Question 1

In the 1970's the Federal Reserve responded to an adverse supply shock.Its policy made

Accepted Answer

A)  the recession that followed smaller and so provided a more favorable tradeoff between inflation and unemployment. 
B)  the recession that followed smaller,but in doing so produced a less favorable tradeoff between inflation and unemployment. 
C)  the recession that followed larger,but in doing so provided a more favorable tradeoff between inflation and unemployment. 
D)  the recession that followed larger and also produced a less favorable tradeoff between inflation and unemployment. 
A)  the recession that followed smaller and so provided a more favorable tradeoff between inflation and unemployment. 
B)  the recession that followed smaller,but in doing so produced a less favorable tradeoff between inflation and unemployment. 
C)  the recession that followed larger,but in doing so provided a more favorable tradeoff between inflation and unemployment. 
D)  the recession that followed larger and also produced a less favorable tradeoff between inflation and unemployment.

Question 2

Figure
The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were impacting the economy.
-Refer to The Economy in 2008.Given the effects of the financial and housing crisis on the price level and output and the effects of increased world commodity prices on the price level and output,the aggregate demand and aggregate supply model tells us that

Accepted Answer

A)  output rises and the price level falls. 
B)  output may rise,fall or stay the same and the price level rises. 
C)  output falls and the price level may rise,fall or stay the same. 
D)  None of the above is correct. 
A)  output rises and the price level falls. 
B)  output may rise,fall or stay the same and the price level rises. 
C)  output falls and the price level may rise,fall or stay the same. 
D)  None of the above is correct.

Question 3

If policymakers increase aggregate demand,then in the short run the price level

Accepted Answer

A)  falls and unemployment rises. 
B)  and unemployment fall. 
C)  and unemployment rise. 
D)  rises and unemployment falls. 
A)  falls and unemployment rises. 
B)  and unemployment fall. 
C)  and unemployment rise. 
D)  rises and unemployment falls.

Question 4

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 5

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 6

If the short-run Phillips curve were stable,which of the following would be unusual?

Accepted Answer

A)  an increase in government spending and a fall in unemployment 
B)  an increase in inflation and a decrease in output 
C)  a decrease in the inflation rate and a rise in the unemployment rate 
D)  a decrease in the money supply and a rise in the unemployment rate. 
A)  an increase in government spending and a fall in unemployment 
B)  an increase in inflation and a decrease in output 
C)  a decrease in the inflation rate and a rise in the unemployment rate 
D)  a decrease in the money supply and a rise in the unemployment rate.

Question 7

Figure 35-3   Refer to figure 35-3.In this order,which curve is a long-run Phillips curve and which is a short-run Phillips curve?
a.
A,B
b.
A,D
c.
C,B
d.
None of the above is correct.
ANS: B DIF: 1 REF: 35-2 NAT: Analytic
LOC: Unemployment and inflation TOP: Short-run Phillips curve | Long-run Phillips curve
MSC: Definitional
-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 8

The monetary-policy framework called inflation targeting is used explicitly by

Accepted Answer

A)  no major country. 
B)  most major countries except the United States and Japan. 
C)  the United States,but it is not used by other major countries. 
D)  most major countries,including the United States and Japan. 
A)  no major country. 
B)  most major countries except the United States and Japan. 
C)  the United States,but it is not used by other major countries. 
D)  most major countries,including the United States and Japan.

Question 9

Suppose that the central bank unexpectedly reduces the growth rate of the money supply.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 10

Suppose expected inflation and actual inflation are both relatively high,and unemployment is at its natural rate.If the Fed then pursues a contractionary monetary policy,which of the following results would be expected in the short run?

Accepted Answer

A)  Expected inflation would exceed actual inflation,and unemployment would exceed its natural rate. 
B)  Expected inflation would exceed actual inflation,and unemployment would be below its natural rate. 
C)  Actual inflation would exceed expected inflation,and unemployment would exceed its natural rate. 
D)  Actual inflation would exceed expected inflation,and unemployment would be below its natural rate. 
A)  Expected inflation would exceed actual inflation,and unemployment would exceed its natural rate. 
B)  Expected inflation would exceed actual inflation,and unemployment would be below its natural rate. 
C)  Actual inflation would exceed expected inflation,and unemployment would exceed its natural rate. 
D)  Actual inflation would exceed expected inflation,and unemployment would be below its natural rate.

Question 11

The misery index is calculated as the

Accepted Answer

A)  inflation rate plus the unemployment rate. 
B)  unemployment rate minus the inflation rate. 
C)  actual inflation rate minus the expected inflation rate. 
D)  natural unemployment rate times the inflation rate 
A)  inflation rate plus the unemployment rate. 
B)  unemployment rate minus the inflation rate. 
C)  actual inflation rate minus the expected inflation rate. 
D)  natural unemployment rate times the inflation rate

Question 12

Refer to Monetary Policy in Southland.Suppose Southland has had the same inflation rate for a long time.Which,if either,of the following ideas imply that the unemployment rate in Southland would be above the natural rate.

Accepted Answer

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

Question 13

Figure 35-4
Use the graph below to answer the following questions.  
-Refer to Figure 35-4.If the economy starts at C and the money supply growth rate decreases,in the short run the economy moves to

Accepted Answer

A)  B. 
B)  C. 
C)  F. 
D)  None of the above is consistent with a decrease in the money supply growth rate. 
A)  B. 
B)  C. 
C)  F. 
D)  None of the above is consistent with a decrease in the money supply growth rate.

Question 14

If inflation expectations decline,than the short-run Phillips curve shifts

Accepted Answer

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

Question 15

If the central bank increases the money supply,then in the short run prices

Accepted Answer

A)  rise and unemployment falls. 
B)  fall and unemployment rises. 
C)  and unemployment rise. 
D)  and unemployment fall. 
A)  rise and unemployment falls. 
B)  fall and unemployment rises. 
C)  and unemployment rise. 
D)  and unemployment fall.

Question 16

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 17

Suppose a central bank announced that it was going to make a serious effort to fight inflation.A few years later the inflation rate is lower,but there had 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 18

Unexpectedly high inflation reduces unemployment in the short run,but as inflation expectations adjust the unemployment rate returns to its natural rate.

Accepted Answer

A) True 
 B)False

Question 19

An adverse supply shock will shift short-run aggregate supply

Accepted Answer

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

Question 20

In responding to the Phillips curve hypothesis,Friedman argued that the Fed can peg the

Accepted Answer

A)  unemployment rate. 
B)  inflation rate. 
C)  growth rate of real national income. 
D)  All of the above are correct. 
A)  unemployment rate. 
B)  inflation rate. 
C)  growth rate of real national income. 
D)  All of the above are correct.

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

In the 1970's the Federal Reserve responded to an adverse supply shock.Its policy made

If policymakers increase aggregate demand,then in the short run the price level

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

If the short-run Phillips curve were stable,which of the following would be unusual?

The monetary-policy framework called inflation targeting is used explicitly by

Suppose that the central bank unexpectedly reduces the growth rate of the money supply.In the short-run the effects of this are shown by

Suppose expected inflation and actual inflation are both relatively high,and unemployment is at its natural rate.If the Fed then pursues a contractionary monetary policy,which of the following results would be expected in the short run?

The misery index is calculated as the

Refer to Monetary Policy in Southland.Suppose Southland has had the same inflation rate for a long time.Which,if either,of the following ideas imply that the unemployment rate in Southland would be above the natural rate.

Figure 35-4 Use the graph below to answer the following questions. -Refer to Figure 35-4.If the economy starts at C and the money supply growth rate decreases,in the short run the economy moves to

If inflation expectations decline,than the short-run Phillips curve shifts

If the central bank increases the money supply,then in the short run prices

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

Suppose a central bank announced that it was going to make a serious effort to fight inflation.A few years later the inflation rate is lower,but there had been a serious recession.We could conclude with certainty that

Unexpectedly high inflation reduces unemployment in the short run,but as inflation expectations adjust the unemployment rate returns to its natural rate.

An adverse supply shock will shift short-run aggregate supply

In responding to the Phillips curve hypothesis,Friedman argued that the Fed can peg the

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

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

Monopolistic Competition

Oligopoly

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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