Question 1

Which of the following is correct if there is a favorable supply shock?

Accepted Answer

A)  the short-run aggregate supply curve and the short-run Phillips curve both shift right. 
B)  the short-run aggregate supply curve and the short-run Phillips curve both shift left. 
C)  the short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left. 
D)  the short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right.

Question 2

Prime Minister Emma Bigshot urges passage of a bill to reduce unemployment benefits from very generous levels in her country. She also urges her country's central bank to raise the rate at which the money supply is increasing. In the long run which, if either, of these policies will reduce the unemployment rate?

Accepted Answer

A)  both reducing the generosity of unemployment benefits and raising the rate at which the money supply is increasing 
B)  reducing the generosity of unemployment benefits but not raising the rate at which the money supply is increasing 
C)  raising the rate at which the money supply is increasing, but not reducing the generosity of unemployment benefits 
D)  neither reducing the generosity of unemployment benefits nor raising the rate at which the money supply is increasing

Question 3

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?

Accepted Answer

A)  Short-run aggregate supply decreases. 
B)  The natural rate of unemployment increases. 
C)  The price level increases more rapidly. 
D)  The money supply increases less rapidly.

Question 4

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. Faced with the shift of the Phillips curve from PC1 to PC2, policymakers will

Accepted Answer

A)  ask whether the shift is temporary or permanent. 
B)  be concerned with how people adjust their expectations of inflation as a result of the shift. 
C)  face, as well, a decision as to whether to accommodate the shock. 
D)  All of the above are correct.

Question 5

If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run.

Accepted Answer

A) True 
 B)False

Question 6

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 7

During the financial crisis Congress and President Obama authorized tax cuts and increases in government spending.
According to the Phillips curve, in the short run these policies should have

Accepted Answer

A)  reduced inflation and unemployment. 
B)  raised inflation and unemployment. 
C)  reduced inflation and raised unemployment. 
D)  raised inflation and reduced unemployment.

Question 8

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Accepted Answer

A)  short run, and the natural rate is constant over time. 
B)  long run, and the natural rate is constant over time. 
C)  short run, and the natural rate changes over time. 
D)  long run, and the natural rate changes over time.

Question 9

Figure 35-4. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD curves. On the left-hand diagram, the price level is measured on the vertical axis; on the right-hand diagram, the inflation rate is measured on the vertical axis.  
-Refer to Figure 35-4. Assume the figure charts possible outcomes for the year 2018. In 2018, the economy is at point B on the left-hand graph, which corresponds to point B on the right-hand graph. Also, point A on the left-hand graph corresponds to A on the right-hand graph. The price level in the year 2018 is

Accepted Answer

A)  117.25. 
B)  114.95. 
C)  113.12. 
D)  111.10.

Question 10

Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?

Accepted Answer

A)  Teresa reads in the newspaper that the central bank recently raised the money supply. 
B)  Jackie gets fewer job offers. 
C)  Miguel makes larger increases in the prices at his health food store. 
D)  Julie's nominal wage increase is larger.

Question 11

In the long run, policy that changes aggregate demand changes

Accepted Answer

A)  both unemployment and the price level. 
B)  neither unemployment nor the price level. 
C)  only unemployment. 
D)  only the price level.

Question 12

Figure 35-6
Use the graph below to answer the following questions. 
-Refer to Figure 35-6. If the economy starts at C and the money supply growth rate decreases, in the short run the economy moves to

Accepted Answer

A)  B. 
B)  C. 
C)  F. 
D)  None of the above is consistent with a decrease in the money supply growth rate.

Question 13

The equation, Unemployment rate = Natural rate of unemployment - a × Αctual inflation - Expected inflation),

Accepted Answer

A)  is the equation of the short-run Phillips curve. 
B)  implies there can be no stable short-run Phillips curve. 
C)  reflects the reasoning of Friedman and Phelps. 
D)  All of the above are correct.

Question 14

According to the short-run Phillips curve, inflation

Accepted Answer

A)  and unemployment would fall if the policymakers decreased the money supply. 
B)  would fall and unemployment would rise if policymakers decreased the money supply. 
C)  and unemployment would fall if the policymakers increased the money supply. 
D)  would fall and unemployment would rise if policymakers increased the money supply.

Question 15

A central bank raises the money supply growth rate and keeps it at that higher rate. Explain the process by which the economy moves to long-run equilibrium.

Accepted Answer

The answer of A central bank raises the money supply...

Question 16

Does a more steeply sloped Phillips curve make the sacrifice ratio smaller or larger than otherwise?

Accepted Answer

The answer of Does a more steeply sloped Phillips curve...

Question 17

In the long run, the natural rate of unemployment depends primarily on the growth rate of the money supply.

Accepted Answer

A) True 
 B)False

Question 18

If the Fed wants to reverse the effects of a favorable supply shock on unemployment, it should

Accepted Answer

A)  increase the money supply growth rate which raises the inflation rate. 
B)  increase the money supply growth rate which reduces the inflation rate. 
C)  decrease the money supply growth rate which raises the inflation rate. 
D)  decrease the money supply growth rate which reduces the inflation rate.

Question 19

Which of the following would shift the long-run Phillips curve to the right?

Accepted Answer

A)  expansionary fiscal policy 
B)  an increase in the inflation rate 
C)  increases in unemployment compensation 
D)  None of the above is correct.

Question 20

If monetary policy moves unemployment below its natural rate, both expected and actual inflation will rise.

Accepted Answer

A) True 
 B)False

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

Which of the following is correct if there is a favorable supply shock?

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?

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. Faced with the shift of the Phillips curve from PC1 to PC2, policymakers will

If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run.

According to the Friedman-Phelps analysis, in the long run actual inflation equals expected inflation and unemployment is at its natural rate.

During the financial crisis Congress and President Obama authorized tax cuts and increases in government spending. According to the Phillips curve, in the short run these policies should have

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?

In the long run, policy that changes aggregate demand changes

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. If the economy starts at C and the money supply growth rate decreases, in the short run the economy moves to

The equation, Unemployment rate = Natural rate of unemployment - a × Αctual inflation - Expected inflation) ,

According to the short-run Phillips curve, inflation

A central bank raises the money supply growth rate and keeps it at that higher rate. Explain the process by which the economy moves to long-run equilibrium.

Does a more steeply sloped Phillips curve make the sacrifice ratio smaller or larger than otherwise?

In the long run, the natural rate of unemployment depends primarily on the growth rate of the money supply.

If the Fed wants to reverse the effects of a favorable supply shock on unemployment, it should

Which of the following would shift the long-run Phillips curve to the right?

If monetary policy moves unemployment below its natural rate, both expected and actual inflation will rise.