Question 1

According to Friedman and Phelps, when do policymakers face a tradeoff between inflation and unemployment?

Accepted Answer

A) only in the long run 
B) only in the short run 
C) in neither the long run nor short run 
D) in both the short run and long run

Question 2

In the nineteenth century, some countries were on gold standards 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 inflation were generally associated with falling unemployment. Are these findings consistent with Friedman and Phelps's theories, and why?

Accepted Answer

A) Yes, because they argued that when inflation was higher than expected, unemployment would fall. 
B) Yes, because they argued that when prices rose unemployment would fall, whether actual inflation was higher than expected or not. 
C) No, because they argued that higher inflation would increase unemployment. 
D) No, because they argued that inflation and unemployment were unrelated.

Question 3

Suppose that weather around the world is especially good next year, so farmers have unusually good crops. What might we expect that this will do to the short-run and long-run Phillips curves?

Accepted Answer

A) This will shift both the short-run and long-run Phillips curves to the right. 
B) This will shift both the short-run and long-run Phillips curves to the left. 
C) This will shift the short-run Phillips curve to the left, but not affect the long-run Phillips curve. 
D) This will shift the long-run Phillips curve to the left, but not affect the short-run Phillips curve.

Question 4

In the long run, which of the following will happen if the Bank of Canada increases the rate at which it increases the money supply?

Accepted Answer

A) Inflation will be higher. 
B) Unemployment will be lower. 
C) Real GDP will be higher. 
D) Unemployment will be higher.

Question 5

Although monetary policy cannot reduce the natural rate of unemployment, other types of policies can.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following curves is (are) upward sloping?

Accepted Answer

A) both the long-run Phillips curve and the long-run aggregate supply curve 
B) neither the long-run Phillips curve nor the long-run aggregate supply curve 
C) only the long-run Phillips curve 
D) only the long-run aggregate supply curve

Question 7

Figure 16-4 
-Refer to Figure 16-4. If the economy is at point h and the Bank of Canada pursues a contractionary monetary policy, then the economy will move to which of the following points in the short and long run?

Accepted Answer

A) point d in the short run and point c in the long run 
B) point b in the short run and point c in the long run 
C) point c in the short run and point a in the long run 
D) point m in the short run and point c in the long run

Question 8

What did Friedman and Phelps argue about inflation and unemployment?

Accepted Answer

A) that in the long run, monetary growth did not influence those factors that determine the unemployment rate 
B) 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 
D) that there was neither a short-run nor long-run tradeoff between inflation and unemployment

Question 9

Which of the following is one determinant of the natural rate of unemployment?

Accepted Answer

A) the rate of growth of the money supply 
B) the minimum wage rate 
C) the expected inflation rate 
D) the exchange rate

Question 10

Discuss the factors determining the slope of the short-run Phillips curve. Is the linear shape appropriate? Why, or why not?

Accepted Answer

The answer of Discuss the factors determining the slope of...

Question 11

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 12

Figure 16-1 
-Refer to Figure 16-1. If the economy starts at c and 1, then in the short run, an increase in government expenditures moves the economy to where?

Accepted Answer

A) b and 2 
B) b and 3 
C) d and 3 
D) c and 2

Question 13

According to Friedman and Phelps, when is the unemployment rate below the natural rate?

Accepted Answer

A) when actual inflation is greater than expected inflation 
B) when actual inflation is less than expected inflation 
C) when actual inflation equals expected inflation 
D) when actual inflation is low

Question 14

Which of the following hypotheses is supported by the economic experience of Canada during the late 1960s and early 1970s?

Accepted Answer

A) Actual inflation and unemployment are negatively correlated. 
B) Inflation and unemployment are related only in the short run. 
C) Policymakers can permanently reduce unemployment below the natural level. 
D) Inflation and unemployment are related both in the short run and long run.

Question 15

In the long run, what effect does an increase in the money supply have on prices and unemployment?

Accepted Answer

A) It leaves prices and unemployment unchanged. 
B) It raises prices and unemployment. 
C) It raises prices and leaves unemployment unchanged. 
D) It leaves prices unchanged and reduces unemployment.

Question 16

Scenario 1
The aggregate demand (AD) and aggregate supply (AS) model can be constructed having inflation rate on the vertical axis instead of the price level and the rate of economic growth instead of output.
-Referring to Scenario 1, draw the AD-AS model in terms of inflation ($\pi$) and rate of growth (g).

Accepted Answer

The answer of Scenario 1
The aggregate demand (AD) and aggregate...

Question 17

Which of the following would NOT be associated with an adverse supply shock?

Accepted Answer

A) The short-run Phillips curve shifts left. 
B) Unemployment rises. 
C) The price level rises. 
D) Output falls.

Question 18

If efficiency wages became more common, where would the long-run Phillips curve and the long-run aggregate supply curve shift?

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.

Question 19

Scenario 1
The aggregate demand (AD) and aggregate supply (AS) model can be constructed having inflation rate on the vertical axis instead of the price level and the rate of economic growth instead of output.
-Using the quantity theory of money, derive an aggregate demand curve. Show that this curve shifts when the money supply changes.

Accepted Answer