Question 1

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 the money supply growth rate moves the economy to

Accepted Answer

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

Question 2

A central bank pledges to reduce the inflation rate from 10% to 3%. People reduce their inflation expectations to 5%, but the central bank reduces inflation to 3%. What happens to the unemployment rate?

Accepted Answer

The answer of A central bank pledges to reduce the...

Question 3

The short-run Phillips curve is based on the classical dichotomy.

Accepted Answer

A) True 
 B)False

Question 4

If the central bank raises the rate at which it increases the money supply, then in the short run unemployment is

Accepted Answer

A)  above its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of unemployment. 
B)  above its natural rate. The long-run Phillips curve shifts left as the economy moves back to its natural rate of unemployment. 
C)  below its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of unemployment. 
D)  below its natural rate. The long-run Phillips curve shifts left as the economy moves back to its natural rate of unemployment.

Question 5

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 6

Which of the following scenarios is consistent with typical estimates of the sacrifice ratio?

Accepted Answer

A)  Inflation is reduced from 4 percent to 1 percent, and annual output falls by 10 percent. 
B)  Inflation is reduced from 6 percent to 4 percent, and annual output falls by 10 percent. 
C)  Inflation is reduced from 8 percent to 5 percent, and annual output falls by 9 percent. 
D)  Inflation is reduced from 3 percent to 2 percent, and annual output falls by 3 percent.

Question 7

If a government redesigned its unemployment insurance programs so that the unemployed had greater incentives to quickly find appropriate jobs, then which of the following curves would shift right?

Accepted Answer

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

Question 8

Economist A.W. Phillips found a negative correlation between

Accepted Answer

A)  output and unemployment. 
B)  unemployment and the interest rate. 
C)  output and the interest rate. 
D)  wage inflation and unemployment.

Question 9

If the Federal Reserve increases the growth rate of the money supply, in the long run

Accepted Answer

A)  inflation is higher and the unemployment rate is lower. 
B)  inflation is higher while the unemployment rate is unchanged. 
C)  inflation is unchanged while the unemployment rate is lower. 
D)  None of the above is correct.

Question 10

According to Friedman and Phelps, the unemployment rate

Accepted Answer

A)  is never below its natural rate. 
B)  is below its natural rate when actual inflation is greater than expected inflation. 
C)  is below its natural rate when actual inflation is less than expected inflation. 
D)  is below its natural rate when actual inflation equals expected inflation.

Question 11

According to the Phillips curve, unemployment and inflation are positively related in

Accepted Answer

A)  the short run and in the long run. 
B)  the short run, but not in the long run. 
C)  the long run, but not in the short run. 
D)  neither the long run nor the short run.

Question 12

Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by

Accepted Answer

A)  moving to the left along the short-run Phillips curve. 
B)  moving to the right along the short-run Phillips curve. 
C)  shifting the short-run Phillips curve to the right. 
D)  shifting the short-run Phillips curve to the left.

Question 13

Contractionary monetary policy

Accepted Answer

A)  leads to disinflation and makes the short-run Phillips curve shift right. 
B)  leads to disinflation and makes the short-run Phillips curve shift left. 
C)  does not lead to disinflation but makes the short-run Phillips curve shift right. 
D)  does not lead to disinflation but makes the short-run Phillips curve shift left.

Question 14

Some countries have inflation around or in excess of 8 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent? In your answer, define the sacrifice ratio and explain how you found the cost of inflation reduction.

Accepted Answer

The answer of Some countries have inflation around or in...

Question 15

If unemployment is above 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 16

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

Accepted Answer

A)  right, so that at any inflation rate output is higher in the short run than before. 
B)  left, so that at any inflation rate output is higher in the short run than before. 
C)  right, so that at any inflation rate output is lower in the short run than before. 
D)  left, so that at any inflation rate output is lower in the short run than before.

Question 17

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 taxes moves the economy to

Accepted Answer

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

Question 18

If people correctly anticipate that inflation will fall by 1%, then

Accepted Answer

A)  the short-run Phillips curve shifts right and unemployment is unchanged. 
B)  the short-run Phillips curve shifts right and unemployment rises. 
C)  the short-run Phillips curve shifts left and unemployment is unchanged. 
D)  the short-run Phillips curve would shift left and unemployment falls.

Question 19

A favorable supply shock

Accepted Answer

A)  raises unemployment and the inflation rate. 
B)  raises unemployment and reduces the inflation rate. 
C)  reduces unemployment and raises the inflation rate. 
D)  reduces unemployment and the inflation rate.

Question 20

The position of the long-run Phillips curve depends on

Accepted Answer

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

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

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 the money supply growth rate moves the economy to