Question 1

Figure 35-7
Use the two graphs in the diagram to answer the following questions.
  
-Refer to Figure 35-7. Starting from C and 3, in the short run, an unexpected decrease in money supply growth moves the economy to

Accepted Answer

A)  A and 1. 
B)  B and 2. 
C)  back to C and 3. 
D)  D and 4.

Question 2

If the government reduced the minimum wage and pursued expansionary monetary policy, then in the long run

Accepted Answer

A)  both the unemployment rate and the inflation rate would be higher. 
B)  both the unemployment rate and the inflation rate would be lower. 
C)  the unemployment rate would be higher and the inflation rate would be lower. 
D)  the unemployment rate would be lower and the inflation rate would be higher.

Question 3

In the long run an increase in the money supply growth rate affects

Accepted Answer

A)  the inflation rate and the natural rate of unemployment. 
B)  the inflation rate, but not the natural rate of unemployment. 
C)  neither the inflation rate nor the natural rate of unemployment. 
D)  the natural rate of unemployment, but not the inflation rate.

Question 4

If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?

Accepted Answer

A)  Inflation expectations rise which shifts the short-run Phillips curve to the right. 
B)  Inflation expectations rise which shifts the short-run Phillips curve to the left. 
C)  Inflation expectations fall which shifts the short-run Phillips curve to the right. 
D)  Inflation expectations fall which shifts the short-run Phillips curve to the left.

Question 5

One determinant of the long-run average unemployment rate is the

Accepted Answer

A)  market power of unions, while the inflation rate depends primarily upon government spending. 
B)  minimum wage, while the inflation rate depends primarily upon the money supply growth rate. 
C)  rate of growth of the money supply, while the inflation rate depends primarily upon the market power of unions. 
D)  existence of efficiency wages, while the inflation rate depends primarily upon the extent to which firms are competitive.

Question 6

Other things the same, a decrease in aggregate demand decreases both inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 7

In the 1970's the Federal Reserve responded to an adverse supply shock. Its policy made

Accepted Answer

A)  the recession that followed smaller and so provided a more favorable tradeoff between inflation and unemployment. 
B)  the recession that followed smaller, but in doing so produced a less favorable tradeoff between inflation and unemployment. 
C)  the recession that followed larger, but in doing so provided a more favorable tradeoff between inflation and unemployment. 
D)  the recession that followed larger and also produced a less favorable tradeoff between inflation and unemployment.

Question 8

Over the long run the Volcker disinflation

Accepted Answer

A)  shifted the short-run and long-run Phillips curves left. 
B)  shifted the short-run, but not the long-run Phillips curve left. 
C)  shifted the long-run, but not the short-run Phillips curve left. 
D)  None of the above is correct.

Question 9

Which of the following is downward-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)  the long-run Phillips curve, but not the long-run aggregate-supply curve 
D)  the short-run Phillips curve, but not the long-run aggregate-supply curve

Question 10

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 11

Any policy change that reduced the natural rate of unemployment

Accepted Answer

A)  would shift the long-run Phillips curve to the right. 
B)  would shift the long-run aggregate-supply curve to the right. 
C)  would be a policy change that impeded the functioning of the labor market. 
D)  All of the above are correct.

Question 12

Figure 35-7
Use the two graphs in the diagram to answer the following questions.
  
-Refer to Figure 35-7. Starting from C and 3, in the long run, an increase in money supply growth moves the economy to

Accepted Answer

A)  A and 1. 
B)  back to C and 3. 
C)  D and 4. 
D)  F and 5.

Question 13

Figure 35-3. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-3. What is measured along the vertical axis of the right-hand graph?

Accepted Answer

A)  the interest rate 
B)  the inflation rate 
C)  the government's budget deficit as a percent of GDP 
D)  the growth rate of the nominal money supply

Question 14

A.W. Phillips found a

Accepted Answer

A)  positive relation between unemployment and inflation in the United Kingdom. 
B)  positive relation between unemployment and inflation in the United States. 
C)  negative relation between unemployment and inflation in the United States. 
D)  negative relation between unemployment and inflation in the United Kingdom.

Question 15

Suppose that a central bank reduces the money supply growth rate to disinflate. What does disinflation mean? If people do not alter their inflation expectations, what happens to output and unemployment?

Accepted Answer

The answer of Suppose that a central bank reduces the...

Question 16

The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to The Economy in 2008. The short-run effects of rising world commodity prices are shown by

Accepted Answer

A)  moving to the right along the short-run Phillips curve. 
B)  moving to the left along the short-run Phillips curve. 
C)  shifting the short-run Phillips curve right. 
D)  shifting the short-run Phillips curve left.

Question 17

By about 1973, U.S. policymakers had learned that

Accepted Answer

A)  there is no trade-off between inflation and unemployment in the short run. 
B)  there is no trade-off between inflation and unemployment in the long run. 
C)  Friedman's analysis of inflation and unemployment had been correct, and Phelps's analysis of inflation and unemployment had been incorrect. 
D)  Phelps's analysis of inflation and unemployment had been correct, and Friedman's analysis of inflation and unemployment had been incorrect.

Question 18

If the Federal Reserve increases the growth rate of the money supply, in the long run

Accepted Answer

A)  inflation is higher and the unemployment rate is lower. 
B)  inflation is higher while the unemployment rate is unchanged. 
C)  inflation is unchanged while the unemployment rate is lower. 
D)  None of the above is correct.

Question 19

Suppose expected inflation and actual inflation are both low, and unemployment is at its natural rate. If the Fed then pursues an expansionary monetary policy, which of the following results would be expected in the short run?

Accepted Answer

A)  The short-run Phillips curve would shift to the left. 
B)  The short-run Phillips curve would shift to the right. 
C)  The economy would move up and to the left along a given short-run Phillips curve. 
D)  The economy would move down and to the right along a given short-run Phillips curve.

Question 20

Consider two countries: Eastland and Westland. Eastland's long­run Phillips curve sits further to the right than does Westland's long­run Phillips curve. Eastland and Westland are identical in all other ways. In particular, they have the same money supply growth rates. In the long run, compared to Westland, which of the following will we observe in Eastland?

Accepted Answer

A)  higher unemployment and higher inflation. 
B)  higher unemployment and the same rate of inflation. 
C)  lower unemployment and higher inflation. 
D)  None of the above is correct.

Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. Starting from C and 3, in the short run, an unexpected decrease in money supply growth moves the economy to