Question 1

If there were a favorable supply shock and the central bank wanted to offset the change in the unemployment rate, what would it do?

Accepted Answer

The answer of If there were a favorable supply shock...

Question 2

Which of the following would reduce the natural rate of unemployment?

Accepted Answer

A)  both an increase in the rate of money growth and increased unemployment compensation 
B)  an increase in the rate of money growth but not increased unemployment compensation 
C)  an increase in unemployment compensation but not an increase in the rate of money growth. 
D)  neither an increase in unemployment compensation nor an increase in the rate of money growth.

Question 3

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Accepted Answer

A) True 
 B)False

Question 4

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 depicts possible outcomes for the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was

Accepted Answer

A)  106. 
B)  108. 
C)  110. 
D)  112.

Question 5

Suppose the economy is in long-run equilibrium at an inflation rate of 1% Then inflation expectations rise to 2% and inflation rises to 3%. The increase in expected inflation shifts the short-run Phillips curve

Accepted Answer

A)  right. Overall, unemployment moves above its natural rate. 
B)  right. Overall, unemployment moves below its natural rate. 
C)  left. Overall, unemployment moves above its natural rate. 
D)  left. Overall, unemployment moves below its natural rate.

Question 6

In the long run, if the Fed increases the growth rate of the money supply,

Accepted Answer

A)  inflation will be higher. 
B)  unemployment will be lower. 
C)  real GDP will be higher. 
D)  All of the above are correct.

Question 7

Disinflation is defined as a

Accepted Answer

A)  zero rate of inflation. 
B)  constant rate of inflation. 
C)  reduction in the rate of inflation. 
D)  negative rate of inflation.

Question 8

Which of the following implies that an increase in the money supply growth rate permanently changes the unemployment rate?

Accepted Answer

A)  both the long-run aggregate supply curve and the long-run Phillips curve 
B)  the long-run aggregate supply curve, but not the long-run Phillips curve 
C)  the long-run Phillips curve, but not the long-run aggregate supply curve 
D)  neither the long-run Phillips curve nor the long-run aggregate supply curve

Question 9

As the aggregate demand curve shifts to the right, what happens to the price level and output? What do these changes imply happens to the inflation rate and the unemployment rate?

Accepted Answer

The answer of As the aggregate demand curve shifts to...

Question 10

According to the short-run Phillips curve, if the central bank increases the money supply, then

Accepted Answer

A)  inflation and unemployment will both fall. 
B)  inflation and unemployment will both rise. 
C)  inflation will fall and unemployment will rise. 
D)  inflation will rise and unemployment will fall.

Question 11

If inflation expectations rise, the short-run Phillips curve shifts

Accepted Answer

A)  left. If inflation remains the same, unemployment falls. 
B)  left. If inflation remains the same, unemployment rises. 
C)  right. If inflation remains the same, unemployment falls. 
D)  right. If inflation remains the same, unemployment rises.

Question 12

Most economists believe that a tradeoff between inflation and unemployment exists

Accepted Answer

A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor long run.

Question 13

Suppose that the money supply increases. In the short run this decreases unemployment according to

Accepted Answer

A)  both the short-run Phillips curve and the aggregate demand and aggregate supply model. 
B)  neither the short-run Phillips curve nor the aggregate demand and aggregate supply model. 
C)  the short-run Phillips curve, but not according to the aggregate demand and supply model. 
D)  the aggregate demand and aggregate supply model, but not according to the short-run Phillips curve.

Question 14

When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that

Accepted Answer

A)  if they contract aggregate demand, the unemployment rate will increase further. 
B)  if they expand aggregate demand, the inflation rate will increase further. 
C)  they face a less favorable trade-off between inflation and unemployment than they did before the shock. 
D)  All of the above are correct.

Question 15

Which of the following is not correct?

Accepted Answer

A)  In the short run, policymakers face a tradeoff between inflation and unemployment. 
B)  Events that shift the long-run Phillips curve right shift the long-run aggregate supply curve left. 
C)  Unemployment can be changed only by the use of government policy. 
D)  The decrease in output associated with reducing inflation is less if the policy change is announced ahead of time and is credible.

Question 16

The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate above its natural rate.

Accepted Answer

A) True 
 B)False

Question 17

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a × Αctual inflation - x).In this equation,

Accepted Answer

A)  a is a parameter that measures how much actual inflation responds to expected inflation. 
B)  a = 0 at the point of intersection of the short-run and long-run Phillips curves. 
C)  x is the expected rate of inflation. 
D)  All of the above are correct.

Question 18

If policymakers increase aggregate demand, then in the short run the price level

Accepted Answer

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

Question 19

Some economists argue suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real fiscal reforms, people will expect the government will eventually need to expand the money supply to pay for its expenditures. Thus, the promise to fight inflation will not be credible. Explain why credibility is important to a reduction in the inflation rate.

Accepted Answer

The answer of Some economists argue suddenly reducing money supply...

Question 20

Other things the same, a country that decides to reduce inflation will

Accepted Answer

A)  have a higher unemployment rate in the short run and the long run. 
B)  have a higher unemployment rate only in the long run. 
C)  have a higher unemployment rate only in the short run. 
D)  not have a higher unemployment rate in either the short run or the long run.

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