Question 1

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 2

If the natural rate of unemployment falls,

Accepted Answer

A)   both the short-run Phillips curve and the long-run Phillips curve shift.
B)   only the short-run Phillips curve shifts.
C)   only the long-run Phillips curve shifts.
D)   neither the short-run nor the long-run Phillips curves shift.E) A) and B)
F) None of the above

Question 3

An economy has a current inflation rate of 7%. 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)   10%
B)   8%
C)   6%
D)   None of the above is correct.E) None of the above
F) A) and C)

Question 4

In the long run an increase in the money supply growth rate affects

Accepted Answer

A)   the inflation rate and the natural rate of unemployment.
B)   the inflation rate, but not the natural rate of unemployment.
C)   neither the inflation rate nor the natural rate of unemployment.
D)   the natural rate of unemployment, but not the inflation rate.E) A) and B)
F) C) and D)

Question 5

Which of the following depends primarily on the growth rate of the money supply?

Accepted Answer

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

Question 6

Disinflation is a

Accepted Answer

A)   reduction in the price level, whereas deflation is a reduction in the rate of inflation.
B)   reduction in the rate of inflation, whereas deflation is a reduction in the price level.
C)   slow reduction in the price level, whereas deflation is a rapid reduction in the price level.
D)   rapid reduction in the price level, whereas deflation is a slow reduction in the price level.E) B) and D)
F) C) and D)

Question 7

Ultimately, the change in unemployment associated with a change in inflation is due to

Accepted Answer

A)   the shape of the long-run aggregate supply curve.
B)   unanticipated inflation, not inflation per se.
C)   anticipated inflation, not inflation per se.
D)   a change in the natural rate of unemployment.E) A) and B)
F) None of the above

Question 8

In the late 1960s, economist Edmund Phelps published a paper that

Accepted Answer

A)   argued that there was no long-run tradeoff between inflation and unemployment.
B)   disproved Friedman's claim that monetary policy was effective in controlling inflation.
C)   showed the optimal point on the Phillips curve was at an unemployment rate of 5 percent and an inflation rate of 2 percent.
D)   argued that the Phillips curve was stable and that it would not shift.E) A) and C)
F) All of the above

Question 9

Suppose the central bank increases the growth rate of the money supply. In the long run, which of the following is unaffected by this change in policy?

Accepted Answer

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

Question 10

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

Question 11

Which of the following is correct if there is an adverse supply shock?

Accepted Answer

A)   The short-run aggregate supply curve and the short-run Phillips curve both shift right.
B)   The short-run aggregate supply curve and the short-run Phillips curve both shift left.
C)   The short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left.
D)   The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right.E) All of the above
F) A) and B)

Question 12

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. What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A)   the wage rate
B)   the inflation rate
C)   employment
D)   outputE) A) and B)
F) B) and D)

Question 13

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) A) and B)

Question 14

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 15

On a given short-run Phillips curve which of the following is held constant?

Accepted Answer

A)   the level of GDP
B)   the unemployment rate
C)   expected inflation
D)   employmentE) None of the above
F) A) and C)

Question 16

In the long run, a decrease in the money supply growth rate

Accepted Answer

A)   shifts both the long-run and the short-run Phillips curves right.
B)   shifts the long-run Phillips curve left and the short-run Phillips curve right.
C)   shifts the long-run Phillips curve right and the short-run Phillips curve left.
D)   None of the above is correct.E) None of the above
F) A) and B)

Question 17

If a central bank decreases the money supply, then

Accepted Answer

A)   prices, output, and unemployment rise.
B)   prices and output rise and unemployment falls.
C)   prices rise and output and unemployment fall.
D)   prices and output fall and unemployment rises.E) B) and C)
F) None of the above

Question 18

In the Friedman-Phelps analysis, when inflation is less than expected, the unemployment rate is less than the natural rate.

Accepted Answer

A) True 
 B)False

Question 19

If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

Accepted Answer

A)   2 percent of annual output.
B)   6 percent of annual output.
C)   8 percent of annual output.
D)   11 percent of annual output.E) A) and D)
F) All of the above

Question 20

What does an unexpected decrease in the growth rate of the money supply do to inflation and unemployment in the short-run? What does it do to inflation and unemployment in the long run?

Accepted Answer

A decrease in the growth rate of the mon...

Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

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 Answer
verified

What does an unexpected decrease in the growth rate of the money supply do to inflation and unemployment in the short-run? What does it do to inflation and unemployment in the long run?

Correct Answer
verified
A decrease in the growth rate of the mon...
View Answer

Which of the following depends primarily on the growth rate of the money supply?

Correct Answer
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In the Friedman-Phelps analysis, when inflation is less than expected, the unemployment rate is less than the natural rate.

Correct Answer
verified

If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

Correct Answer
verified

An economy has a current inflation rate of 7%. 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?

Correct Answer
verified

If the natural rate of unemployment falls,

Correct Answer
verified

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

Correct Answer
verified

Ultimately, the change in unemployment associated with a change in inflation is due to

Correct Answer
verified

In the long run an increase in the money supply growth rate affects

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. What is measured along the horizontal axis of the left-hand graph?

Correct Answer
verified

In the long run, a decrease in the money supply growth rate

Correct Answer
verified

Disinflation is a

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

Suppose the central bank increases the growth rate of the money supply. In the long run, which of the following is unaffected by this change in policy?

Correct Answer
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If a central bank decreases the money supply, then

Correct Answer
verified

Which of the following is correct if there is an adverse supply shock?

Correct Answer
verified

On a given short-run Phillips curve which of the following is held constant?

Correct Answer
verified

Correct Answer
verified

In the late 1960s, economist Edmund Phelps published a paper that

Correct Answer
verified

Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

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

What does an unexpected decrease in the growth rate of the money supply do to inflation and unemployment in the short-run? What does it do to inflation and unemployment in the long run?

Correct AnswerverifiedA decrease in the growth rate of the mon...View AnswerShow Answer

Which of the following depends primarily on the growth rate of the money supply?

Correct AnswerverifiedShow Answer

In the Friedman-Phelps analysis, when inflation is less than expected, the unemployment rate is less than the natural rate.

Correct AnswerverifiedShow Answer

If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

Correct AnswerverifiedShow Answer

An economy has a current inflation rate of 7%. 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?

Correct AnswerverifiedShow Answer

If the natural rate of unemployment falls,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Ultimately, the change in unemployment associated with a change in inflation is due to

Correct AnswerverifiedShow Answer

In the long run an increase in the money supply growth rate affects

Correct AnswerverifiedShow Answer

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. What is measured along the horizontal axis of the left-hand graph?

Correct AnswerverifiedShow Answer

In the long run, a decrease in the money supply growth rate

Correct AnswerverifiedShow Answer

Disinflation is a

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

Suppose the central bank increases the growth rate of the money supply. In the long run, which of the following is unaffected by this change in policy?

Correct AnswerverifiedShow Answer

If a central bank decreases the money supply, then

Correct AnswerverifiedShow Answer

Which of the following is correct if there is an adverse supply shock?

Correct AnswerverifiedShow Answer

On a given short-run Phillips curve which of the following is held constant?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the late 1960s, economist Edmund Phelps published a paper that

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A decrease in the growth rate of the mon...
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If unemployment is above its natural rat...
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