Question 1

Which of the following is correct if there is an adverse supply shock?

Accepted Answer

A) The short-run aggregate supply curve and the short-run Phillips curve both shift right. 
B) The short-run aggregate supply curve and the short-run Phillips curve both shift left. 
C) The short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left. 
D) The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right. 
A) The short-run aggregate supply curve and the short-run Phillips curve both shift right. 
B) The short-run aggregate supply curve and the short-run Phillips curve both shift left. 
C) The short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left. 
D) The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right.

Question 2

Suppose that monetary policymakers announced that they were going to make a serious effort to fight inflation.A few years later the inflation rate has been reduced,but there had also been a serious recession.We could conclude with certainty that

Accepted Answer

A) the rational expectations hypothesis is false. 
B) the rational expectations hypothesis is true. 
C) the policymakers lacked credibility. 
D) None of the above is certain. 
A) the rational expectations hypothesis is false. 
B) the rational expectations hypothesis is true. 
C) the policymakers lacked credibility. 
D) None of the above is certain.

Question 3

The restrictive monetary policy followed by the Fed in the early 1980s

Accepted Answer

A) reduced both unemployment and inflation. 
B) reduced inflation significantly, but at the cost of a severe recession. 
C) reduced unemployment significantly, but at the cost of higher inflation. 
D) raised both unemployment and inflation. 
A) reduced both unemployment and inflation. 
B) reduced inflation significantly, but at the cost of a severe recession. 
C) reduced unemployment significantly, but at the cost of higher inflation. 
D) raised both unemployment and inflation.

Question 4

A favorable supply shock will shift short-run aggregate supply

Accepted Answer

A) left, making output rise. 
B) left, making output fall. 
C) right, making output rise. 
D) right, making output fall. 
A) left, making output rise. 
B) left, making output fall. 
C) right, making output rise. 
D) right, making output fall.

Question 5

In 2001,Congress and President Bush instituted tax cuts.According to the short-run Phillips curve this change should have

Accepted Answer

A) reduced inflation and unemployment. 
B) raised inflation and unemployment. 
C) reduce inflation and raised unemployment. 
D) raised inflation and reduced unemployment. 
A) reduced inflation and unemployment. 
B) raised inflation and unemployment. 
C) reduce inflation and raised unemployment. 
D) raised inflation and reduced unemployment.

Question 6

A.W.Phillips' findings were based on data

Accepted Answer

A) from 1861-1957 for the United Kingdom. 
B) from 1861-1957 for the United States. 
C) mostly from the post-World War II period in the United Kingdom. 
D) mostly from the post-World War II period in the United States. 
A) from 1861-1957 for the United Kingdom. 
B) from 1861-1957 for the United States. 
C) mostly from the post-World War II period in the United Kingdom. 
D) mostly from the post-World War II period in the United States.

Question 7

Suppose that the money supply increases.In the short run,this increases prices according to

Accepted Answer

A) both the short-run Phillips curve and the aggregate demand and aggregate supply model. 
B) neither the short-run Phillips curve nor the aggregate demand and aggregate supply model. 
C) the short-run Phillips curve, but not the aggregate demand and aggregate supply model. 
D) the aggregate demand and aggregate supply model but not the short-run Phillips curve. 
A) both the short-run Phillips curve and the aggregate demand and aggregate supply model. 
B) neither the short-run Phillips curve nor the aggregate demand and aggregate supply model. 
C) the short-run Phillips curve, but not the aggregate demand and aggregate supply model. 
D) the aggregate demand and aggregate supply model but not the short-run Phillips curve.

Question 8

Which of the following is downward sloping?

Accepted Answer

A) both the long-run Phillips curve and the short-run Phillips curve 
B) neither the long-run Phillips curve nor the short-run Phillips curve 
C) the long-run Phillips curve, but not the short-run Phillips curve 
D) the short-run Phillips curve, but not the long-run Phillips curve 
A) both the long-run Phillips curve and the short-run Phillips curve 
B) neither the long-run Phillips curve nor the short-run Phillips curve 
C) the long-run Phillips curve, but not the short-run Phillips curve 
D) the short-run Phillips curve, but not the long-run Phillips curve

Question 9

Monetary Policy in Hyperion
In Hyperion the Department of Finance is responsible for monetary policy. Hyperion has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Hyperion.Suppose that the Hyperion Department of Finance undertakes a public relations campaign to convince people that they will soon change monetary policy to reduce inflation to 12.5%.If Hyperions believe their government then which,if any,curve(s)shift left?

Accepted Answer

A) the short-run and the long-run Phillips curve 
B) the short-run but not the long run Phillips curve 
C) the long-run but not the short-run Phillips curve 
D) neither the short-run nor the long-run Phillips curve 
A) the short-run and the long-run Phillips curve 
B) the short-run but not the long run Phillips curve 
C) the long-run but not the short-run Phillips curve 
D) neither the short-run nor the long-run Phillips curve

Question 10

In the long run,if the Fed decreases the rate at which it increases the money supply,

Accepted Answer

A) inflation and unemployment will be higher. 
B) inflation will be higher and unemployment will be lower. 
C) inflation will be lower and unemployment will be higher. 
D) None of the above is correct. 
A) inflation and unemployment will be higher. 
B) inflation will be higher and unemployment will be lower. 
C) inflation will be lower and unemployment will be higher. 
D) None of the above is correct.

Question 11

The sacrifice ratio of the Volcker disinflation was larger than previous estimates had predicted.

Accepted Answer

A) True 
 B)False

Question 12

If the Fed reduces inflation 1 percentage point and this makes output fall 2 percentage points and unemployment rises 3 percentage points for six months,the sacrifice ratio is

Accepted Answer

A) 1. 
B) 2. 
C) 3. 
D) 4. 
A) 1. 
B) 2. 
C) 3. 
D) 4.

Question 13

One determinant of the long-run average unemployment rate is the

Accepted Answer

A) market power of unions, while the inflation rate depends primarily upon government spending. 
B) minimum wage, while the inflation rate depends primarily upon the money supply growth rate. 
C) rate of growth of the money supply, while the inflation rate depends primarily upon the market power of unions. 
D) existence of efficiency wages, while the inflation rate depends primarily upon the extent to which firms are competitive. 
A) market power of unions, while the inflation rate depends primarily upon government spending. 
B) minimum wage, while the inflation rate depends primarily upon the money supply growth rate. 
C) rate of growth of the money supply, while the inflation rate depends primarily upon the market power of unions. 
D) existence of efficiency wages, while the inflation rate depends primarily upon the extent to which firms are competitive.

Question 14

The arguments of Friedman and Phelps would suggest that other things the same a country that pursues a disinflationary policy

Accepted Answer

A) should not see an increase in the unemployment rate even in the short run. 
B) will having rising unemployment for a while, but then return to the natural rate of unemployment. 
C) will have a permanently higher unemployment rate. 
D) None of the above is suggested by the arguments of Friedman and Phelps. 
A) should not see an increase in the unemployment rate even in the short run. 
B) will having rising unemployment for a while, but then return to the natural rate of unemployment. 
C) will have a permanently higher unemployment rate. 
D) None of the above is suggested by the arguments of Friedman and Phelps.

Question 15

According to the Friedman-Phelps analysis,in the long run,actual inflation equals expected inflation,and unemployment is at its natural rate.

Accepted Answer

A) True 
 B)False

Question 16

If inflation expectations rise,the short-run Phillips curve shifts

Accepted Answer

A) right, so that at any inflation rate unemployment is higher in the short run than before. 
B) left, so that at any inflation rate unemployment is higher in the short run than before. 
C) right, so that at any inflation rate unemployment is lower in the short run than before. 
D) left, so that at any inflation rate unemployment is lower in the short run than before. 
A) right, so that at any inflation rate unemployment is higher in the short run than before. 
B) left, so that at any inflation rate unemployment is higher in the short run than before. 
C) right, so that at any inflation rate unemployment is lower in the short run than before. 
D) left, so that at any inflation rate unemployment is lower in the short run than before.

Question 17

An increase in expected inflation shifts

Accepted Answer

A) the long-run Phillips curve right. 
B) the short-run Phillips curve right. 
C) neither the short-run nor long-run Phillips curve right. 
D) both the short-run and long-run Phillips curve right. 
A) the long-run Phillips curve right. 
B) the short-run Phillips curve right. 
C) neither the short-run nor long-run Phillips curve right. 
D) both the short-run and long-run Phillips curve right.

Question 18

In the long run,policy that changes aggregate demand changes

Accepted Answer

A) both unemployment and the price level. 
B) neither unemployment nor the price level. 
C) only unemployment. 
D) only the price level. 
A) both unemployment and the price level. 
B) neither unemployment nor the price level. 
C) only unemployment. 
D) only the price level.

Question 19

Use the graph below to answer the following questions.
Figure 35-2
  
-Refer to Figure 35-2.If the economy starts at c and the money supply growth rate increases,in the long run the economy

Accepted Answer

A) stays at c. 
B) moves to b. 
C) moves to e. 
D) None of the above is correct. 
A) stays at c. 
B) moves to b. 
C) moves to e. 
D) None of the above is correct.

Question 20

A movement to the left along a given short-run Phillips curve could be caused by

Accepted Answer

A) a reduction in the natural rate of unemployment or expansionary monetary policy. 
B) expansionary monetary policy, but not a reduction in the natural rate of unemployment. 
C) either a reduction in the natural rate of unemployment or a contractionary monetary policy. 
D) contractionary monetary policy, but not a reduction in the natural rate of unemployment. 
A) a reduction in the natural rate of unemployment or expansionary monetary policy. 
B) expansionary monetary policy, but not a reduction in the natural rate of unemployment. 
C) either a reduction in the natural rate of unemployment or a contractionary monetary policy. 
D) contractionary monetary policy, but not a reduction in the natural rate of unemployment.

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

Which of the following is correct if there is an adverse supply shock?

Suppose that monetary policymakers announced that they were going to make a serious effort to fight inflation.A few years later the inflation rate has been reduced,but there had also been a serious recession.We could conclude with certainty that

The restrictive monetary policy followed by the Fed in the early 1980s

A favorable supply shock will shift short-run aggregate supply

In 2001,Congress and President Bush instituted tax cuts.According to the short-run Phillips curve this change should have

A.W.Phillips' findings were based on data

Suppose that the money supply increases.In the short run,this increases prices according to

Which of the following is downward sloping?

In the long run,if the Fed decreases the rate at which it increases the money supply,

The sacrifice ratio of the Volcker disinflation was larger than previous estimates had predicted.

If the Fed reduces inflation 1 percentage point and this makes output fall 2 percentage points and unemployment rises 3 percentage points for six months,the sacrifice ratio is

One determinant of the long-run average unemployment rate is the

The arguments of Friedman and Phelps would suggest that other things the same a country that pursues a disinflationary policy

According to the Friedman-Phelps analysis,in the long run,actual inflation equals expected inflation,and unemployment is at its natural rate.

If inflation expectations rise,the short-run Phillips curve shifts

An increase in expected inflation shifts

In the long run,policy that changes aggregate demand changes

Use the graph below to answer the following questions. Figure 35-2 -Refer to Figure 35-2.If the economy starts at c and the money supply growth rate increases,in the long run the economy

A movement to the left along a given short-run Phillips curve could be caused by

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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