Question 1

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 2

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

Accepted Answer

A)  the money supply growth rate increased or if effective job-training programs were implemented. 
B)  the money supply growth rate increased, but not if effective job-training programs were implemented. 
C)  effective job-training programs were implemented, but not if the money supply growth rate increased. 
D)  None of the above is correct.

Question 3

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 4

If unemployment is below 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

Friedman and Phelps argued

Accepted Answer

A)  that in the long run, monetary growth did not influence those factors that determine the economy's unemployment rate. 
B)  that the Phillips curve could be exploited in the long run by using monetary, but not fiscal policy. 
C)  that the short-run Phillips curve was very steep, but not vertical. 
D)  that there was neither a short-run nor long-run tradeoff between inflation and unemployment.

Question 6

Which of the following describes the Volcker disinflation most accurately?

Accepted Answer

A)  Almost all of the public believed that the Fed would keep money growth low, so unemployment rose less than it would have otherwise. 
B)  Almost all of the public believed that the Fed would keep money growth low, so unemployment rose more than it would have otherwise. 
C)  Much of the public did not believe that the Fed would keep money growth low, so unemployment rose less than it would have otherwise. 
D)  Much of the public did not believe that the Fed would keep money growth low, so unemployment rose more than it would have otherwise.

Question 7

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 8

The idea that the long-run Phillips curve is

Accepted Answer

A)  vertical stems from the analysis of Samuelson and Solow. 
B)  vertical stems from the analysis of Friedman and Phelps. 
C)  vertical was disproved by the experiment that monetary and fiscal policymakers inadvertently created in the 1970s. 
D)  downward-sloping can be correct if unemployment responds very quickly to unexpected inflation.

Question 9

One determinant of the natural rate of unemployment is the

Accepted Answer

A)  rate of growth of the money supply. 
B)  minimum wage rate. 
C)  expected inflation rate. 
D)  All of the above are correct.

Question 10

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

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

Question 12

If the central bank increases the money supply, in the short run, output

Accepted Answer

A)  rises so unemployment rises. 
B)  rises so unemployment falls. 
C)  falls so unemployment rises. 
D)  falls so unemployment falls.

Question 13

If there is a decline in business confidence and the Fed desires to return unemployment towards its natural rate, what should it do? If business confidence eventually returns to normal but the Fed does not reverse its policy, what eventually happens to the inflation rate?

Accepted Answer

The answer of If there is a decline in business...

Question 14

Suppose the Fed increased the growth rate of the money supply. Which of the following would be higher in the long run?

Accepted Answer

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

Question 15

Refer to Monetary Policy in Flosserland. Suppose the Flosserland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% and actually reduces inflation to that level. Suppose at first that the public thought inflation would only drop to 18%, but eventually become convinced that the inflation rate will stay at 12.5%.

Accepted Answer

A)  unemployment rises in the short run, and remains higher than it's original value in the long run. 
B)  unemployment rises in the short run, and is the same as it's original value in the long run. 
C)  unemployment falls in the short run, and is lower than it's original value in the long run. 
D)  unemployment falls in the short run, and is the same as it's original value in the long run.

Question 16

A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  increases inflation and shifts the short-run Phillips curve right. 
B)  increases inflation and shifts the short-run Phillips curve left. 
C)  decreases inflation and shifts the short-run Philips curve right. 
D)  decreases inflation and shifts the short-run Phillips curve left.

Question 18

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 19

Figure 35-1. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the right-hand diagram, U represents the unemployment rate.
  
-Refer to Figure 35-1. What is measured along the vertical axis of the right-hand graph?

Accepted Answer

A)  the interest rate 
B)  the inflation rate 
C)  the wage rate 
D)  the growth rate of the nominal money supply

Question 20

If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would

Accepted Answer

A)  cost 1 percent of annual output. 
B)  cost 4 percent of annual output. 
C)  imply that unemployment would rise by 1%. 
D)  imply that unemployment would rise by 4%.

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

Most economists believe that a tradeoff between inflation and unemployment exists

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

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?

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

Friedman and Phelps argued

Which of the following describes the Volcker disinflation most accurately?

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

The idea that the long-run Phillips curve is

One determinant of the natural rate of unemployment is the

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

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

If the central bank increases the money supply, in the short run, output

If there is a decline in business confidence and the Fed desires to return unemployment towards its natural rate, what should it do? If business confidence eventually returns to normal but the Fed does not reverse its policy, what eventually happens to the inflation rate?

Suppose the Fed increased the growth rate of the money supply. Which of the following would be higher in the long run?

A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.

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

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 35-1. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the right-hand diagram, U represents the unemployment rate. -Refer to Figure 35-1. What is measured along the vertical axis of the right-hand graph?

If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would