Question 1

Proponents of rational expectations argued that the sacrifice ratio

Accepted Answer

A)  could be high because it was rational for people not to immediately change their expectations.
B)  could be high because people might adjust their expectations quickly if they found anti-inflation policy credible.
C)  could be low because it was rational for people not to immediately change their expectations.
D)  could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.E) C) and D)
F) A) and B)

Question 2

For a given short-run Phillips curve, if expected inflation is 8% but actual inflation is 10%, is the unemployment rate above or below its natural rate?

Accepted Answer

Unemployme...

Question 3

Suppose Congress repeals an investment tax credit that decreases the quantity of investment goods that firms demand at any given interest rate. Which of the following would you expect to occur as a result of this change?

Accepted Answer

A)  In the short run, unemployment will decrease and inflation will rise.
B)  In the short run, unemployment will decrease and inflation will fall.
C)  In the short run, unemployment will increase and inflation will fall.
D)  In the short run, unemployment will increase and inflation will rise.E) A) and D)
F) A) and C)

Question 4

Suppose the price level is 110.00 at the end of 2020, 121.00 at the end of 2021, and 128.26 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

Accepted Answer

Yes. The rate of inflation for 2021 was ...

Question 5

Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?

Accepted Answer

A)  Teresa reads in the newspaper that the central bank recently raised the money supply.
B)  Jackie gets fewer job offers.
C)  Miguel makes larger increases in the prices at his health food store.
D)  Julie's nominal wage increase is larger.E) A) and B)
F) A) and C)

Question 6

A central bank disinflates. Output is 4% less for one year, 3% less the next year, and 2% less the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Accepted Answer

The answer of A central bank disinflates. Output is 4%...

Question 7

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year, the sacrifice ratio is

Accepted Answer

A)  1/5.
B)  2.
C)  5/2.
D)  5.E) All of the above
F) C) and D)

Question 8

Over the long run the Volcker disinflation

Accepted Answer

A)  shifted the short-run and long-run Phillips curves left.
B)  shifted the short-run, but not the long-run Phillips curve left.
C)  shifted the long-run, but not the short-run Phillips curves left.
D)  None of the above is correct.E) A) and D)
F) B) and C)

Question 9

Samuelson and Solow believed that the Phillips curve offered policymakers a menu of possible economic outcomes.

Accepted Answer

A) True 
 B)False

Question 10

If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?

Accepted Answer

A)  Inflation expectations rise, which shifts the short-run Phillips curve to the right.
B)  Inflation expectations rise, which shifts the short-run Phillips curve to the left.
C)  Inflation expectations fall, which shifts the short-run Phillips curve to the right.
D)  Inflation expectations fall, which shifts the short-run Phillips curve to the left.E) A) and C)
F) B) and C)

Question 11

How are the effects of the financial crisis shown using the Phillips curve diagram?

Accepted Answer

As a move down along...

Question 12

A vertical long-run Phillips curve is consistent with

Accepted Answer

A)  the conclusion of Friedman and Phelps, but it is not consistent with the classical idea of monetary neutrality.
B)  the classical idea of monetary neutrality, but it is not consistent with the conclusion of Friedman and Phelps.
C)  both the conclusion of Friedman and Phelps and the classical idea of monetary neutrality.
D)  neither the conclusion of Friedman and Phelps nor the classical idea of monetary neutrality.E) All of the above
F) C) and D)

Question 13

In the long run, the inflation rate depends primarily on the growth rate of the money supply.

Accepted Answer

A) True 
 B)False

Question 14

Scenario 35-1
Suppose that in the first half of June 2022, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to Scenario 35-1. In the short run the increased prices of world commodities

Accepted Answer

A)  raised both the price level and output.
B)  raised the price level and reduced output.
C)  reduced the price level and raised output.
D)  reduced both the price level and output.E) A) and C)
F) B) and D)

Question 15

A given short-run Phillips curve shows that an increase in the inflation rate will be accompanied by a lower unemployment rate in the short run.

Accepted Answer

A) True 
 B)False

Question 16

An economy has a current inflation rate of 8%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, then how much annual output must be sacrificed in the transition?

Accepted Answer

A)  12%
B)  6%
C)  8%
D)  2%E) A) and B)
F) A) and C)

Question 17

The economy will move to a point on the short-run Phillips curve where unemployment is higher if

Accepted Answer

A)  the inflation rate decreases.
B)  the government increases its expenditures.
C)  the Fed increases the money supply.
D)  the government decreases taxes.E) None of the above
F) A) and B)

Question 18

The short-run Phillips curve shows the combinations of

Accepted Answer

A)  unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.
B)  unemployment and inflation that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve.
C)  real GDP and the price level that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve.
D)  real GDP and the price level that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.E) B) and C)
F) A) and D)

Question 19

If the minimum wage increased, then at any given rate of inflation

Accepted Answer

A)  both output and employment would be higher.
B)  neither output nor employment would be higher.
C)  output would be higher and unemployment would be lower.
D)  output would be lower and unemployment would be higher.E) A) and B)
F) A) and D)

Question 20

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

Accepted Answer

A)  fall and unemployment rises.
B)  rise and unemployment falls.
C)  and unemployment rise.
D)  and unemployment fall.E) B) and D)
F) A) and C)

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

A given short-run Phillips curve shows that an increase in the inflation rate will be accompanied by a lower unemployment rate in the short run.

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Samuelson and Solow believed that the Phillips curve offered policymakers a menu of possible economic outcomes.

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Over the long run the Volcker disinflation

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Suppose the price level is 110.00 at the end of 2020, 121.00 at the end of 2021, and 128.26 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

Correct AnswerverifiedYes. The rate of inflation for 2021 was ...View AnswerShow Answer

If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?

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An economy has a current inflation rate of 8%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, then how much annual output must be sacrificed in the transition?

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Proponents of rational expectations argued that the sacrifice ratio

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The economy will move to a point on the short-run Phillips curve where unemployment is higher if

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The short-run Phillips curve shows the combinations of

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In the long run, the inflation rate depends primarily on the growth rate of the money supply.

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How are the effects of the financial crisis shown using the Phillips curve diagram?

Correct AnswerverifiedAs a move down along...View AnswerShow Answer

Scenario 35-1 Suppose that in the first half of June 2022, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to Scenario 35-1. In the short run the increased prices of world commodities

Correct AnswerverifiedShow Answer

For a given short-run Phillips curve, if expected inflation is 8% but actual inflation is 10%, is the unemployment rate above or below its natural rate?

Correct AnswerverifiedUnemployme...View AnswerShow Answer

A vertical long-run Phillips curve is consistent with

Correct AnswerverifiedShow Answer

A central bank disinflates. Output is 4% less for one year, 3% less the next year, and 2% less the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

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Suppose Congress repeals an investment tax credit that decreases the quantity of investment goods that firms demand at any given interest rate. Which of the following would you expect to occur as a result of this change?

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Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?

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If the minimum wage increased, then at any given rate of inflation

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

Correct AnswerverifiedShow Answer

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year, the sacrifice ratio is

Correct AnswerverifiedShow Answer

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Yes. The rate of inflation for 2021 was ...
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As a move down along...
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Unemployme...
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