Question 1

Figure 13.1  Alt text for Figure 13.1: In figure 13.1, a short-run Phillips curve.
Long description for Figure 13.1: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, Philips curve, begins at the top left corner and slopes down to the end of the x-axis.Point A is plotted half way along line Philips curve.Point B is plotted to the right of point A and point C is plotted is to the left of point A.Point D is plotted above this line, in the left center of the quadrant.Point E is plotted below this line, directly below point A.
-Refer to Figure 13.1.What should the Bank of Canada do if it wants to move from point A to point C in the short-run Phillips curve depicted in the figure above?

Accepted Answer

A) buy government securities 
B) sell government securities 
C) raise the discount rate 
D) decrease the money supply 
E) raise taxes

Question 2

Figure 13.11  Alt text for Figure 13.11: In figure 13.11, a graph of the Phillips curve.
Long description for Figure 13.11: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, short-run Philips Curve 1, begins at the top left corner and slopes down to the bottom center.A straight line labelled, short-run Philips Curve 2, follows the same slope as Curve 1, but is plotted to the right.A straight line labelled, long-run Philips Curve, is perpendicular to the x-axis, and intersects the short-run Philips Curve 1, at point A on the bottom end of both lines.Point B is plotted half way along the short-run Philips Curve 1.Long-run Philips Curve, intersects the short-run Philips Curve 2, at point C in the top half of both lines.Point D is plotted more than half-way along short-run Philips Curve 2.Points E and F are plotted close to the left and right ends, respectively, of the short-run Philips Curve 2.
-Refer to Figure 13.11.A supply shock, such as rising oil prices, would be depicted as a movement from ________.

Accepted Answer

A) A to D to C 
B) C to B to A 
C) C to D to A 
D) C to E to B 
E) A to B to C

Question 3

If the Bank of Canada chooses to fight high inflation with contractionary monetary policy and firms and consumers expect this policy to reduce inflation, which of the following would you expect to see?

Accepted Answer

A) a downward shift of the short-run Phillips curve 
B) a reduction in the unemployment rate 
C) a decrease in the long-run aggregate supply curve 
D) an increase in inflationary expectations 
E) a rightward shift in the long-run Phillips curve

Question 4

What does it mean to say that workers and firms have rational expectations?

Accepted Answer

The answer of What does it mean to say that...

Question 5

When will an increase in aggregate demand not result in lower unemployment rates in the short run?

Accepted Answer

The answer of When will an increase in aggregate demand...

Question 6

If workers and firms raise their inflation expectations,

Accepted Answer

A) unemployment will fall. 
B) actual inflation will fall to match expected inflation. 
C) the short-run Phillips curve will be vertical. 
D) the short-run Phillips curve will shift upward. 
E) the long-run Phillips curve will shift to the left.

Question 7

The short-run Phillips curve shifting down following the 1989 Bank of Canada announcement that they were adopting inflation targets shows that workers and firms

Accepted Answer

A) had adaptive expectations. 
B) had rational expectations and that they trusted Bank of Canada announcements. 
C) preferred high unemployment to high inflation. 
D) consistently ignored inflation when setting nominal wages. 
E) Both A and B are correct answers.

Question 8

In the long run, the Phillips curve is a ________ at ________.

Accepted Answer

A) horizontal line; 0% inflation 
B) negatively sloped line; the intersection of aggregate demand and short-run aggregate supply 
C) vertical line; the natural rate of unemployment 
D) vertical line; the expected rate of inflation 
E) positively sloped line; the current rate of GDP growth

Question 9

The curve showing the short-run relationship between the unemployment rate and the inflation rate is called

Accepted Answer

A) the monetary policy curve. 
B) the Phillips curve. 
C) the Sargent curve. 
D) the unemployment curve. 
E) the Keynes' Cross.

Question 10

Figure 13.1  Alt text for Figure 13.1: In figure 13.1, a short-run Phillips curve.
Long description for Figure 13.1: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, Philips curve, begins at the top left corner and slopes down to the end of the x-axis.Point A is plotted half way along line Philips curve.Point B is plotted to the right of point A and point C is plotted is to the left of point A.Point D is plotted above this line, in the left center of the quadrant.Point E is plotted below this line, directly below point A.
-Refer to Figure 13.1.Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above, and the unemployment rate at A is the natural rate.If the economy was to move to point B, which of the following must be true?

Accepted Answer

A) The economy is producing a level of GDP equal to potential GDP. 
B) Aggregate demand must have increased. 
C) Equilibrium GDP at point B must be below potential GDP. 
D) The Bank of Canada conducted expansionary policy to cause the move. 
E) The Bank of Canada purchased government securities to cause the move.

Question 11

Figure 13.2  Alt text for Figure 13.2: In figure 13.2, a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.2: The x-axis is labelled, unemployment rate (percent).The y-axis is labelled, inflation rate (percent per year).3 points; A (5, 3), B (3.8%, 5.5%), C (6, 1)are plotted on the graph.The points are connected to their respective coordinates on the x and y-axes with dotted lines.A straight line labelled, short-run Philips Curve, begins at the top left corner and slopes down to the bottom center, and passes through points A, B, and C.A straight line labelled, long-run Philips Curve, is perpendicular to the x-axis, begins from the x-axis value 5,and intersects the Short-run Philips Curve at point A.
-Refer to Figure 13.2.Suppose the economy is at point A.The Bank of Canada uses expansionary monetary policy to lower the unemployment rate permanently below the level associated with A.Which of the following will occur?

Accepted Answer

A) Inflation will accelerate in the long run. 
B) Inflationary expectations will decline. 
C) Unemployment will rise above the natural rate. 
D) Unemployment will accelerate in the long run. 
E) Inflation will be permanently lower in the long run.

Question 12

According to the short-run Phillips curve, the unemployment rate and the inflation rate are

Accepted Answer

A) unrelated. 
B) positively related. 
C) negatively related. 
D) unaffected by monetary policy.

Question 13

The Bank of Canada's inflation targeting policy has led to inflation ________ since 1996.

Accepted Answer

A) remaining relative stable in the 1 to 3 percent band 
B) fluctuating wildly 
C) generally increasing 
D) generally decreasing 
E) continually decreasing

Question 14

A study conducted by Robert Shiller, a Yale Economist, found that a large majority of the public thinks that increases in inflation will not quickly lead to an increase in wages.

Accepted Answer

A) True 
 B)False

Question 15

In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate?

Accepted Answer

A) if expectations are rational 
B) if changes in monetary policy are unanticipated 
C) if actual inflation is higher than expected 
D) if actual inflation is lower than expected 
E) if actual inflation is equal to expected inflation

Question 16

One problem with deflation is that it can raise the real value of debt.

Accepted Answer

A) True 
 B)False

Question 17

Can the Bank of Canada achieve both low inflation and low levels of unemployment? Explain.

Accepted Answer

The answer of Can the Bank of Canada achieve both...

Question 18

Figure 13.10  Alt text for Figure 13.10: In figure 13.10, a graph comparing unemployment rate and inflation rate.
Long description for Figure 13.10: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.3 points; A, B, and C are plotted such that A and B share equivalent y-axis values, and B and C share equivalent x-axis values.
-Refer to Figure 13.10.A response to persistent ________ due to ongoing expansionary monetary policy is depicted in the figure above as a movement from C to A to B.

Accepted Answer

A) deflation 
B) high unemployment 
C) high inflation 
D) appreciation of the dollar 
E) falling expectations of inflation

Question 19

Figure 13.2  Alt text for Figure 13.2: In figure 13.2, a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.2: The x-axis is labelled, unemployment rate (percent).The y-axis is labelled, inflation rate (percent per year).3 points; A (5, 3), B (3.8%, 5.5%), C (6, 1)are plotted on the graph.The points are connected to their respective coordinates on the x and y-axes with dotted lines.A straight line labelled, short-run Philips Curve, begins at the top left corner and slopes down to the bottom center, and passes through points A, B, and C.A straight line labelled, long-run Philips Curve, is perpendicular to the x-axis, begins from the x-axis value 5,and intersects the Short-run Philips Curve at point A.
-Refer to Figure 13.2.At which point is the unemployment rate equal to the natural rate of unemployment?

Accepted Answer

A) A 
B) B 
C) C 
D) There is insufficient information on the graph to answer this question.

Question 20

If actual inflation is greater than expected inflation, what is the relationship between the actual real wage and the expected real wage?

Accepted Answer

A) The actual real wage will be lower than the expected real wage. 
B) The actual real wage will be higher than the expected real wage. 
C) The actual real wage will be equal to the expected real wage. 
D) The relationship between the actual real wage and the expected real wage cannot be predicted.

Exam 13: Inflation, Unemployment, and Bank of Canada Policy