Question 1

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Accepted Answer

The answer of Why does a downward-sloping Phillips curve imply...

Question 2

Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 5 percentage points for four years,and it made the unemployment rate rise from 3 percent to 9 percent for three years.What is the sacrifice ratio?

Accepted Answer

A)  1 
B)  3 
C)  4 
D)  5

Question 3

Suppose the Bank of Canada reduces the rate of inflation by 4 percentage points.Suppose,as well,that the sacrifice ratio has a value of 2.5.Which of the following describes what happens to GDP?

Accepted Answer

A)  GDP increases by 10 percentage points 
B)  GDP decreases by 10 percentage points 
C)  GDP increases by one-quarter of a percentage point 
D)  GDP decreases by one-quarter of a percentage point

Question 4

Suppose an economy with high inflation decides to decrease the money supply growth rate.Which of the following best describes the results?

Accepted Answer

A)  Initially unemployment rises.Eventually the short-run Phillips curve shifts right. 
B)  Initially unemployment rises.Eventually the short-run Phillips curve shifts left. 
C)  Initially unemployment falls.Eventually the short-run Phillips curve shifts right. 
D)  Initially unemployment falls.Eventually the short-run Phillips curve shifts left.

Question 5

Suppose the Bank of Canada reduces inflation 2 percentage points,and this makes output fall 10 percentage points and unemployment rises 4 percentage points.What is the sacrifice ratio?

Accepted Answer

A)  1 / 5 
B)  2 
C)  5 
D)  8

Question 6

Figure 16-3 
-Refer to the Figure 16-3.Starting from c and 3,in the short run,where does an unexpected decrease in money supply growth move the economy to?

Accepted Answer

A)  a and 1 
B)  b and 2 
C)  e and 5 
D)  d and 4

Question 7

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops.What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?

Accepted Answer

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

Question 8

Among other things,what determines the long-run average unemployment rate and inflation,respectively?

Accepted Answer

A)  the market power of unions; government spending 
B)  efficiency wages; the money supply growth rate 
C)  the rate of growth of the money supply; the market power of unions 
D)  the minimum wage; the extent to which firms are competitive

Question 9

If macroeconomic policy expands aggregate demand,unemployment will fall and inflation will rise in the short run.

Accepted Answer

A) True 
 B)False

Question 10

The analysis of Friedman and Phelps argues that any change in inflation that is expected has no impact on the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 11

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that in response to an adverse aggregate supply shock,the Bank of Canada increased the money supply.What would happen to unemployment and inflation?

Accepted Answer

A)  Unemployment and inflation would both rise. 
B)  Unemployment and inflation would both fall. 
C)  Unemployment would rise and inflation would fall. 
D)  Unemployment would fall and inflation would rise.

Question 13

When aggregate demand increases,what happens to prices and employment?

Accepted Answer

A)  Prices will fall and unemployment will rise. 
B)  Prices and unemployment fall. 
C)  Prices and unemployment rise. 
D)  Prices will rise and unemployment will fall.

Question 14

Suppose the natural rate of unemployment is 6 percent,the expected inflation is 2 percent,and the constant "a" in the short-run Phillips curve equation is 0.8.Describe the process of adjustment when the expected inflation rate changes from 2 percent to 3 percent.

Accepted Answer

The answer of Suppose the natural rate of unemployment is...

Question 15

In the long run,what are the effects of a decrease in the rate of growth of the money supply on the Phillips curves?

Accepted Answer

A)  It shifts both the long-run and the short-run Phillips curves right. 
B)  It leaves the long-run Phillips curve unchanged and the short-run Phillips curve right. 
C)  It shifts the long-run Phillips curve right and the short-run Phillips curve left. 
D)  It leaves the long-run Phillips curve unchanged and shifts the short-run Phillips curve left.

Question 16

In 1968,economist Milton Friedman published a paper that was critical of the Phillips curve.On what grounds did Friedman criticize the Phillips curve?

Accepted Answer

A)  It seemed to work for wages but not for inflation. 
B)  Monetary policy was ineffective in combating inflation. 
C)  The tradeoff illustrated by the Phillips curve did not apply in the long run. 
D)  Phillips had made errors in collecting his data.

Question 17

What would NOT be associated with a favourable supply shock?

Accepted Answer

A)  short-run Phillips curve shifts right 
B)  unemployment rises 
C)  price level falls 
D)  output falls

Question 18

Which theory proposes that people optimally use all available information when forecasting the future?

Accepted Answer

A)  rational expectations 
B)  perfect expectations 
C)  momentum expectations 
D)  policy expectations

Question 19

According to Phelps and Friedman,in the short run,what effect does an increase in the money supply have on prices and unemployment?

Accepted Answer

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

Question 20

How is the misery index calculated?

Accepted Answer

A)  It is the inflation rate plus the unemployment rate. 
B)  It is the unemployment rate minus the inflation rate. 
C)  It is the actual inflation rate plus the expected inflation rate. 
D)  It is the natural unemployment rate minus the long-run inflation rate.

Exam 16: The Short-Run Tradeoff Between Inflation and Unemployment

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 5 percentage points for four years,and it made the unemployment rate rise from 3 percent to 9 percent for three years.What is the sacrifice ratio?

Suppose the Bank of Canada reduces the rate of inflation by 4 percentage points.Suppose,as well,that the sacrifice ratio has a value of 2.5.Which of the following describes what happens to GDP?

Suppose an economy with high inflation decides to decrease the money supply growth rate.Which of the following best describes the results?

Suppose the Bank of Canada reduces inflation 2 percentage points,and this makes output fall 10 percentage points and unemployment rises 4 percentage points.What is the sacrifice ratio?

Figure 16-3 -Refer to the Figure 16-3.Starting from c and 3,in the short run,where does an unexpected decrease in money supply growth move the economy to?

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops.What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?

Among other things,what determines the long-run average unemployment rate and inflation,respectively?

If macroeconomic policy expands aggregate demand,unemployment will fall and inflation will rise in the short run.

The analysis of Friedman and Phelps argues that any change in inflation that is expected has no impact on the unemployment rate.

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

Suppose that in response to an adverse aggregate supply shock,the Bank of Canada increased the money supply.What would happen to unemployment and inflation?

When aggregate demand increases,what happens to prices and employment?

Suppose the natural rate of unemployment is 6 percent,the expected inflation is 2 percent,and the constant "a" in the short-run Phillips curve equation is 0.8.Describe the process of adjustment when the expected inflation rate changes from 2 percent to 3 percent.

In the long run,what are the effects of a decrease in the rate of growth of the money supply on the Phillips curves?

In 1968,economist Milton Friedman published a paper that was critical of the Phillips curve.On what grounds did Friedman criticize the Phillips curve?

What would NOT be associated with a favourable supply shock?

Which theory proposes that people optimally use all available information when forecasting the future?

According to Phelps and Friedman,in the short run,what effect does an increase in the money supply have on prices and unemployment?

How is the misery index calculated?