Question 1

If the central bank decreases the money supply,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.E) B) and D)
F) None of the above

Question 2

An economy has a current inflation rate of 12%.If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2,how much annual output must be sacrificed in the transition?

Accepted Answer

A)   16%
B)   8%
C)   4%
D)   None of the above is correct.E) B) and C)
F) None of the above

Question 3

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

Accepted Answer

A)   inflation but not the unemployment rate;this is consistent with classical theory.
B)   inflation but not the unemployment rate;this is inconsistent with classical theory.
C)   the unemployment rate but not inflation;this is consistent with classical theory.
D)   the unemployment rate but not inflation;this is inconsistent with classical theory.E) None of the above
F) A) and B)

Question 4

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 5

If the central bank increases the growth rate of the money supply and initially inflation expectations are unchanged,then in the short run

Accepted Answer

A)   unemployment rises.In the long run the short-run Phillips curve shifts left.
B)   unemployment rises.In the long run the short-run Phillips curve shifts right.
C)   unemployment falls.In the long run the short-run the Phillips curve shifts left.
D)   unemployment falls.In the long run the short-run the Phillips curve shifts right.E) B) and C)
F) All of the above

Question 6

If there is a temporary adverse supply shock,then the short-run Phillips curve shifts to the

Accepted Answer

A)   right.It remains to the right regardless of monetary policy.
B)   right.It remains to the right if the central bank pursues expansionary monetary policy.
C)   left.It remains to the left regardless of monetary policy.
D)   left.It remains to the left if the central bank pursues expansionary monetary policy.E) All of the above
F) C) and D)

Question 7

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.E) A) and D)
F) A) and C)

Question 8

According to Friedman and Phelps,policymakers face a tradeoff between inflation and unemployment

Accepted Answer

A)   only in the long run.
B)   only in the short run.
C)   in neither the long run nor short run.
D)   in both the short run and long run.E) A) and B)
F) A) and C)

Question 9

Figure 22-6
Use the two graphs in the diagram to answer the following questions.

-Refer to Figure 22-6.Starting from C and 3,in the long run,an increase in money supply growth moves the economy to

Accepted Answer

A)   A and 1.
B)   back to C and 3.
C)   D and 4.
D)   F and 5.E) A) and D)
F) B) and C)

Question 10

The long-run response to an increase in the growth rate of the money supply 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.E) A) and D)
F) None of the above

Question 11

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,

Accepted Answer

A)   unemployment equals the natural rate and expected inflation equals actual inflation.
B)   unemployment is above the natural rate and expected inflation equals actual inflation.
C)   unemployment equals the natural rate and expected inflation is greater than actual inflation.
D)   None of the above is necessarily correct.E) None of the above
F) B) and D)

Question 12

Assume the analysis of Friedman and Phelps is correct,so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a *(ctual 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.E) A) and B)
F) All of the above

Question 13

If the Federal Reserve increases the rate at which it increases the money supply,then unemployment is lower

Accepted Answer

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

Question 14

If there is a large and sudden but temporary increase in the price of oil,which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

Accepted Answer

The short-run Phillips curve s...

Question 15

Figure 22-2
Use the pair of diagrams below to answer the following questions.

-Refer to Figure 22-2.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.E) All of the above
F) C) and D)

Question 16

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.E) A) and C)
F) B) and D)

Question 17

Figure 22-5
Use the graph below to answer the following questions. 
-Refer to Figure 22-5.Curve 2 is the

Accepted Answer

A)   long-run Phillips curve.
B)   short-run Phillips curve.
C)   long-run aggregate demand curve.
D)   short-run aggregate demand curve.E) A) and B)
F) A) and C)

Question 18

Ultimately,the change in unemployment associated with a change in inflation is due to

Accepted Answer

A)   the shape of the long-run aggregate supply curve.
B)   unanticipated inflation,not inflation per se.
C)   anticipated inflation,not inflation per se.
D)   a change in the natural rate of unemployment.E) None of the above
F) B) and C)

Question 19

As aggregate demand shifts left along the short-run aggregate supply curve,

Accepted Answer

A)   inflation and unemployment are higher.
B)   inflation is higher and unemployment is lower.
C)   unemployment is higher and inflation is lower.
D)   unemployment and inflation are lower.E) A) and C)
F) None of the above

Question 20

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.E) C) and D)
F) A) and B)

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

According to Friedman and Phelps,the unemployment rate

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According to Friedman and Phelps,policymakers face a tradeoff between inflation and unemployment

Correct AnswerverifiedShow Answer

Assume the analysis of Friedman and Phelps is correct,so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a *(ctual inflation - x) . In this equation,

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If the central bank decreases the money supply,then in the short run prices

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If there is a temporary adverse supply shock,then the short-run Phillips curve shifts to the

Correct AnswerverifiedShow Answer

If there is a large and sudden but temporary increase in the price of oil,which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

Correct AnswerverifiedThe short-run Phillips curve s...View AnswerShow Answer

As aggregate demand shifts left along the short-run aggregate supply curve,

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If the Federal Reserve increases the rate at which it increases the money supply,then unemployment is lower

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Figure 22-5 Use the graph below to answer the following questions. -Refer to Figure 22-5.Curve 2 is the

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Figure 22-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 22-2.If the economy starts at C and 1,then in the short run,a decrease in government expenditures moves the economy to

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Figure 22-6 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 22-6.Starting from C and 3,in the long run,an increase in money supply growth moves the economy to

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The long-run response to an increase in the growth rate of the money supply is shown by shifting

Correct AnswerverifiedShow Answer

If the central bank increases the growth rate of the money supply and initially inflation expectations are unchanged,then in the short run

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following describes the Volcker disinflation most accurately?

Correct AnswerverifiedShow Answer

Ultimately,the change in unemployment associated with a change in inflation is due to

Correct AnswerverifiedShow Answer

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,

Correct AnswerverifiedShow Answer

An economy has a current inflation rate of 12%.If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2,how much annual output must be sacrificed in the transition?

Correct AnswerverifiedShow Answer

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The short-run Phillips curve s...
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