Question 1

If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run

Accepted Answer

A)  both the unemployment rate and the inflation rate would be lower. 
B)  the unemployment rate would be lower and the inflation rate would be higher. 
C)  the unemployment rate would be higher and the inflation rate would be lower. 
D)  the unemployment rate and the inflation rate would be higher.

Question 2

If the government reduced the minimum wage and pursued expansionary monetary policy, then in the long run

Accepted Answer

A)  both the unemployment rate and the inflation rate would be higher. 
B)  both the unemployment rate and the inflation rate would be lower. 
C)  the unemployment rate would be higher and the inflation rate would be lower. 
D)  the unemployment rate would be lower and the inflation rate would be higher.

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

Which of the following increases inflation and reduces unemployment in the short run?

Accepted Answer

A)  either an increase in government expenditures by itself or an increase in the money supply growth rate by itself 
B)  an increase in government expenditures, but not an increase in the money supply growth rate 
C)  an increase in the money supply growth rate, but not an increase in government expenditures 
D)  neither an increase in government expenditures nor an increase in the money supply

Question 5

Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation.

Accepted Answer

A) True 
 B)False

Question 6

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 7

In the United States during the 1970s, expected inflation

Accepted Answer

A)  rose substantially. 
B)  rose slightly. 
C)  fell slightly. 
D)  fell substantially.

Question 8

The misery index is calculated as the

Accepted Answer

A)  inflation rate plus the unemployment rate. 
B)  unemployment rate minus the inflation rate. 
C)  actual inflation rate minus the expected inflation rate. 
D)  natural unemployment rate times the inflation rate

Question 9

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. Then it is apparent that the price index equaled

Accepted Answer

A)  130 in 2011. 
B)  115 in 2011. 
C)  110 in 2011. 
D)  100 in 2011.

Question 10

Other things the same, a decrease in aggregate demand decreases both inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 11

Figure 35-3. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-3. What is measured along the vertical axis of the left-hand graph?

Accepted Answer

A)  the wage rate 
B)  the inflation rate 
C)  the price level 
D)  the change in output from one year to the next

Question 12

A policy change that reduces the natural rate of unemployment shifts both the long-run aggregate-supply curve and the long-run Phillips curve left.

Accepted Answer

A) True 
 B)False

Question 13

In 1980, the combination of inflation and unemployment the U.S. was experiencing

Accepted Answer

A)  resulted from a leftward shift of the short-run Phillips curve. 
B)  was consistent with feasible inflation-unemployment combinations provided by the Phillips curve of the 1960s. 
C)  followed two supply shocks that were triggered by the Organization of Petroleum Exporting Countries. 
D)  All of the above are correct.

Question 14

Disinflation is a reduction in

Accepted Answer

A)  the price level. 
B)  the inflation rate. 
C)  the consumer price index. 
D)  All of the above are correct.

Question 15

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 16

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Accepted Answer

A)  short run, and the natural rate is the socially optimal rate of unemployment. 
B)  long run, and the natural rate is the socially optimal rate of unemployment. 
C)  short run, and the natural rate is not necessarily the socially optimal rate of unemployment. 
D)  long run, and the natural rate is not necessarily the socially optimal rate of unemployment.

Question 17

The sacrifice ratio of the Volcker disinflation was larger than previous estimates had predicted.

Accepted Answer

A) True 
 B)False

Question 18

A central bank raises the money supply growth rate and keeps it at that higher rate. Explain the process by which the economy moves to long-run equilibrium.

Accepted Answer

The answer of A central bank raises the money supply...

Question 19

Suppose the central bank decreases the growth rate of the money supply. In the short run, this policy change will affect

Accepted Answer

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

Question 20

If the government raises government expenditures, then in the short run prices

Accepted Answer

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

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

If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run

If the government reduced the minimum wage and pursued expansionary monetary policy, then in the long run

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?

Which of the following increases inflation and reduces unemployment in the short run?

Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation.

Disinflation is defined as a

In the United States during the 1970s, expected inflation

The misery index is calculated as the

Other things the same, a decrease in aggregate demand decreases both inflation and unemployment.

A policy change that reduces the natural rate of unemployment shifts both the long-run aggregate-supply curve and the long-run Phillips curve left.

In 1980, the combination of inflation and unemployment the U.S. was experiencing

Disinflation is a reduction in

A favorable supply shock

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

The sacrifice ratio of the Volcker disinflation was larger than previous estimates had predicted.

A central bank raises the money supply growth rate and keeps it at that higher rate. Explain the process by which the economy moves to long-run equilibrium.

Suppose the central bank decreases the growth rate of the money supply. In the short run, this policy change will affect

If the government raises government expenditures, then in the short run prices