Question 1

An adverse supply shock will cause output

Accepted Answer

A) and prices to rise. 
B) and prices to fall. 
C) to rise and prices to fall. 
D) to fall and prices to rise. 
A) and prices to rise. 
B) and prices to fall. 
C) to rise and prices to fall. 
D) to fall and prices to rise.

Question 2

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 has run a public relations campaign claiming it will reduce inflation to 12.5% and that it actually reduces inflation to that level.Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%.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 25% 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 25% 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 25% 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 25% inflation.

Question 3

A favorable supply shock will cause

Accepted Answer

A) unemployment to rise and the short-run Phillips curve to shift right. 
B) unemployment to rise and the short-run Phillips curve to shift left. 
C) unemployment to fall and the short-run Phillips curve to shift right. 
D) unemployment to fall and the short-run Phillips curve to shift left. 
A) unemployment to rise and the short-run Phillips curve to shift right. 
B) unemployment to rise and the short-run Phillips curve to shift left. 
C) unemployment to fall and the short-run Phillips curve to shift right. 
D) unemployment to fall and the short-run Phillips curve to shift left.

Question 4

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) None of the above is necessarily correct. 
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) None of the above is necessarily correct.

Question 5

If a central bank reduced inflation by 2 percentage points and that made output fall by 1 percentage points for 2 years and the unemployment rate rises from 3 percent to 5 percent for 2 years,the sacrifice ratio is

Accepted Answer

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

Question 6

Which of the following is an adverse supply shock?

Accepted Answer

A) a decrease in the money supply 
B) a tax cut 
C) a worldwide drought 
D) decreased government spending 
A) a decrease in the money supply 
B) a tax cut 
C) a worldwide drought 
D) decreased government spending

Question 7

Although monetary policy cannot reduce the natural rate of unemployment,other types of policies can.

Accepted Answer

A) True 
 B)False

Question 8

Use the pair of diagrams below to answer the following questions.
Figure 35-1
  
-Refer to Figure 35-1.If the economy starts at c and 1,then in the short run,a decrease in government expenditures moves the economy to

Accepted Answer

A) d and 2 
B) d and 3. 
C) e and 3. 
D) None of the above is correct. 
A) d and 2 
B) d and 3. 
C) e and 3. 
D) None of the above is correct.

Question 9

Some countries have inflation around or in excess of 8 percent.Suppose that the sacrifice ratio is 2.5.What is the cost of reducing inflation from 8 percent to 2 percent? In your answer,define the sacrifice ratio and show and explain how you found the cost of inflation reduction.

Accepted Answer

The sacrifice ratio gives the annual per

Question 10

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year,the sacrifice ratio is

Accepted Answer

A) 1/5. 
B) 2. 
C) 5/2. 
D) 5. 
A) 1/5. 
B) 2. 
C) 5/2. 
D) 5.

Question 11

In the short run

Accepted Answer

A) unemployment and inflation are positively related.In the long run they are largely unrelated problems. 
B) and in the long run inflation and unemployment are positively related. 
C) unemployment and inflation are negatively related.In the long run they are largely unrelated problems. 
D) and in the long run inflation and unemployment are negatively related. 
A) unemployment and inflation are positively related.In the long run they are largely unrelated problems. 
B) and in the long run inflation and unemployment are positively related. 
C) unemployment and inflation are negatively related.In the long run they are largely unrelated problems. 
D) and in the long run inflation and unemployment are negatively related.

Question 12

In 1980,the U.S.economy had an inflation rate of

Accepted Answer

A) about 1 percent and an unemployment rate of about 7 percent. 
B) less than 4 percent and an unemployment rate of less than 6 percent. 
C) less than 7 percent and an unemployment rate of about 9 percent. 
D) more than 9 percent and an unemployment rate of about 7 percent. 
A) about 1 percent and an unemployment rate of about 7 percent. 
B) less than 4 percent and an unemployment rate of less than 6 percent. 
C) less than 7 percent and an unemployment rate of about 9 percent. 
D) more than 9 percent and an unemployment rate of about 7 percent.

Question 13

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. 
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.

Question 14

Which of the following would cause the price level to rise and output to fall in the short run?

Accepted Answer

A) an increase in the money supply 
B) a decrease in the money supply 
C) an adverse supply shock 
D) a favorable supply shock 
A) an increase in the money supply 
B) a decrease in the money supply 
C) an adverse supply shock 
D) a favorable supply shock

Question 15

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate.How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky-wage theory to explain your answer.

Accepted Answer

If unemployment is above its natural rat

Question 16

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on

Accepted Answer

A) the natural rate of unemployment and monetary growth. 
B) the natural rate of unemployment, but not monetary growth. 
C) monetary growth, but not the natural rate of unemployment. 
D) neither monetary growth nor the natural rate of unemployment. 
A) the natural rate of unemployment and monetary growth. 
B) the natural rate of unemployment, but not monetary growth. 
C) monetary growth, but not the natural rate of unemployment. 
D) neither monetary growth nor the natural rate of unemployment.

Question 17

For most of the 1990s,the Phillips curve was

Accepted Answer

A) fairly far to the right partly because of lower inflation expectations. 
B) fairly far to the left partly because of lower inflation expectations. 
C) fairly far to the right partly because of adverse supply shocks. 
D) fairly far to the left partly because of adverse supply shocks. 
A) fairly far to the right partly because of lower inflation expectations. 
B) fairly far to the left partly because of lower inflation expectations. 
C) fairly far to the right partly because of adverse supply shocks. 
D) fairly far to the left partly because of adverse supply shocks.

Question 18

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Accepted Answer

Friedman and Phelps predicted that,over

Question 19

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 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 20

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

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

An adverse supply shock will cause output

A favorable supply shock will cause

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

If a central bank reduced inflation by 2 percentage points and that made output fall by 1 percentage points for 2 years and the unemployment rate rises from 3 percent to 5 percent for 2 years,the sacrifice ratio is

Which of the following is an adverse supply shock?

Although monetary policy cannot reduce the natural rate of unemployment,other types of policies can.

Use the pair of diagrams below to answer the following questions. Figure 35-1 -Refer to Figure 35-1.If the economy starts at c and 1,then in the short run,a decrease in government expenditures moves the economy to

Some countries have inflation around or in excess of 8 percent.Suppose that the sacrifice ratio is 2.5.What is the cost of reducing inflation from 8 percent to 2 percent? In your answer,define the sacrifice ratio and show and explain how you found the cost of inflation reduction.

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year,the sacrifice ratio is

In the short run

In 1980,the U.S.economy had an inflation rate of

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

Which of the following would cause the price level to rise and output to fall in the short run?

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate.How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky-wage theory to explain your answer.

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on

For most of the 1990s,the Phillips curve was

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Fiscal policy cannot be used to move the economy along the 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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