Question 1

How is a decrease in the natural rate of unemployment shown in the Phillips curve diagram? Does this decrease change the inflation rate?

Accepted Answer

Both the long-run and the shor...

Question 2

Which of the following would shift the long-run Phillips curve to the right?

Accepted Answer

A)  expansionary fiscal policy
B)  an increase in the inflation rate
C)  increases in unemployment compensation
D)  None of the above is correct.E) C) and D)
F) None of the above

Question 3

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky-wage theory to explain your answer.

Accepted Answer

If unemployment is above its natural rat...

Question 4

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

Accepted Answer

A) True 
 B)False

Question 5

If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year, the sacrifice ratio is

Accepted Answer

A)  5/2.
B)  3/2.
C)  2/3.
D)  2/5.E) All of the above
F) A) and C)

Question 6

The economist A.W. Phillips published a famous article in 1958 in which he showed a

Accepted Answer

A)  negative correlation between the rate of unemployment and the rate of inflation.
B)  positive correlation between the rate of unemployment and the rate of inflation.
C)  negative correlation between the rate of unemployment and the rate of interest.
D)  positive correlation between the rate of unemployment and the rate of interestE) All of the above
F) B) and C)

Question 7

If an increase in inflation permanently reduced unemployment, then

Accepted Answer

A)  money would not be neutral and the long-run Phillips curve would slope upward.
B)  money would not be neutral and the long-run Phillips curve would slope downward.
C)  money would be neutral and the long-run Phillips curve would slope upward.
D)  money would be neutral and the long-run Phillips curve would slope downward.E) All of the above
F) None of the above

Question 8

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." 1 to AS2 could be a consequence of A) an increase in the money supply. B) an adverse supply shock. C) a decrease of output from Y1 to Y2. D) a slow adjustment of people's expectation of the inflation rate." class="answers-bank-image d-inline" rel="preload" > 1 to AS2 could be a consequence of A) an increase in the money supply. B) an adverse supply shock. C) a decrease of output from Y1 to Y2. D) a slow adjustment of people's expectation of the inflation rate." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

Accepted Answer

A)  an increase in the money supply.
B)  an adverse supply shock.
C)  a decrease of output from Y1 to Y2.
D)  a slow adjustment of people's expectation of the inflation rate.E) A) and D)
F) C) and D)

Question 9

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." 1 to AS2? A) a reduction in firms' costs of production B) a reduction in taxes on consumers C) an increase in the price level D) an increase in the world price of oil" class="answers-bank-image d-inline" rel="preload" > 1 to AS2? A) a reduction in firms' costs of production B) a reduction in taxes on consumers C) an increase in the price level D) an increase in the world price of oil" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 35-9. Which of the following events could explain the shift of the aggregate-supply curve from AS1 to AS2?

Accepted Answer

A)  a reduction in firms' costs of production
B)  a reduction in taxes on consumers
C)  an increase in the price level
D)  an increase in the world price of oilE) All of the above
F) C) and D)

Question 10

One determinant of the natural rate of unemployment is the

Accepted Answer

A)  rate of growth of the money supply.
B)  minimum wage rate.
C)  expected inflation rate.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 11

If inflation expectations rise, the short-run Phillips curve shifts

Accepted Answer

A)  left. If inflation remains the same, unemployment falls.
B)  left. If inflation remains the same, unemployment rises.
C)  right. If inflation remains the same, unemployment falls.
D)  right. If inflation remains the same, unemployment rises.E) B) and C)
F) None of the above

Question 12

Figure 35-4. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the left-hand diagram, the price level is measured on the vertical axis; on the right-hand diagram, the inflation rate is measured on the vertical axis.  
-Refer to Figure 35-4. Assume the figure depicts possible outcomes for the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was

Accepted Answer

A)  106.
B)  108.
C)  110.
D)  112.E) A) and B)
F) A) and C)

Question 13

In responding to the Phillips curve hypothesis, Friedman argued that the Fed can peg the

Accepted Answer

A)  unemployment rate.
B)  inflation rate.
C)  growth rate of real national income.
D)  All of the above are correct.E) A) and C)
F) C) and D)

Question 14

When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that

Accepted Answer

A)  if they contract aggregate demand, the unemployment rate will increase further.
B)  if they expand aggregate demand, the inflation rate will increase further.
C)  they face a less favorable trade-off between inflation and unemployment than they did before the shock.
D)  All of the above are correct.E) B) and D)
F) A) and C)

Question 15

If the Fed wants to reverse the effects of a favorable supply shock on the inflation rate, it should

Accepted Answer

A)  increase the money supply growth rate which also moves unemployment closer to its natural rate.
B)  increase the money supply growth rate, but this moves unemployment further from its natural rate.
C)  decrease the money supply growth rate which also moves unemployment closer to its natural rate.
D)  decrease the money supply growth rate, but this moves unemployment further from its natural rate.E) B) and C)
F) A) and C)

Question 16

Suppose that the money supply increases. In the short run, this increases prices according to

Accepted Answer

A)  both the short-run Phillips curve and the aggregate demand and aggregate supply model.
B)  neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
C)  the short-run Phillips curve, but not according to the aggregate demand and aggregate supply model.
D)  the aggregate demand and aggregate supply model but not according to the short-run Phillips curve.E) B) and C)
F) C) and D)

Question 17

Natural rate of unemployment - a × (Αctual inflation - Expected inflation)  =

Accepted Answer

A)  Quantity of goods and services demanded.
B)  Quantity of goods and services supplied.
C)  Unemployment rate.
D)  Previous year's inflation rate.E) B) and D)
F) A) and B)

Question 18

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.E) B) and C)
F) None of the above

Question 19

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.E) A) and D)
F) None of the above

Question 20

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) A) and B)
F) All of the above

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

Correct Answer
verified

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 Answer
verified

If inflation expectations rise, the short-run Phillips curve shifts

Correct Answer
verified

Natural rate of unemployment - a × (Αctual inflation - Expected inflation) =

Correct Answer
verified

Correct Answer
verified

Suppose that the money supply increases. In the short run, this increases prices according to

Correct Answer
verified

If the Fed wants to reverse the effects of a favorable supply shock on the inflation rate, it should

Correct Answer
verified

The economist A.W. Phillips published a famous article in 1958 in which he showed a

Correct Answer
verified

If an increase in inflation permanently reduced unemployment, then

Correct Answer
verified

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. The shift of the aggregate-supply curve from AS₁ to AS₂ could be a consequence of

Correct Answer
verified

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

Correct Answer
verified

How is a decrease in the natural rate of unemployment shown in the Phillips curve diagram? Does this decrease change the inflation rate?

Correct Answer
verified
Both the long-run and the shor...
View Answer

If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year, the sacrifice ratio is

Correct Answer
verified

One determinant of the natural rate of unemployment is the

Correct Answer
verified

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

Correct Answer
verified

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

Correct Answer
verified

In responding to the Phillips curve hypothesis, Friedman argued that the Fed can peg the

Correct Answer
verified

Which of the following would shift the long-run Phillips curve to the right?

Correct Answer
verified

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky-wage theory to explain your answer.

Correct Answer
verified
If unemployment is above its natural rat...
View Answer

When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that

Correct Answer
verified

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

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 inflation expectations rise, the short-run Phillips curve shifts

Correct AnswerverifiedShow Answer

Natural rate of unemployment - a × (Αctual inflation - Expected inflation) =

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that the money supply increases. In the short run, this increases prices according to

Correct AnswerverifiedShow Answer

If the Fed wants to reverse the effects of a favorable supply shock on the inflation rate, it should

Correct AnswerverifiedShow Answer

The economist A.W. Phillips published a famous article in 1958 in which he showed a

Correct AnswerverifiedShow Answer

If an increase in inflation permanently reduced unemployment, then

Correct AnswerverifiedShow Answer

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

How is a decrease in the natural rate of unemployment shown in the Phillips curve diagram? Does this decrease change the inflation rate?

Correct AnswerverifiedBoth the long-run and the shor...View AnswerShow Answer

If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year, the sacrifice ratio is

Correct AnswerverifiedShow Answer

One determinant of the natural rate of unemployment is the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

Correct AnswerverifiedShow Answer

In responding to the Phillips curve hypothesis, Friedman argued that the Fed can peg the

Correct AnswerverifiedShow Answer

Which of the following would shift the long-run Phillips curve to the right?

Correct AnswerverifiedShow Answer

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky-wage theory to explain your answer.

Correct AnswerverifiedIf unemployment is above its natural rat...View AnswerShow Answer

When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. The shift of the aggregate-supply curve from AS₁ to AS₂ could be a consequence of

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Both the long-run and the shor...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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If unemployment is above its natural rat...
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Correct Answer
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