Question 1

The long-run Phillips curve would shift to the left if

Accepted Answer

A)   the money supply growth rate increased or if effective job-training programs were implemented.
B)   the money supply growth rate increased, but not if effective job-training programs were implemented.
C)   effective job-training programs were implemented, but not if the money supply growth rate increased.
D)   None of the above is correct.E) B) and C)
F) C) and D)

Question 2

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 3

A favorable supply shock will shift short-run aggregate supply

Accepted Answer

A)   left, making output rise.
B)   left, making output fall.
C)   right, making output rise.
D)   right, making output fall.E) B) and D)
F) B) and C)

Question 4

If a central bank announced that it was going to decrease inflation by 5%, people revised their inflation expectations downward by 4%, and the central bank only lowered inflation by 1%, the short run Phillips curve would shift

Accepted Answer

A)   right and unemployment would rise.
B)   right and unemployment would fall.
C)   left and unemployment would rise.
D)   left and unemployment would fall.E) None of the above
F) A) and B)

Question 5

If an increase in inflation permanently reduced unemployment, then

Accepted Answer

A)   money would not be neutral and the long-run Phillips curve would slope upward.
B)   money would not be neutral and the long-run Phillips curve would slope downward.
C)   money would be neutral and the long-run Phillips curve would slope upward.
D)   money would be neutral and the long-run Phillips curve would slope downward.E) A) and D)
F) None of the above

Question 6

If inflation expectations decline, then the short-run Phillips curve shifts

Accepted Answer

A)   left, so that at any inflation rate unemployment is lower in the short run than before.
B)   right, so that at any inflation rate unemployment is lower in the short run than before.
C)   right, so that at any inflation rate unemployment is higher in the short run than before.
D)   left, so that at any inflation rate unemployment is higher in the short run than before.E) A) and B)
F) A) and C)

Question 7

The Fed increases the money supply growth rate. Assuming inflation expectations remain constant, use a Phillips curve diagram to show the short­run effects of the Fed's policy.

Accepted Answer

The economy moves al...

Question 8

Assuming that rational expectations theory does not hold, if a central banks attempts to reduce the inflation rate what happens to the unemployment rate in the short-run?

Accepted Answer

The answer of Assuming that rational expectations theory does not...

Question 9

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 10

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) B) and C)

Question 11

Which of the following is correct according to the long-run Phillips curve?

Accepted Answer

A)   No government policy, including changes in the money supply growth rate, can change the natural rate of unemployment.
B)   Changes in the money supply growth rate are the only means by which government policy can change the natural rate of unemployment.
C)   Monetary policy cannot change the natural rate of unemployment, but other government policies can.
D)   Monetary policy and other government policies can shift the long-run Phillips curve.E) A) and C)
F) A) and D)

Question 12

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

Accepted Answer

A) True 
 B)False

Question 13

By about 1973, U.S. policymakers had learned that

Accepted Answer

A)   there is no trade-off between inflation and unemployment in the short run.
B)   there is no trade-off between inflation and unemployment in the long run.
C)   Friedman's analysis of inflation and unemployment had been correct, and Phelps's analysis of inflation and unemployment had been incorrect.
D)   Phelps's analysis of inflation and unemployment had been correct, and Friedman's analysis of inflation and unemployment had been incorrect.E) B) and C)
F) A) and C)

Question 14

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

Question 15

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve.  Which of the following statements is correct?

Accepted Answer

A)   These points are consistent with the theoretical long-run Phillips curve, but not with the short-run Phillips curve.
B)   These points are consistent with the theoretical short-run Phillips curve, but not with the long-run Phillips curve.
C)   These points are consistent with both the theoretical short-run and long-run Phillips curves.
D)   These points are not consistent with either the theoretical short-run or long-run Phillips curves.E) All of the above
F) A) and D)

Question 16

As aggregate demand shifts left along the short-run aggregate supply curve,

Accepted Answer

A)   inflation and unemployment are higher.
B)   inflation is higher and unemployment is lower.
C)   unemployment is higher and inflation is lower.
D)   unemployment and inflation are lower.E) All of the above
F) None of the above

Question 17

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Accepted Answer

A) True 
 B)False

Question 18

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) B) and D)
F) B) and C)

Question 19

According to Friedman and Phelps, the unemployment rate is above the natural rate when actual inflation

Accepted Answer

A)   is greater than expected inflation.
B)   is less than expected inflation.
C)   equals expected inflation.
D)   low whether its greater than or less than expected.E) B) and D)
F) A) and B)

Question 20

In responding to the Phillips curve hypothesis, Friedman argued that the Fed can peg the

Accepted Answer

A)   unemployment rate.
B)   inflation rate.
C)   growth rate of real national income.
D)   All of the above are correct.E) C) and D)
F) B) and C)

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

If an increase in inflation permanently reduced unemployment, then

Correct AnswerverifiedShow Answer

The Fed increases the money supply growth rate. Assuming inflation expectations remain constant, use a Phillips curve diagram to show the short­run effects of the Fed's policy.

Correct AnswerverifiedThe economy moves al...View AnswerShow Answer

The long-run Phillips curve would shift to the left if

Correct AnswerverifiedShow Answer

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

Correct AnswerverifiedShow Answer

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

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According to Friedman and Phelps, the unemployment rate is above the natural rate when actual inflation

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?

Correct AnswerverifiedShow Answer

Assuming that rational expectations theory does not hold, if a central banks attempts to reduce the inflation rate what happens to the unemployment rate in the short-run?

Correct AnswerverifiedShow Answer

A favorable supply shock causes the price level to

Correct AnswerverifiedShow Answer

By about 1973, U.S. policymakers had learned that

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

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Correct AnswerverifiedShow Answer

If a central bank announced that it was going to decrease inflation by 5%, people revised their inflation expectations downward by 4%, and the central bank only lowered inflation by 1%, the short run Phillips curve would shift

Correct AnswerverifiedShow Answer

If inflation expectations decline, then the short-run Phillips curve shifts

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

A favorable supply shock will shift short-run aggregate supply

Correct AnswerverifiedShow Answer

As aggregate demand shifts left along the short-run aggregate supply curve,

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Which of the following is correct according to the long-run Phillips curve?

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In responding to the Phillips curve hypothesis, Friedman argued that the Fed can peg the

Correct AnswerverifiedShow Answer

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The Fed increases the money supply growth rate. Assuming inflation expectations remain constant, use a Phillips curve diagram to show the shortrun effects of the Fed's policy.

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The economy moves al...
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