Question 1

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 2

In 1980, the U.S. misery index was

Accepted Answer

A)  much higher than average. 
B)  slightly higher than average. 
C)  about average. 
D)  below average. 
A)  much higher than average. 
B)  slightly higher than average. 
C)  about average. 
D)  below average.

Question 3

A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?

Accepted Answer

The answer of A central bank pledges to reduce the...

Question 4

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 unemployment rate that the economy tends to move to in the long run. 
D)  depends 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 unemployment rate that the economy tends to move to in the long run. 
D)  depends on the rate at which the Fed increases the money supply.

Question 5

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 6

Suppose the price level is 115.00 at the end of 2020, 112.02 at the end of 2021, and 109.08 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

Accepted Answer

No. Since the price level is f

Question 7

In the short 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 8

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 9

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

Accepted Answer

A)  existed in the long run and the short run. 
B)  existed in the long run but not the short run. 
C)  existed in the short run but not the long run. 
D)  did not exist. 
A)  existed in the long run and the short run. 
B)  existed in the long run but not the short run. 
C)  existed in the short run but not the long run. 
D)  did not exist.

Question 10

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 11

In the United States during the 1970s, expected inflation

Accepted Answer

A)  rose substantially. 
B)  rose slightly. 
C)  fell slightly. 
D)  fell substantially. 
A)  rose substantially. 
B)  rose slightly. 
C)  fell slightly. 
D)  fell substantially.

Question 12

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 13

Proponents of rational expectations argued that the sacrifice ratio

Accepted Answer

A)  could be high because it was rational for people not to immediately change their expectations. 
B)  could be high because people might adjust their expectations quickly if they found anti-inflation policy credible. 
C)  could be low because it was rational for people not to immediately change their expectations. 
D)  could be low because people might adjust their expectations quickly if they found anti-inflation policy credible. 
A)  could be high because it was rational for people not to immediately change their expectations. 
B)  could be high because people might adjust their expectations quickly if they found anti-inflation policy credible. 
C)  could be low because it was rational for people not to immediately change their expectations. 
D)  could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.

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

If the Federal Reserve decreases the rate at which it increases the money supply, then unemployment is higher in

Accepted Answer

A)  the long run and the short run. 
B)  the long run but not the short run. 
C)  the short run but not the long run. 
D)  neither the short run nor the long run. 
A)  the long run and the short run. 
B)  the long run but not the short run. 
C)  the short run but not the long run. 
D)  neither the short run nor the long run.

Question 16

Any policy change that reduced the natural rate of unemployment would

Accepted Answer

A)  shift the long-run Phillips curve to the left. 
B)  shift the long-run aggregate-supply curve to the right. 
C)  improve the functioning of the labor market. 
D)  All of the above are correct. 
A)  shift the long-run Phillips curve to the left. 
B)  shift the long-run aggregate-supply curve to the right. 
C)  improve the functioning of the labor market. 
D)  All of the above are correct.

Question 17

The short-run Phillips curve intersects the long-run Phillips curve where

Accepted Answer

A)  the actual rate of inflation equals the expected rate of inflation. 
B)  the actual rate of unemployment equals the natural rate of unemployment. 
C)  Both A and B are correct. 
D)  None of the above is correct. 
A)  the actual rate of inflation equals the expected rate of inflation. 
B)  the actual rate of unemployment equals the natural rate of unemployment. 
C)  Both A and B are correct. 
D)  None of the above is correct.

Question 18

If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

Accepted Answer

A)  2 percent of annual output. 
B)  6 percent of annual output. 
C)  8 percent of annual output. 
D)  11 percent of annual output. 
A)  2 percent of annual output. 
B)  6 percent of annual output. 
C)  8 percent of annual output. 
D)  11 percent of annual output.

Question 19

According to the Phillips curve diagram, if a central bank disinflates what ultimately happens to the unemployment rate?

Accepted Answer

It returns

Question 20

Which of the following is an example of 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

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

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

In 1980, the U.S. misery index was

A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?

The natural rate of unemployment

A favorable supply shock will shift short-run aggregate supply

Suppose the price level is 115.00 at the end of 2020, 112.02 at the end of 2021, and 109.08 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

In the short run, policy that changes aggregate demand changes

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.

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

In the United States during the 1970s, expected inflation

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

Proponents of rational expectations argued that the sacrifice ratio

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

If the Federal Reserve decreases the rate at which it increases the money supply, then unemployment is higher in

Any policy change that reduced the natural rate of unemployment would

The short-run Phillips curve intersects the long-run Phillips curve where

If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

According to the Phillips curve diagram, if a central bank disinflates what ultimately happens to the unemployment rate?

Which of the following is an example of an adverse supply shock?

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

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

Six Debates Over Macroeconomic Policy

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