Question 1

In the long run, if there is an increase in the money supply growth rate, which of the following curves shifts right?

Accepted Answer

A)  the short-run and the long run Phillips curves
B)  the short-run but not the long run Phillips curve
C)  the long-run but not the short-run Phillips curve
D)  neither the short-run nor the long-run Phillips curvesE) None of the above
F) A) and C)

Question 2

A favorable supply shock causes the price level to

Accepted Answer

A)  rise. To counter this a central bank would increase the money supply.
B)  rise. To counter this a central bank would decrease the money supply.
C)  fall. To counter this a central bank would increase the money supply.
D)  fall. To counter this a central bank would decrease the money supply.E) A) and B)
F) A) and D)

Question 3

Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later the inflation rate is lower, but there had been a serious recession. We could conclude with certainty that

Accepted Answer

A)  the rational expectations hypothesis is false.
B)  the rational expectations hypothesis is true.
C)  the policymakers lacked credibility.
D)  None of the above is certain.E) A) and C)
F) A) and B)

Question 4

The analysis of Friedman and Phelps can be summarized in the following equation where a is a positive number:

Accepted Answer

A)  Unemployment Rate = Natural Rate of Unemployment - a(Actual Inflation - Expected Inflation) .
B)  Unemployment Rate = Natural Rate of Unemployment - a(Expected Inflation - Actual Inflation) .
C)  Unemployment Rate = Expected Rate of Inflation - a(Actual Inflation - Expected Inflation) .
D)  Unemployment Rate = Actual Rate of Inflation - a(Actual Unemployment - Expected Unemployment) .E) A) and B)
F) A) and C)

Question 5

A central bank can reduce inflation by reducing money supply growth, but it necessarily does so at the cost of permanently raising the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 6

A favorable supply shock will cause

Accepted Answer

A)  unemployment to rise and the short-run Phillips curve to shift right.
B)  unemployment to rise and the short-run Phillips curve to shift left.
C)  unemployment to fall and the short-run Phillips curve to shift right.
D)  unemployment to fall and the short-run Phillips curve to shift left.E) B) and C)
F) A) and B)

Question 7

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 B)
F) A) and C)

Question 8

Refer to the Economy in 2008. The effects of increased prices of world commodities is shown by shifting

Accepted Answer

A)  aggregate demand to the right.
B)  aggregate demand to the left.
C)  aggregate supply to the right.
D)  aggregate supply to the left.E) A) and B)
F) All of the above

Question 9

A low sacrifice ratio would make a central bank less willing to reduce the inflation rate.

Accepted Answer

A) True 
 B)False

Question 10

A. W. Phillips' findings were based on data

Accepted Answer

A)  from 1861-1957 for the United Kingdom.
B)  from 1861-1957 for the United States.
C)  mostly from the post-World War II period in the United Kingdom.
D)  mostly from the post-World War II period in the United States.E) A) and B)
F) A) and C)

Question 11

A decrease in expected inflation shifts

Accepted Answer

A)  the long-run Phillips curve left.
B)  the short-run Phillips curve left.
C)  neither the short-run nor long-run Phillips curve left.
D)  both the short-run and long-run Phillips curve left.E) C) and D)
F) B) and C)

Question 12

Figure 35-6
Use the graph below to answer the following questions. 
-Refer to Figure 35-6. Curve 1 is the

Accepted Answer

A)  long-run aggregate supply curve.
B)  short-run aggregate supply curve.
C)  long-run Phillips curve.
D)  short-run Phillips curve.E) All of the above
F) A) and D)

Question 13

The very low inflation that the U.S. experienced in 2009 and 2010

Accepted Answer

A)  appears to have reduced expected inflation, and the short-run Phillips curve shifted downward as a result.
B)  appears to have reduced expected inflation, and the short-run Phillips curve shifted upward as a result.
C)  does not appear to have reduced expected inflation, and the short-run Phillips curve remained relatively stable as a result.
D)  does not appear to have reduced expected inflation, but the short-run Phillips curve shifted dramatically nevertheless.E) B) and C)
F) A) and D)

Question 14

The misery index is supposed to measure the

Accepted Answer

A)  social cost of unemployment.
B)  health of the economy.
C)  lost output associated with a particular unemployment rate.
D)  short-run tradeoff between inflation and unemployment.E) C) and D)
F) B) and C)

Question 15

A common explanation for the behavior of the short-run U.S. Phillips curve in 2009 and 2010 is that, over the previous 20 or so years, the Federal Reserve had

Accepted Answer

A)  established a lot of credibility in its commitment to keep inflation at about 2 percent.
B)  established a lot of credibility in its commitment to keep inflation at about 5 percent.
C)  failed to establish significant credibility in its announced intent to keep inflation at about 2 percent.
D)  failed to establish significant credibility in its announced intent to keep inflation at about 5 percent.E) None of the above
F) All of the above

Question 16

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 17

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

Accepted Answer

A downward-sloping Phillips curve implie...

Question 18

Which of the following would reduce the natural rate of unemployment?

Accepted Answer

A)  both an increase in the rate of money growth and increased unemployment compensation
B)  an increase in the rate of money growth but not increased unemployment compensation
C)  an increase in unemployment compensation but not an increase in the rate of money growth.
D)  neither an increase in unemployment compensation nor an increase in the rate of money growth.E) A) and B)
F) A) and C)

Question 19

In the long run, inflation

Accepted Answer

A)  and unemployment are primarily determined by labor market factors.
B)  and unemployment are primarily determined by the rate of money supply growth.
C)  is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors.
D)  is primarily determined by labor market factors while unemployment is primarily determined by the rate of money supply growth.E) A) and B)
F) A) and C)

Question 20

Any policy change that reduced the natural rate of unemployment would

Accepted Answer

A)  shift the long-run Phillips curve to the left.
B)  shift the long-run aggregate-supply curve to the right.
C)  improve the functioning of the labor market.
D)  All of the above are correct.E) None of the above
F) B) and C)

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

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

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

A favorable supply shock causes the price level to

Correct AnswerverifiedShow Answer

A common explanation for the behavior of the short-run U.S. Phillips curve in 2009 and 2010 is that, over the previous 20 or so years, the Federal Reserve had

Correct AnswerverifiedShow Answer

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. Curve 1 is the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following would reduce the natural rate of unemployment?

Correct AnswerverifiedShow Answer

In the long run, inflation

Correct AnswerverifiedShow Answer

The very low inflation that the U.S. experienced in 2009 and 2010

Correct AnswerverifiedShow Answer

Refer to the Economy in 2008. The effects of increased prices of world commodities is shown by shifting

Correct AnswerverifiedShow Answer

The misery index is supposed to measure the

Correct AnswerverifiedShow Answer

Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later the inflation rate is lower, but there had been a serious recession. We could conclude with certainty that

Correct AnswerverifiedShow Answer

A decrease in expected inflation shifts

Correct AnswerverifiedShow Answer

A low sacrifice ratio would make a central bank less willing to reduce the inflation rate.

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

A favorable supply shock will cause

Correct AnswerverifiedShow Answer

In the long run, if there is an increase in the money supply growth rate, which of the following curves shifts right?

Correct AnswerverifiedShow Answer

A central bank can reduce inflation by reducing money supply growth, but it necessarily does so at the cost of permanently raising the unemployment rate.

Correct AnswerverifiedShow Answer

Any policy change that reduced the natural rate of unemployment would

Correct AnswerverifiedShow Answer

The analysis of Friedman and Phelps can be summarized in the following equation where a is a positive number:

Correct AnswerverifiedShow Answer

A. W. Phillips' findings were based on data

Correct AnswerverifiedShow Answer

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A downward-sloping Phillips curve implie...
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The short-run Phillips curve s...
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