Question 1

The natural rate hypothesis concludes that the inflation rate increases, then in the short run there is

Accepted Answer

A)  an upward movement along the short-run Phillips curve. 
B)  a downward movement along the short-run Phillips curve. 
C)  an upward shift of the short-run Phillips curve. 
D)  a downward shift of the short-run Phillips curve. 
E)  no change at all in the short-run Phillips curve.

Question 2

"The short-run Phillips curve shows the tradeoff between real GDP and inflation." Is the previous statement correct or incorrect?
 Briefly explain you answer.

Accepted Answer

The answer of "The short-run Phillips curve shows the tradeoff...

Question 3

Comparing the aggregate supply curve and the short-run Phillips curve, we see that they

Accepted Answer

A)  each describe different parts of the economy. 
B)  both exist since money wages are flexible. 
C)  describe the same phenomena but contradict each other. 
D)  both exist because money wage rates are fixed in the short run. 
E)  both exist because real wage rates are fixed in the short run.

Question 4

-The shift of the short-run Phillips curve in the figure above is the result of

Accepted Answer

A)  an increase in the natural unemployment rate. 
B)  a decrease in the natural unemployment rate. 
C)  an increase in the expected inflation rate. 
D)  a decrease in the expected inflation rate. 
E)  a decrease in the actual inflation rate.

Question 5

If the short-run Phillips curve shifts rightward, what happens to the trade off between inflation and unemployment?
 If the short-run Phillips curve shifts leftward, what happens to the trade off between inflation and unemployment?

Accepted Answer

The answer of If the short-run Phillips curve shifts rightward,...

Question 6

Suppose the natural unemployment rate is 5 percent, the actual unemployment rate is 6 percent, and potential GDP is $5,000 billion.Based on Okun's law, real GDP is equal to ________ billion.

Accepted Answer

A)  $5,000 
B)  $5,100 
C)  $4,900 
D)  $4,000 
E)  $5,900

Question 7

A surprise reduction in the growth rate of the money supply and aggregate demand

Accepted Answer

A)  lowers inflation and promotes an expansion. 
B)  lowers inflation without a cost in terms of higher unemployment. 
C)  raises inflation because expectations are rational. 
D)  lowers inflation at the cost of recession. 
E)  has no effect on inflation because it leads to a recession.

Question 8

Economies with higher expected inflation rates have short-run Phillips curves that are

Accepted Answer

A)  upward sloping. 
B)  further to the left. 
C)  further to the right. 
D)  always vertical. 
E)  closer to being horizontal.

Question 9

The long-run Phillips curve is a

Accepted Answer

A)  horizontal line indicating a positive relationship between inflation and unemployment. 
B)  vertical line indicating a positive relationship between inflation and unemployment. 
C)  vertical line that shows the relationship between inflation and unemployment when the economy is at full employment. 
D)  horizontal line that shows the relationship between inflation and unemployment when the economy is at full employment. 
E)  straight line with a 45 degree slope showing the long-run relationship between the inflation rate and the expected inflation rate.

Question 10

Along the short-run Phillips curve SRPC₀ the expected inflation rate is

Accepted Answer

A)  3 percent. 
B)  6 percent. 
C)  7 percent. 
D)  an amount that can be determined from the figure, but none of the above answers are correct. 
E)  an amount that cannot be determined from the figure.

Question 11

-When inflation expectations changed during the 1967-1971 period, this change led to

Accepted Answer

A)  the long-run Phillips curve shifting rightward. 
B)  the short-run Phillips curve shifting upward. 
C)  an increase in the natural unemployment rate. 
D)  the short-run and the long-run Phillips curve both shifting upward. 
E)  the long-run Phillips curve shifting leftward.

Question 12

The short run Phillips curve

Accepted Answer

A)  shows the trade off between the inflation rate and the unemployment rate and it shifts when the inflation rate changes. 
B)  shows that any inflation rate can co-exist with the natural unemployment rate. 
C)  shows the trade off between the inflation rate and the unemployment rate and it shifts when the expected inflation rate changes. 
D)  shows the relationship between the inflation rate and the expected inflation rate and it shifts when the natural unemployment rate changes. 
E)  shows the relationship between the inflation rate and the nominal interest rate and it shifts when the natural unemployment rate changes.

Question 13

If the economy is at full employment, then the inflation rate

Accepted Answer

A)  exceeds the expected inflation rate. 
B)  is less than the expected inflation rate. 
C)  can be anywhere on a short-run Phillips curve. 
D)  is equal to the expected inflation rate. 
E)  is equal to zero.

Question 14

If the Fed reduces the inflation rate, in the short run what occurs?
 Does it matter if people know and believe that the Fed will lower the inflation rate?

Accepted Answer

The answer of If the Fed reduces the inflation rate,...

Question 15

The short-run Phillips curve is a curve that shows the relationship, other things being constant, between ________ and ________.

Accepted Answer

A)  the inflation rate; the unemployment rate 
B)  the unemployment rate; real GDP 
C)  potential GDP; the natural unemployment rate 
D)  the inflation rate; the expected inflation rate 
E)  the inflation rate; the nominal interest rate

Question 16

What do people base their expected inflation rate upon?

Accepted Answer

The answer of What do people base their expected inflation...

Question 17

Along a short-run Phillips curve, the

Accepted Answer

A)  short-run cost of lower unemployment is higher inflation. 
B)  short-run benefit of lower unemployment is lower inflation. 
C)  short-run cost of lower inflation is higher interest rates. 
D)  long-run cost of lower inflation is higher unemployment. 
E)  short-run cost of higher inflation is a higher real interest rate.

Question 18

The figure above shows some Phillips curves for an economy.
-In the figure above, the shift from the short-run Phillips curve SRPC₀ and the long-run Phillips curve LRPC₀ to the short-run Phillips curve SRPC₂ and the long-run Phillips curve LRPC₂ is the result of ________ in the expected inflation rate and ________ in the natural unemployment rate.

Accepted Answer

A)  an increase; an increase 
B)  a decrease; a decrease 
C)  no change; a decrease 
D)  an increase; no change 
E)  a decrease; an increase

Question 19

Potential GDP is $5,000 billion and the natural unemployment rate is 5 percent.Based on these data, complete the table below by using Okun's law to calculate real GDP for the different unemployment rates.
 $\begin{array}{cc}
\begin{array}{c}
\text { Unemployment rate } \
\text { (percentage) }
\end{array} & \begin{array}{c}
\text { Real GDP } \
\text { (billions of } \
\text { 2005 dollars }
\end{array} \
\hline 3 & - \
4 & - \
5 & - \
6 & \
7 &
\end{array}$

Accepted Answer

The answer of Potential GDP is $5,000 billion and the...

Question 20

When aggregate demand increases, there is a movement ________ along the AS curve and ________.

Accepted Answer

A)  up; a movement up along the short-run Phillips curve 
B)  up; a movement down along the short-run Phillips curve 
C)  up; an upward shift of the short-run Phillips curve 
D)  down; a downward shift of the short-run Phillips curve 
E)  down; a movement down along the short-run Phillips curve

Exam 15: The Short-Run Policy Tradeoff