Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Accepted Answer

A)  The change in inflation, but not the change in unemployment is consistent with what a given short-run Phillips curve implies. 
B)  The change in unemployment, but not the change in inflation is consistent with what a given short-run Phillips curve implies. 
C)  Both the change in inflation and the change in unemployment are consistent with what a given short-run Phillips curve implies. 
D)  Neither the change in inflation nor the change in unemployment are consistent with what a given short-run Phillips curve implies. 
A)  The change in inflation, but not the change in unemployment is consistent with what a given short-run Phillips curve implies. 
B)  The change in unemployment, but not the change in inflation is consistent with what a given short-run Phillips curve implies. 
C)  Both the change in inflation and the change in unemployment are consistent with what a given short-run Phillips curve implies. 
D)  Neither the change in inflation nor the change in unemployment are consistent with what a given short-run Phillips curve implies.

Question 3

Refer to Monetary Policy in Mokania. The Bank of Mokania reduced inflation to its announced goal of 5%. However, people were expecting inflation to fall to 7% and there was a favorable supply shock. In the short run which of the following made unemployment lower than otherwise?

Accepted Answer

A)  both people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock 
B)  neither people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock 
C)  only the favorable supply shock 
D)  only people expecting inflation to fall to 7% instead of 5% 
A)  both people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock 
B)  neither people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock 
C)  only the favorable supply shock 
D)  only people expecting inflation to fall to 7% instead of 5%

Question 4

In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run 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 5

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 6

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action

Accepted Answer

A)  lowers both inflation and unemployment. 
B)  lowers inflation but raises unemployment. 
C)  raises inflation but lowers unemployment. 
D)  raises both inflation and unemployment. 
A)  lowers both inflation and unemployment. 
B)  lowers inflation but raises unemployment. 
C)  raises inflation but lowers unemployment. 
D)  raises both inflation and unemployment.

Question 7

A policy change that reduces the natural rate of unemployment shifts both the long-run aggregate-supply curve and the long-run Phillips curve left.

Accepted Answer

A) True 
 B)False

Question 8

If expected inflation rises but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

Accepted Answer

Unemployment rises. The increa

Question 9

Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 2%.

Accepted Answer

The econom

Question 10

List three things that shift the short-run Phillips curve to the right.

Accepted Answer

1. An increase in expected inf

Question 11

Suppose the Federal Reserve makes monetary policy more expansionary. 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 12

In the early 1970s, the short-run Phillips curve shifted

Accepted Answer

A)  rightward as inflation expectations rose. 
B)  rightward as inflation expectations fell. 
C)  leftward as inflation expectations rose. 
D)  leftward as inflation expectations fell. 
A)  rightward as inflation expectations rose. 
B)  rightward as inflation expectations fell. 
C)  leftward as inflation expectations rose. 
D)  leftward as inflation expectations fell.

Question 13

A favorable supply shock shifts the short-run Phillips curve

Accepted Answer

A)  right and inflation rises. 
B)  right and inflation falls. 
C)  left and inflation rises. 
D)  left and inflation falls. 
A)  right and inflation rises. 
B)  right and inflation falls. 
C)  left and inflation rises. 
D)  left and inflation falls.

Question 14

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 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 the minimum wage increased, then at any given rate of inflation

Accepted Answer

A)  both output and employment would be higher. 
B)  neither output nor employment would be higher. 
C)  output would be higher and unemployment would be lower. 
D)  output would be lower and unemployment would be higher. 
A)  both output and employment would be higher. 
B)  neither output nor employment would be higher. 
C)  output would be higher and unemployment would be lower. 
D)  output would be lower and unemployment would be higher.

Question 17

Suppose the price level is 110.00 at the end of 2020, 121.00 at the end of 2021, and 128.26 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

Accepted Answer

Yes. The rate of inflation for 2021 was

Question 18

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

Accepted Answer

A)  shifts the short-run Phillips curve left so inflation returns to its original rate. 
B)  shifts the short-run Phillips curve left so unemployment returns to its natural rate. 
C)  Both A and B are correct. 
D)  None of the above is correct. 
A)  shifts the short-run Phillips curve left so inflation returns to its original rate. 
B)  shifts the short-run Phillips curve left so unemployment returns to its natural rate. 
C)  Both A and B are correct. 
D)  None of the above is correct.

Question 19

If efficiency wages became more common,

Accepted Answer

A)  both the long-run Phillips curve and the long-run aggregate supply curve would shift right. 
B)  both the long-run Phillips curve and the long-run aggregate supply curve would shift left. 
C)  the long-run Phillips curve would shift right, and the long-run aggregate supply curve would shift left. 
D)  the long-run Phillips curve would shift left, and the long-run aggregate supply curve would shift right. 
A)  both the long-run Phillips curve and the long-run aggregate supply curve would shift right. 
B)  both the long-run Phillips curve and the long-run aggregate supply curve would shift left. 
C)  the long-run Phillips curve would shift right, and the long-run aggregate supply curve would shift left. 
D)  the long-run Phillips curve would shift left, and the long-run aggregate supply curve would shift right.

Question 20

If an increase in inflation permanently reduced unemployment, then

Accepted Answer

A)  money would not be neutral and the long-run Phillips curve would slope upward. 
B)  money would not be neutral and the long-run Phillips curve would slope downward. 
C)  money would be neutral and the long-run Phillips curve would slope upward. 
D)  money would be neutral and the long-run Phillips curve would slope downward. 
A)  money would not be neutral and the long-run Phillips curve would slope upward. 
B)  money would not be neutral and the long-run Phillips curve would slope downward. 
C)  money would be neutral and the long-run Phillips curve would slope upward. 
D)  money would be neutral and the long-run Phillips curve would slope downward.

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

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

In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Refer to Monetary Policy in Mokania. The Bank of Mokania reduced inflation to its announced goal of 5%. However, people were expecting inflation to fall to 7% and there was a favorable supply shock. In the short run which of the following made unemployment lower than otherwise?

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

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

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action

A policy change that reduces the natural rate of unemployment shifts both the long-run aggregate-supply curve and the long-run Phillips curve left.

If expected inflation rises but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 2%.

List three things that shift the short-run Phillips curve to the right.

Suppose the Federal Reserve makes monetary policy more expansionary. In the long run

In the early 1970s, the short-run Phillips curve shifted

A favorable supply shock shifts the short-run Phillips curve

An adverse supply shock will cause output

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

If the minimum wage increased, then at any given rate of inflation

Suppose the price level is 110.00 at the end of 2020, 121.00 at the end of 2021, and 128.26 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

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

If efficiency wages became more common,

If an increase in inflation permanently reduced unemployment, then

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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