Question 1

If consumer confidence rises, then aggregate demand shifts

Accepted Answer

A)  right, making inflation higher than otherwise. 
B)  right, making inflation lower than otherwise. 
C)  left, making inflation higher than otherwise. 
D)  left, making inflation lower than otherwise.

Question 2

Friedman and Phelps argued that

Accepted Answer

A)  if peoples' inflation expectations were fixed, then an increase in the money supply growth rate could not change output in the short or long run. 
B)  if peoples' inflation expectations were fixed, then a decrease in the money supply growth rate could raise output and unemployment in the short run. 
C)  any change in unemployment created by making aggregate demand increase more rapidly is temporary because people eventually revise their inflation expectations. 
D)  None of the above is correct.

Question 3

Just as the aggregate-supply curve slopes upward only in the short run, the trade-off between inflation and unemployment holds only in the short run.

Accepted Answer

A) True 
 B)False

Question 4

In response to the financial crisis of 2007-2008, policymakers used

Accepted Answer

A)  expansionary monetary policy and expansionary fiscal policy. 
B)  expansionary monetary policy and contractionary fiscal policy. 
C)  contractionary monetary policy and expansionary fiscal policy. 
D)  contractionary monetary policy and contractionary fiscal policy.

Question 5

Samuelson and Solow believed that the Phillips curve offered policymakers a menu of possible economic outcomes.

Accepted Answer

A) True 
 B)False

Question 6

By about 1973, U.S. policymakers had learned that

Accepted Answer

A)  Friedman and Phelps's analysis of inflation and unemployment had been correct. 
B)  the short-run Phillips curve shifts when expectations of inflation change. 
C)  there is no long-run trade-off between inflation and unemployment. 
D)  All of the above are correct.

Question 7

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. Suppose points F and G on the right-hand graph represent two possible outcomes for an imaginary economy in the year 2012, and those two points correspond to points B and C, respectively, on the left- hand graph. Also suppose we know that the price index equaled 120 in 2011. Then the numbers 115 and 130 on the vertical axis of the left-hand graph would have to be replaced by

Accepted Answer

A)  155 and 175, respectively. 
B)  138 and 156, respectively. 
C)  137.5 and 154.75, respectively. 
D)  135 and 150, respectively.

Question 8

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

Accepted Answer

A)  decreased the money supply. 
B)  increased government expenditures. 
C)  decreased taxes. 
D)  None of the above is correct.

Question 9

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Accepted Answer

The answer of In the long run what primarily determines...

Question 10

In the early 1970s, the short-run Phillips curve shifted

Accepted Answer

A)  rightward as inflation expectations rose. 
B)  rightward as inflation expectations fell. 
C)  leftward as inflation expectations rose. 
D)  leftward as inflation expectations fell.

Question 11

Some countries have had relatively high inflation and relatively high unemployment for long periods of time. Is this consistent with the Phillips curve? Defend your answer.

Accepted Answer

The answer of Some countries have had relatively high inflation...

Question 12

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 13

The economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's argument

Accepted Answer

A)  is completely correct. 
B)  is completely wrong. 
C)  is true for the short run but not the long run. 
D)  is true for the long run but not the short run .

Question 14

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 15

Suppose that an economy is currently experiencing 10 percent unemployment and 15 percent inflation. If in the process of bringing inflation down by 2 percentage points, real GDP falls by 6 percent for a year, the sacrifice ratio is

Accepted Answer

A)  5. 
B)  2. 
C)  12. 
D)  None of the above is correct.

Question 16

U.S. net exports fall due to recessions in foreign countries.
A. According to the aggregate demand and supply model, what happens to the price level and output in the short run?
B. According to the short-run Phillips curve what happens to inflation and unemployment in the short run?
C. If the Fed wanted to reverse the effects of this shock on output, what should it do?

Accepted Answer

The answer of U.S. net exports fall due to recessions...

Question 17

A policy change that changes the natural rate of unemployment changes

Accepted Answer

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

Question 18

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

Accepted Answer

A) True 
 B)False

Question 19

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 20

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on

Accepted Answer

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

Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

If consumer confidence rises, then aggregate demand shifts

Friedman and Phelps argued that

Just as the aggregate-supply curve slopes upward only in the short run, the trade-off between inflation and unemployment holds only in the short run.

In response to the financial crisis of 2007-2008, policymakers used

Samuelson and Solow believed that the Phillips curve offered policymakers a menu of possible economic outcomes.

By about 1973, U.S. policymakers had learned that

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

In the early 1970s, the short-run Phillips curve shifted

Some countries have had relatively high inflation and relatively high unemployment for long periods of time. Is this consistent with the Phillips curve? Defend your answer.

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 economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's argument

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,

Suppose that an economy is currently experiencing 10 percent unemployment and 15 percent inflation. If in the process of bringing inflation down by 2 percentage points, real GDP falls by 6 percent for a year, the sacrifice ratio is

A policy change that changes the natural rate of unemployment changes

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

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

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on