112.02 at the end of 2021, and 109.08 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

Six Debates Over Macroeconomic Policy

Filters

Figure 35-3 -Refer to Figure 35-3. The inflation rate is greatest at