Question 1

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve (that is,to increase inflation and reduce unemployment)? Were they right or wrong?

Accepted Answer

The answer of What did Friedman and Phelps predict would...

Question 2

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate.How does the economy return to the natural rate of unemployment if this lower inflation rate persists?

Accepted Answer

The answer of Suppose that the economy is at an...

Question 3

Suppose the government passes legislation that decreases the natural rate of unemployment.How does this change the long- and short-run Phillips curves?

Accepted Answer

The answer of Suppose the government passes legislation that decreases...

Question 4

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

Accepted Answer

A)  point a 
B)  point b 
C)  point c 
D)  point m

Question 5

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

Accepted Answer

A) True 
 B)False

Question 6

Figure 16-3 
-Refer to the Figure 16-3.When would the economy move from c and 3 to e and 5?

Accepted Answer

A)  in the short run if money supply growth increased unexpectedly 
B)  in the short run if money supply growth decreased unexpectedly 
C)  in the long run if money supply growth increases 
D)  in the long run if money supply growth decreases

Question 7

Suppose a policy increases the natural rate of unemployment.What is the effect of such a policy change?

Accepted Answer

A)  an upward movement along the long-run Phillips curve 
B)  a downward movement along the long-run Phillips curve 
C)  a rightward shift of the long-run Phillips curve 
D)  a leftward shift of the long-run Phillips curve

Question 8

What do the data for the period of 1968 through 1973 demonstrate?

Accepted Answer

A)  that there is a short-run tradeoff between inflation and unemployment 
B)  that a supply shock can disrupt the short-run tradeoff between inflation and unemployment 
C)  that there is a long-run tradeoff between inflation and unemployment 
D)  that a demand shock can disrupt the short-run tradeoff between inflation and unemployment

Question 9

Figure 16-4 
-Refer to the Figure 16-4.If the economy is at point c and the Bank of Canada pursues an expansionary monetary policy,then the economy will move to which point in the short run?

Accepted Answer

A)  point b 
B)  point c 
C)  point d 
D)  point h

Question 10

What is the long-run effect of an increase in expected inflation predicted by the Phillips curve model?

Accepted Answer

A)  higher inflation,but no change in unemployment 
B)  higher inflation and higher output 
C)  lower inflation and lower unemployment 
D)  no change in inflation,but lower unemployment

Question 11

Figure 16-2 
-Refer to the Figure 16-2.Where is the money supply growth rate the greatest?

Accepted Answer

A)  at a 
B)  at b 
C)  at c 
D)  at e

Question 12

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 13

Figure 16-3 
-Refer to the Figure 16-3.Starting from c and 3,where does a decrease in aggregate demand move the economy to,in the short run and the long run?

Accepted Answer

A)  a and 1 in the short run,b and 2 in the long run 
B)  b and 2 in the short run,a and 1 in the long run 
C)  d and 4 in the short run,e and 5 in the long run 
D)  b and 4 in the short run,e and 1 in the long run

Question 14

In the late 1960s and early 1970s,how did the short-run Phillips curve shift?

Accepted Answer

A)  It shifted right as inflation expectations rose. 
B)  It shifted right as inflation expectations fell. 
C)  It shifted left as inflation expectations rose. 
D)  It shifted left as inflation expectations fell.

Question 15

How will a favourable supply shock shift short-run aggregate supply,and how will output change?

Accepted Answer

A)  It will shift short-run aggregate supply left,making output rise. 
B)  It will shift short-run aggregate supply left,making output fall. 
C)  It will shift short-run aggregate supply right,making output rise. 
D)  It will shift short-run aggregate supply right,making output fall.

Question 16

Figure 16-2 
-Refer to the Figure 16-2.Suppose the economy is initially at point c.If the money supply growth rate decreases,where does the economy move to in the short-run?

Accepted Answer

A)  b 
B)  d 
C)  e 
D)  a

Question 17

If policymakers reduce aggregate demand,what happens to inflation and unemployment?

Accepted Answer

A)  Inflation and unemployment rise. 
B)  Inflation rises,but unemployment falls. 
C)  Inflation falls,but unemployment rises. 
D)  Inflation and unemployment fall.

Question 18

If policymakers expand aggregate demand,what happens to inflation and unemployment in the long run?

Accepted Answer

A)  Inflation will be higher and unemployment will be lower. 
B)  Inflation will be higher and unemployment will be unchanged. 
C)  Inflation and unemployment will be unchanged. 
D)  Both inflation and unemployment will be higher.

Question 19

Ultimately,what causes the short-run reduction in unemployment associated with an increase in inflation?

Accepted Answer

A)  the shape of the long-run aggregate-supply curve 
B)  unanticipated inflation,not inflation per se 
C)  rational expectations 
D)  anticipated changes in the price level

Question 20

How will an adverse supply shock shift the short-run Phillips curve,and how does inflation change?

Accepted Answer

A)  It will shift the short-run Phillips curve right,and inflation will rise. 
B)  It will shift the short-run Phillips curve right,and inflation will fall. 
C)  It will shift the short-run Phillips curve left,and inflation will rise. 
D)  It will shift the short-run Phillips curve left,and inflation will fall.

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