Question 1

The misery index is supposed to measure the

Accepted Answer

A) social cost of unemployment. 
B) health of the economy. 
C) lost output associated with a particular unemployment rate. 
D) short-run tradeoff between inflation and unemployment. 
A) social cost of unemployment. 
B) health of the economy. 
C) lost output associated with a particular unemployment rate. 
D) short-run tradeoff between inflation and unemployment.

Question 2

If the Fed were to increase the money supply,inflation and unemployment would both increase in the short run.

Accepted Answer

A) True 
 B)False

Question 3

In 1979,Fed Chair Paul Volcker

Accepted Answer

A) instituted an accommodative monetary policy to address adverse supply shocks. 
B) believed that inflation had not yet reached unacceptable levels. 
C) believed decreasing inflation would temporarily decrease output growth. 
D) All of the above are correct. 
A) instituted an accommodative monetary policy to address adverse supply shocks. 
B) believed that inflation had not yet reached unacceptable levels. 
C) believed decreasing inflation would temporarily decrease output growth. 
D) All of the above are correct.

Question 4

A policy intended to take reduce unemployment by taking advantage of a tradeoff between inflation and unemployment leads to

Accepted Answer

A) both higher inflation and higher unemployment in the long run. 
B) higher inflation and no reduction in unemployment in the long run. 
C) the same inflation rate and lower unemployment in the long run. 
D) higher inflation and lower unemployment in the long run 
A) both higher inflation and higher unemployment in the long run. 
B) higher inflation and no reduction in unemployment in the long run. 
C) the same inflation rate and lower unemployment in the long run. 
D) higher inflation and lower unemployment in the long run

Question 5

Suppose that an economy is currently experiencing 10 percent unemployment and 15 percent inflation.If in the process of bringing inflation down by 2 percent real GDP falls by 4 percent,the sacrifice ratio is

Accepted Answer

A) 5 percent. 
B) 2 percent. 
C) 12 percent. 
D) None of the above is correct. 
A) 5 percent. 
B) 2 percent. 
C) 12 percent. 
D) None of the above is correct.

Question 6

The natural rate of unemployment

Accepted Answer

A) is constant over time. 
B) varies over time, but can't be changed by the government. 
C) is the socially desirable rate of unemployment. 
D) does not depend on the rate at which the Fed increases the money supply. 
A) is constant over time. 
B) varies over time, but can't be changed by the government. 
C) is the socially desirable rate of unemployment. 
D) does not depend on the rate at which the Fed increases the money supply.

Question 7

Suppose the central bank pursues an expansionary monetary policy.In the short-run the effects of this are shown by

Accepted Answer

A) moving to the left along the short-run Phillips curve. 
B) moving to the right along the short-run Phillips curve. 
C) shifting the short run Phillips curve right. 
D) shifting the short run Phillips curve left. 
A) moving to the left along the short-run Phillips curve. 
B) moving to the right along the short-run Phillips curve. 
C) shifting the short run Phillips curve right. 
D) shifting the short run Phillips curve left.

Question 8

The Phillips curve and the short-run aggregate supply curve are closely related,yet one slopes downward and the other slopes upward.Discuss.

Accepted Answer

The Phillips curve shows the relation be

Question 9

If the sacrifice ratio is 2,reducing the inflation rate from 4 percent to 2 percent would

Accepted Answer

A) cost 1 percent of annual output. 
B) cost 4 percent of annual output. 
C) imply that unemployment would rise by 1%. 
D) imply that unemployment would rise by 4%. 
A) cost 1 percent of annual output. 
B) cost 4 percent of annual output. 
C) imply that unemployment would rise by 1%. 
D) imply that unemployment would rise by 4%.

Question 10

To accommodate an adverse supply shock a Central Bank could

Accepted Answer

A) buy bonds making the inflation rate rise. 
B) buy bonds making the inflation rate fall. 
C) sell bonds making the inflation rate rise. 
D) sell bonds making the inflation rate fall. 
A) buy bonds making the inflation rate rise. 
B) buy bonds making the inflation rate fall. 
C) sell bonds making the inflation rate rise. 
D) sell bonds making the inflation rate fall.

Question 11

Proponents of rational expectations theory argued that,in the most extreme case,if policymakers are credibly committed to reducing inflation and rational people understand that commitment and quickly lower their inflation expectation,the sacrifice ratio could be as small as

Accepted Answer

A) 0. 
B) 1. 
C) 4. 
D) 5. 
A) 0. 
B) 1. 
C) 4. 
D) 5.

Question 12

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly,on average the public thought

Accepted Answer

A) he would try to fool them by raising inflation to decrease unemployment. 
B) inflation would be unchanged. 
C) inflation would fall but not by as much or as quickly as Volcker claimed. 
D) inflation would fall even further than Volcker was willing to admit. 
A) he would try to fool them by raising inflation to decrease unemployment. 
B) inflation would be unchanged. 
C) inflation would fall but not by as much or as quickly as Volcker claimed. 
D) inflation would fall even further than Volcker was willing to admit.

Question 13

According to Friedman and Phelps,the unemployment rate

Accepted Answer

A) depends on neither actual or expected inflation. 
B) is below its natural rate when actual inflation is greater than expected inflation. 
C) is below its natural rate when actual inflation is less than expected inflation. 
D) is below its natural rate when actual inflation equals expected inflation. 
A) depends on neither actual or expected inflation. 
B) is below its natural rate when actual inflation is greater than expected inflation. 
C) is below its natural rate when actual inflation is less than expected inflation. 
D) is below its natural rate when actual inflation equals expected inflation.

Question 14

Suppose the Federal Reserve pursues contractionary monetary policy.In the long run

Accepted Answer

A) both inflation and the unemployment rate are higher than they were prior to the change in policy. 
B) inflation is higher and the unemployment rate is the same as it was prior to the change in policy. 
C) inflation is lower and the unemployment rate is lower than it was prior to the change in policy. 
D) inflation is lower and unemployment is the same as it was prior to the change in policy. 
A) both inflation and the unemployment rate are higher than they were prior to the change in policy. 
B) inflation is higher and the unemployment rate is the same as it was prior to the change in policy. 
C) inflation is lower and the unemployment rate is lower than it was prior to the change in policy. 
D) inflation is lower and unemployment is the same as it was prior to the change in policy.

Question 15

According to Friedman and Phelps,the unemployment rate is above the natural rate when actual inflation

Accepted Answer

A) is greater than expected inflation. 
B) is less than expected inflation. 
C) equals expected inflation. 
D) low whether its greater than or less than expected. 
A) is greater than expected inflation. 
B) is less than expected inflation. 
C) equals expected inflation. 
D) low whether its greater than or less than expected.

Question 16

From 1993-2001 the economy experienced

Accepted Answer

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

Question 17

The short-run relationship between inflation and unemployment is often called

Accepted Answer

A) the Classical Dichotomy. 
B) Money Neutrality. 
C) the Phillips curve. 
D) the Keynesian cross. 
A) the Classical Dichotomy. 
B) Money Neutrality. 
C) the Phillips curve. 
D) the Keynesian cross.

Question 18

Suppose the Federal Reserve makes monetary policy more expansionary.In the long run

Accepted Answer

A) both inflation and the unemployment rate are higher than they were prior to the change in policy. 
B) inflation is higher and the unemployment rate is the same as it was prior to the change in policy. 
C) inflation is lower and the unemployment rate is lower than it was prior to the change in policy. 
D) inflation is lower and unemployment is the same as it was prior to the change in policy. 
A) both inflation and the unemployment rate are higher than they were prior to the change in policy. 
B) inflation is higher and the unemployment rate is the same as it was prior to the change in policy. 
C) inflation is lower and the unemployment rate is lower than it was prior to the change in policy. 
D) inflation is lower and unemployment is the same as it was prior to the change in policy.

Question 19

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Accepted Answer

A downward-sloping Phillips curve implie

Question 20

Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?

Accepted Answer

A) Ravi reads in the newspaper that the central bank recently raised the money supply. 
B) Tony gets more job offers. 
C) Louis makes smaller increases in the prices at his health food store. 
D) Jessica's nominal wage increase is larger. 
A) Ravi reads in the newspaper that the central bank recently raised the money supply. 
B) Tony gets more job offers. 
C) Louis makes smaller increases in the prices at his health food store. 
D) Jessica's nominal wage increase is larger.

Exam 35: The Short Run Trade Off Between Inflation and Unemployment

The misery index is supposed to measure the

If the Fed were to increase the money supply,inflation and unemployment would both increase in the short run.

In 1979,Fed Chair Paul Volcker

A policy intended to take reduce unemployment by taking advantage of a tradeoff between inflation and unemployment leads to

Suppose that an economy is currently experiencing 10 percent unemployment and 15 percent inflation.If in the process of bringing inflation down by 2 percent real GDP falls by 4 percent,the sacrifice ratio is

The natural rate of unemployment

Suppose the central bank pursues an expansionary monetary policy.In the short-run the effects of this are shown by

The Phillips curve and the short-run aggregate supply curve are closely related,yet one slopes downward and the other slopes upward.Discuss.

If the sacrifice ratio is 2,reducing the inflation rate from 4 percent to 2 percent would

To accommodate an adverse supply shock a Central Bank could

Proponents of rational expectations theory argued that,in the most extreme case,if policymakers are credibly committed to reducing inflation and rational people understand that commitment and quickly lower their inflation expectation,the sacrifice ratio could be as small as

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly,on average the public thought

According to Friedman and Phelps,the unemployment rate

Suppose the Federal Reserve pursues contractionary monetary policy.In the long run

According to Friedman and Phelps,the unemployment rate is above the natural rate when actual inflation

From 1993-2001 the economy experienced

The short-run relationship between inflation and unemployment is often called

Suppose the Federal Reserve makes monetary policy more expansionary.In the long run

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: 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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

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

Five Debates Over Macroeconomic Policy

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