Question 1

More flexible labor markets will shift

Accepted Answer

A)  both the long-run Phillips curve and the long-run aggregate supply curve to the right.
B)  both the long-run Phillips curve and the long-run aggregate supply curve to the left.
C)  the long-run Phillips curve to the right and the long-run aggregate supply curve to the left.
D)  the long-run Phillips curve to the left and the long-run aggregate supply curve to the right.E) None of the above
F) A) and D)

Question 2

Figure 22-2
Use the pair of diagrams below to answer the following questions. 
-Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to

Accepted Answer

A)  B and 2.
B)  D and 3.
C)  E and 2.
D)  None of the above is correct.E) B) and D)
F) A) and D)

Question 3

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

Accepted Answer

A) True 
 B)False

Question 4

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) A) and D)

Question 5

Other things the same, if the central bank decreases the rate at which it increases the money supply, then

Accepted Answer

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

Question 6

A movement to the left along a given short-run Phillips curve could be caused by

Accepted Answer

A)  a reduction in the natural rate of unemployment or expansionary monetary policy.
B)  expansionary monetary policy, but not a reduction in the natural rate of unemployment.
C)  either a reduction in the natural rate of unemployment or a contractionary monetary policy.
D)  contractionary monetary policy, but not a reduction in the natural rate of unemployment.E) A) and D)
F) All of the above

Question 7

Just as the aggregate-supply curve slopes upward only in the short run, the trade-off between inflation and unemployment holds only in the short run.

Accepted Answer

A) True 
 B)False

Question 8

If the Federal Reserve accommodates an adverse supply shock,

Accepted Answer

A)  inflation expectations may rise which shifts the short-run Phillips curve shifts right.
B)  inflation expectations may rise which shifts the short-run Phillips curve shifts left.
C)  inflation expectations may fall which shifts the short-run Phillips curve shifts right.
D)  inflation expectations may fall which shifts the short-run Phillips curve shifts leftE) All of the above
F) None of the above

Question 9

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) B) and C)

Question 10

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the Fed increased the growth rate of the money supply. Which of the following would be higher in the long run?

Accepted Answer

A)  both the natural rate of unemployment and the inflation rate
B)  the natural rate of unemployment, but not the inflation rate
C)  the inflation rate, but not the natural rate of unemployment
D)  neither the natural unemployment rate nor the inflation rateE) None of the above
F) A) and C)

Question 12

The Volcker disinflation

Accepted Answer

A)  had virtually no impact on output, just as the classical dichotomy suggested.
B)  was associated with rising output, perhaps due to expansionary fiscal policy.
C)  caused output to fall, but by less than the typical estimate of the sacrifice ratio suggested.
D)  None of the above is correct.E) A) and D)
F) B) and C)

Question 13

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 14

If policymakers decrease aggregate demand, then in the long run

Accepted Answer

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

Question 15

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) None of the above

Question 16

In the late 1960s, Milton Friedman and Edmund Phelps argued that

Accepted Answer

A)  the trade-off between inflation and unemployment did not apply in the long run This claim is consistent with monetary neutrality in the long run.
B)  the trade-off between inflation and unemployment did not apply in the long run. This claim is inconsistent with monetary neutrality in the long run.
C)  the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is consistent with monetary neutrality in the long run.
D)  the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is inconsistent with monetary neutrality in the long run.E) C) and D)
F) All of the above

Question 17

Although monetary policy cannot reduce the natural rate of unemployment, other types of government policies can.

Accepted Answer

A) True 
 B)False

Question 18

As an economist working for a U.S. government agency you determine that a particular country has a sacrifice ratio of 3. Policy-makers in that country are thinking of lowering the inflation rate from 10% to 4%. Is this sacrifice ratio higher or lower than the typical estimate? From your numbers, what is the amount of output that will be lost for this country to reduce its inflation rate?

Accepted Answer

A)  The sacrifice ratio is higher than the typical estimate. It will cost 30% of annual output to reach the new inflation target.
B)  The sacrifice ratio is higher than the typical estimate. It will cost 18% of annual output to reach the new inflation target.
C)  The sacrifice ratio is lower than the typical estimate. It will cost 30% of annual output to reach the new inflation target.
D)  The sacrifice ratio is lower than the typical estimate. It will cost 18% of annual output to reach the new inflation target.E) A) and B)
F) None of the above

Question 19

A change in expected inflation shifts

Accepted Answer

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

Question 20

Soon after he became the chairman of the Federal Reserve System in 1979, Paul Volcker embarked on a course

Accepted Answer

A)  of accommodative monetary policy.
B)  of disinflation.
C)  that was designed to reduce the unemployment rate.
D)  that produced results that were clearly consistent with those predicted by rational-expectations theorists.E) None of the above
F) A) and C)

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified
The sacrifice ratio gives the annual per...
View Answer

A change in expected inflation shifts

Correct Answer
verified

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

Correct Answer
verified

Suppose the Fed increased the growth rate of the money supply. Which of the following would be higher in the long run?

Correct Answer
verified

The Volcker disinflation

Correct Answer
verified

Just as the aggregate-supply curve slopes upward only in the short run, the trade-off between inflation and unemployment holds only in the short run.

Correct Answer
verified

If the Federal Reserve accommodates an adverse supply shock,

Correct Answer
verified

Although monetary policy cannot reduce the natural rate of unemployment, other types of government policies can.

Correct Answer
verified

The long-run Phillips curve would shift left if

Correct Answer
verified

Figure 22-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to

Correct Answer
verified

If policymakers decrease aggregate demand, then in the long run

Correct Answer
verified

Soon after he became the chairman of the Federal Reserve System in 1979, Paul Volcker embarked on a course

Correct Answer
verified

Other things the same, if the central bank decreases the rate at which it increases the money supply, then

Correct Answer
verified

More flexible labor markets will shift

Correct Answer
verified

In the late 1960s, Milton Friedman and Edmund Phelps argued that

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

Correct Answer
verified

A movement to the left along a given short-run Phillips curve could be caused by

Correct Answer
verified

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

A change in expected inflation shifts

Correct AnswerverifiedShow Answer

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

Correct AnswerverifiedShow Answer

Suppose the Fed increased the growth rate of the money supply. Which of the following would be higher in the long run?

Correct AnswerverifiedShow Answer

The Volcker disinflation

Correct AnswerverifiedShow Answer

Just as the aggregate-supply curve slopes upward only in the short run, the trade-off between inflation and unemployment holds only in the short run.

Correct AnswerverifiedShow Answer

If the Federal Reserve accommodates an adverse supply shock,

Correct AnswerverifiedShow Answer

Although monetary policy cannot reduce the natural rate of unemployment, other types of government policies can.

Correct AnswerverifiedShow Answer

The long-run Phillips curve would shift left if

Correct AnswerverifiedShow Answer

Figure 22-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to

Correct AnswerverifiedShow Answer

If policymakers decrease aggregate demand, then in the long run

Correct AnswerverifiedShow Answer

Soon after he became the chairman of the Federal Reserve System in 1979, Paul Volcker embarked on a course

Correct AnswerverifiedShow Answer

Other things the same, if the central bank decreases the rate at which it increases the money supply, then

Correct AnswerverifiedShow Answer

More flexible labor markets will shift

Correct AnswerverifiedShow Answer

In the late 1960s, Milton Friedman and Edmund Phelps argued that

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

Correct AnswerverifiedShow Answer

A movement to the left along a given short-run Phillips curve could be caused by

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The sacrifice ratio gives the annual per...
View Answer

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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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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