Question 1

If a central bank decreases the money supply,then

Accepted Answer

A)   prices,output,and unemployment rise.
B)   prices and output rise and unemployment falls.
C)   prices rise and output and unemployment fall.
D)   prices and output fall and unemployment rises.E) C) and D)
F) None of the above

Question 2

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

Disinflation means a...

Question 3

In the long run,

Accepted Answer

A)   the natural rate of unemployment depends primarily on the level of aggregate demand.
B)   inflation depends primarily upon the money supply growth rate.
C)   there is a tradeoff between the inflation rate and the natural rate of unemployment.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 4

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Accepted Answer

A) True 
 B)False

Question 5

According to the Friedman-Phelps analysis,in the long run actual inflation equals expected inflation and unemployment is at its natural rate.

Accepted Answer

A) True 
 B)False

Question 6

If monetary policy moves unemployment below its natural rate,both expected and actual inflation will rise.

Accepted Answer

A) True 
 B)False

Question 7

The government of Murkland considers two policies.Policy A would shift AD right by 300 units while policy B would shift AD right by 200 units.According to the short-run Phillips curve,policy A will lead

Accepted Answer

A)   to a lower unemployment rate and a lower inflation rate than policy B.
B)   to a lower unemployment rate and a higher inflation rate than policy B.
C)   to a higher unemployment rate and lower inflation rate than policy B.
D)   to a higher unemployment rate and higher inflation rate than policy B.E) A) and B)
F) A) and C)

Question 8

If the short-run Phillips curve were stable,which of the following would be unusual?

Accepted Answer

A)   an increase in government spending and a fall in unemployment
B)   an increase in inflation and a decrease in output
C)   a decrease in the inflation rate and a rise in the unemployment rate
D)   a decrease in the money supply and a rise in the unemployment rate.E) None of the above
F) A) and D)

Question 9

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 sacrifice ratio gives the annual per...

Question 10

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

Accepted Answer

A)   It would shift the long-run Phillips curve right.
B)   It would shift the long-run Phillips curve left.
C)   There would be an upward movement along a given long-run Phillips curve.
D)   There would be a downward movement along a given long-run Philips curve.E) A) and C)
F) B) and C)

Question 11

If policymakers expand aggregate demand,then in the long run

Accepted Answer

A)   prices will be higher and unemployment will be lower.
B)   prices will be higher and unemployment will be unchanged.
C)   prices and unemployment will be unchanged.
D)   None of the above is correct.E) None of the above
F) C) and D)

Question 12

According to the long-run Phillips curve,if the Fed increases the growth rate of the money supply,what happens to the inflation rate and the unemployment rate in the long run?

Accepted Answer

The inflation rate r...

Question 13

Any policy change that reduced the natural rate of unemployment

Accepted Answer

A)   would shift the long-run Phillips curve to the right.
B)   would shift the long-run aggregate-supply curve to the right.
C)   would be a policy change that impeded the functioning of the labor market.
D)   All of the above are correct.E) A) and B)
F) B) and D)

Question 14

If expected inflation rises but actual inflation remains the same,what happens to the unemployment rate? Defend your answer.

Accepted Answer

Unemployment rises.The increas...

Question 15

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply,then in the short run the Federal Reserve's action

Accepted Answer

A)   lowers both inflation and unemployment.
B)   lowers inflation but raises unemployment.
C)   raises inflation but lowers unemployment.
D)   raises both inflation and unemployment.E) C) and D)
F) None of the above

Question 16

Suppose that a small economy that produces mostly agricultural goods experiences a year with exceptionally good conditions for growing crops.The good weather would

Accepted Answer

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

Question 17

In the long run,a decrease in the money supply growth rate

Accepted Answer

A)   reduces expected inflation so the long-run Phillips curve shifts left.
B)   reduces expected inflation so the short-run Phillips curve shifts left.
C)   Both A and B are correct.
D)   None of the above is correct.E) All of the above
F) B) and C)

Question 18

If policymakers increase aggregate demand,then in the short run the price level

Accepted Answer

A)   falls and unemployment rises.
B)   and unemployment fall.
C)   and unemployment rise.
D)   rises and unemployment falls.E) A) and B)
F) None of the above

Question 19

The long-run Phillips curve would shift left if

Accepted Answer

A)   the money supply increased or if the minimum wage was reduced.
B)   the money supply increased but not if the minimum wage was reduced.
C)   the minimum wage was reduced but not if the money supply increased.
D)   None of the above is correct.E) None of the above
F) A) and D)

Question 20

In the long run,a decrease in the money supply growth rate

Accepted Answer

A)   increases inflation and shifts the short-run Phillips curve right.
B)   increases inflation and shifts the short-run Phillips curve left.
C)   decreases inflation and shifts the short-run Philips curve right.
D)   decreases inflation and shifts the short-run Phillips curve left.E) A) and C)
F) B) and C)

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

If a central bank decreases the money supply,then

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If monetary policy moves unemployment below its natural rate,both expected and actual inflation will rise.

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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?

Correct AnswerverifiedDisinflation means a...View AnswerShow Answer

According to the long-run Phillips curve,if the Fed increases the growth rate of the money supply,what happens to the inflation rate and the unemployment rate in the long run?

Correct AnswerverifiedThe inflation rate r...View AnswerShow Answer

According to the Friedman-Phelps analysis,in the long run actual inflation equals expected inflation and unemployment is at its natural rate.

Correct AnswerverifiedShow Answer

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Correct AnswerverifiedShow Answer

If expected inflation rises but actual inflation remains the same,what happens to the unemployment rate? Defend your answer.

Correct AnswerverifiedUnemployment rises.The increas...View AnswerShow Answer

Any policy change that reduced the natural rate of unemployment

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How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

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In the long run,

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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.

Correct AnswerverifiedThe sacrifice ratio gives the annual per...View AnswerShow Answer

The government of Murkland considers two policies.Policy A would shift AD right by 300 units while policy B would shift AD right by 200 units.According to the short-run Phillips curve,policy A will lead

Correct AnswerverifiedShow Answer

The long-run Phillips curve would shift left if

Correct AnswerverifiedShow Answer

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply,then in the short run the Federal Reserve's action

Correct AnswerverifiedShow Answer

Suppose that a small economy that produces mostly agricultural goods experiences a year with exceptionally good conditions for growing crops.The good weather would

Correct AnswerverifiedShow Answer

If policymakers increase aggregate demand,then in the short run the price level

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If policymakers expand aggregate demand,then in the long run

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If the short-run Phillips curve were stable,which of the following would be unusual?

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In the long run,a decrease in the money supply growth rate

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In the long run,a decrease in the money supply growth rate

Correct AnswerverifiedShow Answer

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Disinflation means a...
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The inflation rate r...
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Unemployment rises.The increas...
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The sacrifice ratio gives the annual per...
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