Question 1

U.S.monetary policy in the early 1980s reduced the inflation rate by more than half.

Accepted Answer

A) True 
 B)False

Question 2

In 1979,Fed chair Paul Volcker decided to pursue a policy

Accepted Answer

A)  that would lead to disinflation. 
B)  that would create falling prices. 
C)  to accommodate continuing adverse supply shocks. 
D)  that maintained money growth at its current level. 
A)  that would lead to disinflation. 
B)  that would create falling prices. 
C)  to accommodate continuing adverse supply shocks. 
D)  that maintained money growth at its current level.

Question 3

Refer to Monetary Policy in Southland.Suppose that the Southland 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 was very skeptical and in fact thought the Southland Department of Finance was going to raise inflation to 30% so it could increase its expenditures.Then

Accepted Answer

A)  unemployment falls,but it would have fallen less if people had been expecting 25% inflation. 
B)  unemployment falls,but it would have fallen less if people had been expecting 35% inflation. 
C)  unemployment rises,but it would have risen less if people had been expecting 25% inflation. 
D)  unemployment rises,but it would have risen less if people had been expecting 35% inflation. 
A)  unemployment falls,but it would have fallen less if people had been expecting 25% inflation. 
B)  unemployment falls,but it would have fallen less if people had been expecting 35% inflation. 
C)  unemployment rises,but it would have risen less if people had been expecting 25% inflation. 
D)  unemployment rises,but it would have risen less if people had been expecting 35% inflation.

Question 4

If policymakers expand aggregate demand,then in the long run

Accepted Answer

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

Question 5

If there is an adverse supply shock,then

Accepted Answer

A)  unemployment rises and the short-run Phillips curve shifts right. 
B)  unemployment rises and the short-run Phillips curve shifts left. 
C)  unemployment falls and the short-run Phillips curve shifts right. 
D)  unemployment falls and the short-run Phillips curve shifts left. 
A)  unemployment rises and the short-run Phillips curve shifts right. 
B)  unemployment rises and the short-run Phillips curve shifts left. 
C)  unemployment falls and the short-run Phillips curve shifts right. 
D)  unemployment falls and the short-run Phillips curve shifts left.

Question 6

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 7

In the long run,a decrease in the money supply growth rate

Accepted Answer

A)  reduces expected inflation so the long-run Phillips curve shifts left. 
B)  reduces expected inflation so the short-run Phillips curve shifts left. 
C)  Both A and B are correct. 
D)  None of the above is correct. 
A)  reduces expected inflation so the long-run Phillips curve shifts left. 
B)  reduces expected inflation so the short-run Phillips curve shifts left. 
C)  Both A and B are correct. 
D)  None of the above is correct.

Question 8

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 9

Figure 35-1.The left-hand graph shows a short-run aggregate-supply (SRAS)curve and two aggregate-demand (AD)curves.On the right-hand diagram,U represents the unemployment rate.    
-Refer to Figure 35-1.What is measured along the vertical axis of the right-hand graph?

Accepted Answer

A)  the interest rate 
B)  the inflation rate 
C)  the wage rate 
D)  the growth rate of the nominal money supply 
A)  the interest rate 
B)  the inflation rate 
C)  the wage rate 
D)  the growth rate of the nominal money supply

Question 10

According to classical macroeconomic theory,in the long run

Accepted Answer

A)  monetary growth affects both real and nominal variables. 
B)  the only real variable affected by monetary growth is the unemployment rate. 
C)  a number of factors that affect unemployment are influenced by monetary growth. 
D)  monetary growth affects nominal but not real variables. 
A)  monetary growth affects both real and nominal variables. 
B)  the only real variable affected by monetary growth is the unemployment rate. 
C)  a number of factors that affect unemployment are influenced by monetary growth. 
D)  monetary growth affects nominal but not real variables.

Question 11

a In the nineteenth century,some countries were on a gold standard so that on average the money supply growth rate was close to zero and expected inflation was more or less constant.For these countries during this time period,we find that increases in actual inflation were generally associated with falling unemployment.These findings

Accepted Answer

A)  are consistent with Friedman and Phelps' theories,because they argued that when inflation was higher than expected,unemployment would fall. 
B)  are consistent with Friedman and Phelps' theories,because they argued that when prices rose unemployment would fall whether actual inflation was higher than expected or not. 
C)  are inconsistent with Friedman and Phelps' theories,because they argued that higher inflation would increase unemployment. 
D)  are inconsistent with Friedman and Phelps' theories,because they argued that inflation and unemployment are unrelated. 
A)  are consistent with Friedman and Phelps' theories,because they argued that when inflation was higher than expected,unemployment would fall. 
B)  are consistent with Friedman and Phelps' theories,because they argued that when prices rose unemployment would fall whether actual inflation was higher than expected or not. 
C)  are inconsistent with Friedman and Phelps' theories,because they argued that higher inflation would increase unemployment. 
D)  are inconsistent with Friedman and Phelps' theories,because they argued that inflation and unemployment are unrelated.

Question 12

A central bank that accommodates an aggregate supply shock

Accepted Answer

A)  increases the money supply,making the inflation rate rise. 
B)  increases the money supply,making the inflation rate fall. 
C)  decreases the money supply,making the inflation rate rise. 
D)  decreases the money supply,making the inflation rate fall. 
A)  increases the money supply,making the inflation rate rise. 
B)  increases the money supply,making the inflation rate fall. 
C)  decreases the money supply,making the inflation rate rise. 
D)  decreases the money supply,making the inflation rate fall.

Question 13

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 14

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

Accepted Answer

A)  The short-run Phillips curve would shift to the left. 
B)  The short-run Phillips curve would shift to the right. 
C)  The economy would move up and to the left along a given short-run Phillips curve. 
D)  The economy would move down and to the right along a given short-run Phillips curve. 
A)  The short-run Phillips curve would shift to the left. 
B)  The short-run Phillips curve would shift to the right. 
C)  The economy would move up and to the left along a given short-run Phillips curve. 
D)  The economy would move down and to the right along a given short-run Phillips curve.

Question 15

A decrease in government expenditures serves as an example of an adverse supply shock.

Accepted Answer

A) True 
 B)False

Question 16

Some countries have had relatively high inflation and relatively high unemployment for long periods of time.Is this consistent with the Phillips curve? Defend your answer.

Accepted Answer

They are consistent with the long-run Ph

Question 17

Suppose that the Fed unexpectedly pursues contractionary monetary policy.What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Accepted Answer

In the short run,unemployment will rise,

Question 18

Friedman and Phelps argued

Accepted Answer

A)  that in the long run,monetary growth did not influence those factors that determine the economy's unemployment rate. 
B)  that the Phillips curve could be exploited in the long run by using monetary,but not fiscal policy. 
C)  that the short-run Phillips curve was very steep,but not vertical. 
D)  that there was neither a short-run nor long-run tradeoff between inflation and unemployment. 
A)  that in the long run,monetary growth did not influence those factors that determine the economy's unemployment rate. 
B)  that the Phillips curve could be exploited in the long run by using monetary,but not fiscal policy. 
C)  that the short-run Phillips curve was very steep,but not vertical. 
D)  that there was neither a short-run nor long-run tradeoff between inflation and unemployment.

Question 19

A.W.Phillips's discovery of a particular relationship between unemployment and inflation for the United Kingdom

Accepted Answer

A)  could not be extended to other countries,despite many researchers' attempts to provide that extension. 
B)  was quickly extended to other countries by researchers. 
C)  was extended to only one other country - the United States. 
D)  was harshly criticized by the American economists Paul Samuelson and Robert Solow on the grounds that Phillips's study was fundamentally flawed. 
A)  could not be extended to other countries,despite many researchers' attempts to provide that extension. 
B)  was quickly extended to other countries by researchers. 
C)  was extended to only one other country - the United States. 
D)  was harshly criticized by the American economists Paul Samuelson and Robert Solow on the grounds that Phillips's study was fundamentally flawed.

Question 20

In the long run,an increase in the money supply growth rate

Accepted Answer

A)  increases inflation and shifts the short-run Phillips curve right. 
B)  increases inflation and shifts the short-run Phillips curve left. 
C)  decreases inflation and shifts the short-run Philips curve right. 
D)  decreases inflation and shifts the short-run Phillips curve left. 
A)  increases inflation and shifts the short-run Phillips curve right. 
B)  increases inflation and shifts the short-run Phillips curve left. 
C)  decreases inflation and shifts the short-run Philips curve right. 
D)  decreases inflation and shifts the short-run Phillips curve left.

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

U.S.monetary policy in the early 1980s reduced the inflation rate by more than half.

In 1979,Fed chair Paul Volcker decided to pursue a policy

If policymakers expand aggregate demand,then in the long run

If there is an adverse supply shock,then

A favorable supply shock will shift short-run aggregate supply

In the long run,a decrease in the money supply growth rate

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

Figure 35-1.The left-hand graph shows a short-run aggregate-supply (SRAS)curve and two aggregate-demand (AD)curves.On the right-hand diagram,U represents the unemployment rate. -Refer to Figure 35-1.What is measured along the vertical axis of the right-hand graph?

According to classical macroeconomic theory,in the long run

A central bank that accommodates an aggregate supply shock

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

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

A decrease in government expenditures serves as an example of an adverse supply shock.

Some countries have had relatively high inflation and relatively high unemployment for long periods of time.Is this consistent with the Phillips curve? Defend your answer.

Suppose that the Fed unexpectedly pursues contractionary monetary policy.What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Friedman and Phelps argued

A.W.Phillips's discovery of a particular relationship between unemployment and inflation for the United Kingdom

In the long run,an increase in the money supply growth rate

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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