Question 1

What would NOT be associated with a favourable supply shock?

Accepted Answer

A)   short-run Phillips curve shifts right
B)   unemployment rises
C)   price level falls
D)   output fallsE) A) and B)
F) A) and C)

Question 2

Suppose that in response to an adverse aggregate supply shock,the Bank of Canada increased the money supply.What would happen to unemployment and inflation?

Accepted Answer

A)   Unemployment and inflation would both rise.
B)   Unemployment and inflation would both fall.
C)   Unemployment would rise and inflation would fall.
D)   Unemployment would fall and inflation would rise.E) C) and D)
F) B) and D)

Question 3

Among other things,what determines the long-run average unemployment rate and inflation,respectively?

Accepted Answer

A)   the market power of unions; government spending
B)   efficiency wages; the money supply growth rate
C)   the rate of growth of the money supply; the market power of unions
D)   the minimum wage; the extent to which firms are competitiveE) A) and D)
F) All of the above

Question 4

Suppose an economy with high inflation decides to decrease the money supply growth rate.Which of the following best describes the results?

Accepted Answer

A)   Initially unemployment rises.Eventually the short-run Phillips curve shifts right.
B)   Initially unemployment rises.Eventually the short-run Phillips curve shifts left.
C)   Initially unemployment falls.Eventually the short-run Phillips curve shifts right.
D)   Initially unemployment falls.Eventually the short-run Phillips curve shifts left.E) None of the above
F) A) and B)

Question 5

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops.What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?

Accepted Answer

A)   It would shift both the short-run aggregate-supply curve and the short-run Phillips curve right.
B)   It would shift both the short-run aggregate-supply curve and the short-run Phillips curve left.
C)   It would shift the short-run aggregate-supply curve to the right,and the short-run Phillips curve to the left.
D)   It would shift the short-run aggregate-supply curve to the left,and the short-run Phillips curve to the right.E) A) and B)
F) A) and C)

Question 6

How is the misery index calculated?

Accepted Answer

A)   It is the inflation rate plus the unemployment rate.
B)   It is the unemployment rate minus the inflation rate.
C)   It is the actual inflation rate plus the expected inflation rate.
D)   It is the natural unemployment rate minus the long-run inflation rate.E) B) and D)
F) A) and D)

Question 7

Suppose the natural rate of unemployment is 6 percent,the expected inflation is 2 percent,and the constant "a" in the short-run Phillips curve equation is 0.8.Describe the process of adjustment when the expected inflation rate changes from 2 percent to 3 percent.

Accepted Answer

First,the actual inflation rate increase...

Question 8

Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 5 percentage points for four years,and it made the unemployment rate rise from 3 percent to 9 percent for three years.What is the sacrifice ratio?

Accepted Answer

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

Question 9

When aggregate demand increases,what happens to prices and employment?

Accepted Answer

A)   Prices will fall and unemployment will rise.
B)   Prices and unemployment fall.
C)   Prices and unemployment rise.
D)   Prices will rise and unemployment will fall.E) C) and D)
F) All of the above

Question 10

In 1968,economist Milton Friedman published a paper that was critical of the Phillips curve.On what grounds did Friedman criticize the Phillips curve?

Accepted Answer

A)   It seemed to work for wages but not for inflation.
B)   Monetary policy was ineffective in combating inflation.
C)   The tradeoff illustrated by the Phillips curve did not apply in the long run.
D)   Phillips had made errors in collecting his data.E) B) and D)
F) A) and B)

Question 11

Suppose the Bank of Canada reduces inflation 2 percentage points,and this makes output fall 10 percentage points and unemployment rises 4 percentage points.What is the sacrifice ratio?

Accepted Answer

A)   1 / 5
B)   2
C)   5
D)   8E) B) and D)
F) A) and B)

Question 12

Figure 16-3 
-Refer to the Figure 16-3.Starting from c and 3,in the short run,where does an unexpected decrease in money supply growth move the economy to?

Accepted Answer

A)   a and 1
B)   b and 2
C)   e and 5
D)   d and 4E) A) and B)
F) A) and C)

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

According to Phelps and Friedman,in the short run,what effect does an increase in the money supply have on prices and unemployment?

Accepted Answer

A)   It raises prices and unemployment.
B)   It raises prices and reduces unemployment.
C)   It reduces prices and raises unemployment.
D)   It reduces prices and leaves unemployment unchanged.E) A) and D)
F) A) and B)

Question 15

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Accepted Answer

A downward-sloping Phillips curve implie...

Question 16

If macroeconomic policy expands aggregate demand,unemployment will fall and inflation will rise in the short run.

Accepted Answer

A) True 
 B)False

Question 17

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

Accepted Answer

A) True 
 B)False

Question 18

Which theory proposes that people optimally use all available information when forecasting the future?

Accepted Answer

A)   rational expectations
B)   perfect expectations
C)   momentum expectations
D)   policy expectationsE) A) and C)
F) All of the above

Question 19

Suppose the Bank of Canada reduces the rate of inflation by 4 percentage points.Suppose,as well,that the sacrifice ratio has a value of 2.5.Which of the following describes what happens to GDP?

Accepted Answer

A)   GDP increases by 10 percentage points
B)   GDP decreases by 10 percentage points
C)   GDP increases by one-quarter of a percentage point
D)   GDP decreases by one-quarter of a percentage pointE) A) and B)
F) A) and D)

Question 20

In the long run,what are the effects of a decrease in the rate of growth of the money supply on the Phillips curves?

Accepted Answer

A)   It shifts both the long-run and the short-run Phillips curves right.
B)   It leaves the long-run Phillips curve unchanged and the short-run Phillips curve right.
C)   It shifts the long-run Phillips curve right and the short-run Phillips curve left.
D)   It leaves the long-run Phillips curve unchanged and shifts the short-run Phillips curve left.E) B) and D)
F) A) and B)

Exam 16: The Short-Run Tradeoff Between Inflation and Unemployment

Figure 16-3 -Refer to the Figure 16-3.Starting from c and 3,in the short run,where does an unexpected decrease in money supply growth move the economy to?

Correct AnswerverifiedShow Answer

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops.What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?

Correct AnswerverifiedShow Answer

What would NOT be associated with a favourable supply shock?

Correct AnswerverifiedShow Answer

Suppose the Bank of Canada reduces the rate of inflation by 4 percentage points.Suppose,as well,that the sacrifice ratio has a value of 2.5.Which of the following describes what happens to GDP?

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In 1968,economist Milton Friedman published a paper that was critical of the Phillips curve.On what grounds did Friedman criticize the Phillips curve?

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Among other things,what determines the long-run average unemployment rate and inflation,respectively?

Correct AnswerverifiedShow Answer

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Correct AnswerverifiedA downward-sloping Phillips curve implie...View AnswerShow Answer

Suppose an economy with high inflation decides to decrease the money supply growth rate.Which of the following best describes the results?

Correct AnswerverifiedShow Answer

How is the misery index calculated?

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Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 5 percentage points for four years,and it made the unemployment rate rise from 3 percent to 9 percent for three years.What is the sacrifice ratio?

Correct AnswerverifiedShow Answer

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

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Suppose the natural rate of unemployment is 6 percent,the expected inflation is 2 percent,and the constant "a" in the short-run Phillips curve equation is 0.8.Describe the process of adjustment when the expected inflation rate changes from 2 percent to 3 percent.

Correct AnswerverifiedFirst,the actual inflation rate increase...View AnswerShow Answer

When aggregate demand increases,what happens to prices and employment?

Correct AnswerverifiedShow Answer

If macroeconomic policy expands aggregate demand,unemployment will fall and inflation will rise in the short run.

Correct AnswerverifiedShow Answer

In the long run,what are the effects of a decrease in the rate of growth of the money supply on the Phillips curves?

Correct AnswerverifiedShow Answer

According to Phelps and Friedman,in the short run,what effect does an increase in the money supply have on prices and unemployment?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which theory proposes that people optimally use all available information when forecasting the future?

Correct AnswerverifiedShow Answer

Suppose that in response to an adverse aggregate supply shock,the Bank of Canada increased the money supply.What would happen to unemployment and inflation?

Correct AnswerverifiedShow Answer

Suppose the Bank of Canada reduces inflation 2 percentage points,and this makes output fall 10 percentage points and unemployment rises 4 percentage points.What is the sacrifice ratio?

Correct AnswerverifiedShow Answer

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A downward-sloping Phillips curve implie...
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First,the actual inflation rate increase...
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