Question 1

As the aggregate demand curve shifts leftward along a given aggregate supply curve,

Accepted Answer

A)  unemployment and inflation are higher. 
B)  unemployment and inflation are lower. 
C)  unemployment is higher and inflation is lower. 
D)  unemployment is lower and inflation is higher.

Question 2

Refer to Monetary Policy in Mokania. The Bank of Mokania reduced inflation to its announced goal of 5%. However the unemployment rate was on average higher for many years after. A newspaper editorial argues that the unemployment rate had moved to this higher natural rate because 1) by itself the decrease in inflation had permanently increased unemployment and 2) that at the same time the central bank was fighting inflation the government of Mokania had made a large increase in the minimum wage. Which of these arguments is consistent with the Phillip's curve model?

Accepted Answer

A)  both explanations 1 and 2 
B)  neither explanation 1 nor 2 
C)  explanation 1 but not explanation 2 
D)  explanation 2 but not explanation 1

Question 3

Suppose that the money supply increases. In the short run, this increases prices 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 aggregate supply model. 
D)  the aggregate demand and aggregate supply model but not according to the short-run Phillips curve.

Question 4

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

Accepted Answer

A)  increases and unemployment increases. 
B)  increases and unemployment decreases. 
C)  decreases and unemployment increases. 
D)  decreases and unemployment decreases.

Question 5

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 6

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Accepted Answer

A)  the level or growth rate of a nominal variable, but not the level or growth rate of a real variable. 
B)  the level of a nominal or real variable, but not the growth rate of a real or nominal variable. 
C)  the level or growth rate of a real variable, but not the level or growth rate of a nominal variable. 
D)  both levels and growth rates of both real and nominal variables.

Question 7

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 8

According to the long-run Phillips curve, in the long run monetary policy influences

Accepted Answer

A)  both the inflation rate and the unemployment rate. 
B)  the inflation rate but not the unemployment rate. 
C)  the unemployment rate but not the inflation rate. 
D)  neither the unemployment rate nor the inflation rate.

Question 9

If the Fed reduces inflation 1 percentage point and this makes output fall 2 percentage points and unemployment rise 3 percentage points for six months, the sacrifice ratio is

Accepted Answer

A)  1. 
B)  2. 
C)  3. 
D)  4.

Question 10

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 11

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. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

Accepted Answer

A)  an increase in the money supply. 
B)  an adverse supply shock. 
C)  a decrease of output from Y1 to Y2. 
D)  a slow adjustment of people's expectation of the inflation rate.

Question 12

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 13

A. W. Phillips' findings were based on data

Accepted Answer

A)  from 1861-1957 for the United Kingdom. 
B)  from 1861-1957 for the United States. 
C)  mostly from the post-World War II period in the United Kingdom. 
D)  mostly from the post-World War II period in the United States.

Question 14

The long-run response to a decrease in the money supply growth rate is shown by shifting

Accepted Answer

A)  the short-run and long-run Phillips curves left. 
B)  the short-run and long-run Phillips curves right. 
C)  only the short-run Phillips curve left. 
D)  only the short-run Phillips curve right.

Question 15

If the short-run Phillips curve were stable, which of the following would be unusual?

Accepted Answer

A)  an increase in government spending and a fall in unemployment 
B)  an increase in inflation and a decrease in output 
C)  a decrease in the inflation rate and a rise in the unemployment rate 
D)  a decrease in the money supply and a rise in the unemployment rate.

Question 16

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 the short-run Phillips curve shifts every time there is a change in actual inflation. 
C)  reflects the reasoning of Samuelson and Solow. 
D)  All of the above are correct.

Question 17

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. Which of the following events could explain the shift of the aggregate-supply curve from AS1 to AS2?

Accepted Answer

A)  a reduction in firms' costs of production 
B)  a reduction in taxes on consumers 
C)  an increase in the price level 
D)  an increase in the world price of oil

Question 18

Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run.

Accepted Answer

A) True 
 B)False

Question 19

Use the sticky-wage theory of aggregate demand to explain the short-run Phillips curve.

Accepted Answer

The answer of Use the sticky-wage theory of aggregate demand...

Question 20

In which case, if any, will inflation remain higher after a temporary adverse supply shock?

Accepted Answer

A)  both when the central bank maintains a higher money supply growth rate and when the central bank does nothing 
B)  only if the central bank does nothing 
C)  only if the central bank maintains a higher money supply growth rate 
D)  None of the above is correct. Whether the central bank maintains a higher money supply growth rate or not, the inflation rate will return to its original level.

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

As the aggregate demand curve shifts leftward along a given aggregate supply curve,

Suppose that the money supply increases. In the short run, this increases prices according to

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

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

Milton Friedman argued that the Fed's control over the money supply could be used to peg

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

According to the long-run Phillips curve, in the long run monetary policy influences

If the Fed reduces inflation 1 percentage point and this makes output fall 2 percentage points and unemployment rise 3 percentage points for six months, the sacrifice ratio is

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

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. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

Refer to The Economy in 2008. The short-run effects of rising world commodity prices are shown by

A. W. Phillips' findings were based on data

The long-run response to a decrease in the money supply growth rate is shown by shifting

If the short-run Phillips curve were stable, which of the following would be unusual?

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

Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run.

Use the sticky-wage theory of aggregate demand to explain the short-run Phillips curve.

In which case, if any, will inflation remain higher after a temporary adverse supply shock?