Question 1

In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to its natural rate.

Accepted Answer

A) True 
 B)False

Question 2

By raising aggregate demand more than anticipated, policymakers

Accepted Answer

A)  reduce unemployment for awhile.
B)  raise unemployment for awhile.
C)  reduce unemployment permanently.
D)  None of the above is correct.E) B) and D)
F) None of the above

Question 3

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

Accepted Answer

A)  both the long-run Phillips curve and the aggregate supply and aggregate demand model.
B)  the aggregate demand and aggregate supply model, but not the long-run Phillips curve.
C)  the long-run Phillips curve, but not the aggregate demand and aggregate supply model.
D)  neither the long-run Phillips curve nor the aggregate supply and aggregate demand model.E) None of the above
F) A) and B)

Question 4

If the unemployment rate is below the natural rate, then

Accepted Answer

A)  inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift right.
B)  inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift left.
C)  inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift left.
D)  inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift right.E) B) and C)
F) None of the above

Question 5

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

Question 6

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 7

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

Accepted Answer

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

Question 8

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) B) and C)
F) A) and B)

Question 9

A central bank announces it will decrease the inflation rate by 10 percentage points. People are skeptical of the announcement, but do expect the central bank will reduce inflation by 5 percentage points and so expected inflation falls by 5 percentage points. If the central bank decreases inflation by only 3 percentage points then the unemployment rate will fall.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

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) A) and B)

Question 13

If taxes rise, then aggregate demand shifts

Accepted Answer

A)  right, making unemployment higher than otherwise.
B)  right, making unemployment lower than otherwise.
C)  left, making unemployment higher than otherwise.
D)  left, making unemployment lower than otherwise.E) B) and C)
F) A) and D)

Question 14

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) A) and B)
F) B) and D)

Question 15

A central bank pledges to reduce the inflation rate from 10% to 3%. People reduce their inflation expectations to 5%, but the central bank reduces inflation to 3%. What happens to the unemployment rate?

Accepted Answer

The answer of A central bank pledges to reduce the...

Question 16

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. The curve that is depicted on the right-hand graph offers policymakers a "menu" of combinations

Accepted Answer

A)  that applies both in the short run and in the long run.
B)  that is relevant to choices involving fiscal policy, but not to choices involving monetary policy.
C)  of inflation and unemployment.
D)  All of the above are correct.E) C) and D)
F) None of the above

Question 17

The equation,
​
Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation) ,
​

Accepted Answer

A)  is the equation of the short-run Phillips curve.
B)  implies there can be no stable short-run Phillips curve.
C)  reflects the reasoning of Friedman and Phelps.
D)  All of the above are correct.E) A) and B)
F) None of the above

Question 18

Suppose that money supply growth increases. In the long run, this increases employment according to

Accepted Answer

A)  both the long-run Phillips curve and the aggregate demand and aggregate supply model.
B)  neither the long-run Phillips curve nor the aggregate demand and aggregate supply model.
C)  the long-run Phillips curve, but not the aggregate demand and aggregate supply model.
D)  the aggregate demand and aggregate supply model, but not the long-run Phillips curveE) All of the above
F) None of the above

Question 19

If there is an adverse supply shock, then

Accepted Answer

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

Question 20

The arguments of Friedman and Phelps would suggest that other things the same, a country that pursues a disinflationary policy that the public does not find completely credible

Accepted Answer

A)  should not see an increase in the unemployment rate even in the short run.
B)  will having rising unemployment for a while, but then return to the natural rate of unemployment.
C)  will have a permanently higher unemployment rate.
D)  None of the above is suggested by the arguments of Friedman and Phelps.E) B) and C)
F) C) and D)

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

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

Correct Answer
verified

If there is an adverse supply shock, then

Correct Answer
verified

If taxes rise, then aggregate demand shifts

Correct Answer
verified

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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. The curve that is depicted on the right-hand graph offers policymakers a "menu" of combinations

Correct Answer
verified

The long-run Phillips curve would shift left if

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

Correct Answer
verified

The arguments of Friedman and Phelps would suggest that other things the same, a country that pursues a disinflationary policy that the public does not find completely credible

Correct Answer
verified

A central bank pledges to reduce the inflation rate from 10% to 3%. People reduce their inflation expectations to 5%, but the central bank reduces inflation to 3%. What happens to the unemployment rate?

Correct Answer
verified

The equation, Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation) ,

Correct Answer
verified

In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to its natural rate.

Correct Answer
verified

If the unemployment rate is below the natural rate, then

Correct Answer
verified

By raising aggregate demand more than anticipated, policymakers

Correct Answer
verified

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 Answer
verified

Suppose that money supply growth increases. In the long run, this increases employment according to

Correct Answer
verified

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

Correct Answer
verified

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

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

Correct AnswerverifiedShow Answer

If there is an adverse supply shock, then

Correct AnswerverifiedShow Answer

If taxes rise, then aggregate demand shifts

Correct AnswerverifiedShow Answer

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The long-run Phillips curve would shift left if

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

Correct AnswerverifiedShow Answer

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

Correct AnswerverifiedShow Answer

The arguments of Friedman and Phelps would suggest that other things the same, a country that pursues a disinflationary policy that the public does not find completely credible

Correct AnswerverifiedShow Answer

A central bank pledges to reduce the inflation rate from 10% to 3%. People reduce their inflation expectations to 5%, but the central bank reduces inflation to 3%. What happens to the unemployment rate?

Correct AnswerverifiedShow Answer

The equation, ​ Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation) , ​

Correct AnswerverifiedShow Answer

In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to its natural rate.

Correct AnswerverifiedShow Answer

If the unemployment rate is below the natural rate, then

Correct AnswerverifiedShow Answer

By raising aggregate demand more than anticipated, policymakers

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 money supply growth increases. In the long run, this increases employment according to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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The equation, Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation) ,

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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