Question 1

Samuelson and Solow believed that the Phillips curve offered policymakers a menu of possible economic outcomes.

Accepted Answer

A) True 
 B)False

Question 2

If policymakers expand aggregate demand, then in the long run

Accepted Answer

A)  prices will be higher and unemployment will be lower. 
B)  prices will be higher and unemployment will be unchanged. 
C)  prices and unemployment will be unchanged. 
D)  None of the above is correct.

Question 3

Figure 35-2
Use the pair of diagrams below to answer the following questions.
  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in government expenditures moves the economy to

Accepted Answer

A)  D and 2 
B)  D and 3. 
C)  E and 3. 
D)  None of the above is correct.

Question 4

Figure 35-2
Use the pair of diagrams below to answer the following questions.
  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to

Accepted Answer

A)  B and 2. 
B)  B and 3. 
C)  B and 3 
D)  None of the above is correct.

Question 5

Proponents of rational expectations argued that the sacrifice ratio

Accepted Answer

A)  could be high because it was rational for people not to immediately change their expectations. 
B)  could be high because people might adjust their expectations quickly if they found anti-inflation policy credible. 
C)  could be low because it was rational for people not to immediately change their expectations. 
D)  could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.

Question 6

If a central bank reduced inflation by 4 percentage points and this made output fall by 5 percent for one year and 3 percent for another year and the unemployment rate rise 2.5 percent above its natural rate for one year and 1.5 percent above its natural rate for another year, the sacrifice ratio was

Accepted Answer

A)  1. 
B)  2. 
C)  3. 
D)  None of the above is correct.

Question 7

Other things constant, which of the following would reduce unemployment and raise inflation?

Accepted Answer

A)  businesses become more optimistic about the future of the economy 
B)  because of high growth abroad, net exports rise 
C)  the government cuts taxes 
D)  All of the above are correct.

Question 8

According to the Phillips curve, which fiscal policies can be used to reduce unemployment in the short run?

Accepted Answer

The answer of According to the Phillips curve, which fiscal...

Question 9

A movement to the left along a given short-run Phillips curve could be caused by

Accepted Answer

A)  a reduction in the natural rate of unemployment or expansionary monetary policy. 
B)  expansionary monetary policy, but not a reduction in the natural rate of unemployment. 
C)  either a reduction in the natural rate of unemployment or a contractionary monetary policy. 
D)  contractionary monetary policy, but not a reduction in the natural rate of unemployment.

Question 10

The long-run Phillips curve would shift to the right if

Accepted Answer

A)  the money supply growth rate decreased or if labor markets become more flexible. 
B)  the money supply growth rate decreased, but not if labor markets become more flexible. 
C)  labor markets become more flexible, but not if the money supply growth rate decreased. 
D)  None of the above is correct.

Question 11

If prices and wages adjusted rapidly and producers could quickly distinguish the difference between a change in the price level and a change in the relative price of their products, then an increase in the money supply growth rate would have at most a very short-lived affect on unemployment.

Accepted Answer

A) True 
 B)False

Question 12

An adverse supply shock causes inflation to

Accepted Answer

A)  rise and the short-run Phillips curve to shift right. 
B)  rise and the short-run Phillips curve to shift left. 
C)  fall and the short-run Phillips curve to shift right. 
D)  fall and the short-run Phillips curve to shift left.

Question 13

If there is a large and sudden but temporary increase in the price of oil, which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

Accepted Answer

The answer of If there is a large and sudden...

Question 14

An economy has a current inflation rate of 7%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, then how much annual output must be sacrificed in the transition?

Accepted Answer

A)  10% 
B)  8% 
C)  6% 
D)  None of the above is correct.

Question 15

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 effects of increased prices of world commodities is shown by shifting

Accepted Answer

A)  aggregate demand to the right. 
B)  aggregate demand to the left. 
C)  aggregate supply to the right. 
D)  aggregate supply to the left.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

When aggregate demand shifts left along the short-run aggregate supply curve,

Accepted Answer

A)  unemployment and prices rise. 
B)  unemployment rises and prices fall. 
C)  unemployment falls and prices rise. 
D)  unemployment and prices fall.

Question 18

Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."  
-Refer to Figure 35-9. A significant increase in the world price of oil could explain

Accepted Answer

A)  the shift of the aggregate-supply curve from AS1 to AS2, but it could not explain the shift of the Phillips curve from PC1 to PC2. 
B)  the shift of the Phillips curve from PC1 to PC2, but it could not explain the shift of the aggregate-supply curve from AS1 to AS2. 
C)  both the shift of the aggregate-supply curve from AS1 to AS2 and the shift of the Phillips curve from PC1 to PC2. 
D)  neither the shift of the aggregate-supply curve from AS1 to AS2 nor the shift of the Phillips curve from PC1 to PC2.

Question 19

A vertical long-run Phillips curve is consistent with

Accepted Answer

A)  the conclusion of Friedman and Phelps, but it is not consistent with the classical idea of monetary neutrality. 
B)  the classical idea of monetary neutrality, but it is not consistent with the conclusion of Friedman and Phelps. 
C)  both the conclusion of Friedman and Phelps and the classical idea of monetary neutrality. 
D)  neither the conclusion of Friedman and Phelps nor the classical idea of monetary neutrality.

Question 20

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Accepted Answer

The answer of If the Fed responded to an adverse...

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

Samuelson and Solow believed that the Phillips curve offered policymakers a menu of possible economic outcomes.

If policymakers expand aggregate demand, then in the long run

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in government expenditures moves the economy to

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to

Proponents of rational expectations argued that the sacrifice ratio

Other things constant, which of the following would reduce unemployment and raise inflation?

According to the Phillips curve, which fiscal policies can be used to reduce unemployment in the short run?

A movement to the left along a given short-run Phillips curve could be caused by

The long-run Phillips curve would shift to the right if

If prices and wages adjusted rapidly and producers could quickly distinguish the difference between a change in the price level and a change in the relative price of their products, then an increase in the money supply growth rate would have at most a very short-lived affect on unemployment.

An adverse supply shock causes inflation to

If there is a large and sudden but temporary increase in the price of oil, which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

An economy has a current inflation rate of 7%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, then how much annual output must be sacrificed in the transition?

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 effects of increased prices of world commodities is shown by shifting

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

When aggregate demand shifts left along the short-run aggregate supply curve,

Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. A significant increase in the world price of oil could explain

A vertical long-run Phillips curve is consistent with

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?