Question 1

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 2

If technological change shifts the long-run aggregate-supply curve to the right, it will also do which of the following?

Accepted Answer

A)   It shifts both the short-run and long-run Phillips curves to the right.
B)   It shifts both the short-run and long-run Phillips curves to the left.
C)   It will shift the short-run aggregate-supply curve to the right and the long-run Phillips curve to the left.
D)   It will shift the short-run aggregate-supply curve to the right and leave the long-run Phillips curve unaffected.E) B) and D)
F) A) and D)

Question 3

What did Phillips discover?

Accepted Answer

A)   a positive relation between unemployment and inflation in the United Kingdom
B)   a positive relation between unemployment and inflation in Canada
C)   a negative relation between unemployment and inflation in Canada
D)   a negative relation between unemployment and inflation in the United KingdomE) A) and C)
F) A) and B)

Question 4

Economists generally agree that there is a short-run Phillips curve. However, some economists believe that the short-run Phillips curve is steep and that inflation expectations adjust quickly so the long run is short-lived. What do such beliefs imply about the benefits of using policy to reduce unemployment? What do such beliefs imply about the costs of using policy to reduce inflation?

Accepted Answer

If the Phillips curve is steep, then an ...

Question 5

According to Friedman and Phelps, when is the unemployment rate below the natural rate?

Accepted Answer

A)   when actual inflation is greater than expected inflation
B)   when actual inflation is less than expected inflation
C)   when actual inflation equals expected inflation
D)   when actual inflation is lowE) All of the above
F) None of the above

Question 6

Which of the following is an adverse supply shock?

Accepted Answer

A)   a decrease in the money supply
B)   a tax cut
C)   a worldwide drought
D)   decreased government spendingE) All of the above
F) None of the above

Question 7

Some economists argue that simply and suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real reform, people expect that the government will soon start printing more money again to pay for its expenditures, and the promise to fight inflation will not be credible. Explain the importance of an inflation-reduction policy that is announced ahead of time and is credible.

Accepted Answer

In a country where expected inflation ha...

Question 8

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 9

Which term refers to the short-run relationship between inflation and unemployment?

Accepted Answer

A)   equity-efficiency tradeoff
B)   efficiency wages
C)   the Phillips curve
D)   the Keynesian crossE) A) and C)
F) None of the above

Question 10

Suppose that the money supply increases. According to the Phillips curve model, what are the effects of this policy change?

Accepted Answer

A)   It decreases unemployment in the short run.
B)   It decreases inflation in the long run.
C)   It decreases unemployment in the long run.
D)   It decreases inflation in the short run.E) B) and D)
F) None of the above

Question 11

What does the position of the long-run Phillips curve depend on?

Accepted Answer

A)   the natural rate of unemployment
B)   the actual rate of unemployment
C)   the actual inflation rate
D)   the expected inflation rateE) A) and B)
F) A) and C)

Question 12

A policy change that reduced the natural rate of unemployment would shift both the long-run aggregate-supply curve and the long-run Phillips curve left.

Accepted Answer

A) True 
 B)False

Question 13

Figure 17-3 
-Refer to Figure 17-3. Starting from c and 3, in the long run, where does a decrease in money supply growth move the economy to?

Accepted Answer

A)   a and 1
B)   e and 5
C)   d and 4
D)   e and 5.E) A) and B)
F) All of the above

Question 14

Proponents of rational expectations argue that failing to account for people's revised expectations led to estimates of the sacrifice ratio that were too high.

Accepted Answer

A) True 
 B)False

Question 15

How will an adverse supply shock shift the short-run aggregate-supply curve, and what will be the effect on prices?

Accepted Answer

A)   It will shift the short-run aggregate-supply curve right, making prices rise.
B)   It will shift the short-run aggregate-supply curve left, making prices rise.
C)   It will shift the short-run aggregate-supply curve right, making prices fall.
D)   It will shift the short-run aggregate-supply curve left, making prices fall.E) A) and D)
F) None of the above

Question 16

In responding to the Phillips curve hypothesis, what did Friedman argue that a central bank can peg?

Accepted Answer

A)   the unemployment rate
B)   the price level
C)   the growth rate of real GDP
D)   the real exchange rateE) C) and D)
F) B) and D)

Question 17

Figure 17-3 
-Refer to Figure 17-3. When would the economy move from c and 3 to e and 5?

Accepted Answer

A)   in the short run if money supply growth increased unexpectedly
B)   in the short run if money supply growth decreased unexpectedly
C)   in the long run if money supply growth increases
D)   in the long run if money supply growth decreasesE) B) and C)
F) All of the above

Question 18

Figure 17-1 
-Refer to Figure 17-1. If the economy starts at c and 1, then in the short run, where does a decrease in aggregate demand move the economy?

Accepted Answer

A)   a and 2
B)   d and 3
C)   e and 3
D)   a and 3E) B) and D)
F) B) and C)

Question 19

What do the data for the period of 1973 through 1980 demonstrate?

Accepted Answer

A)   that there is a short-run tradeoff between inflation and unemployment in a stable economy
B)   that a supply shock changes the natural rate of unemployment
C)   that there is no long-run tradeoff between inflation and unemployment
D)   that a supply shock increases both inflation and unemploymentE) B) and C)
F) None of the above

Question 20

Figure 17-2 
-Refer to Figure 17-2. Where is the money supply growth rate the greatest?

Accepted Answer

A)   at a
B)   at b
C)   at c
D)   at eE) C) and D)
F) A) and B)

Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

Figure 17-3 -Refer to Figure 17-3. Starting from c and 3, in the long run, where does a decrease in money supply growth move the economy to?

Correct Answer
verified

Which of the following is an adverse supply shock?

Correct Answer
verified

Figure 17-3 -Refer to Figure 17-3. When would the economy move from c and 3 to e and 5?

Correct Answer
verified

Correct Answer
verified
If the Phillips curve is steep, then an ...
View Answer

What do the data for the period of 1973 through 1980 demonstrate?

Correct Answer
verified

Correct Answer
verified
In a country where expected inflation ha...
View Answer

Figure 17-1 -Refer to Figure 17-1. If the economy starts at c and 1, then in the short run, where does a decrease in aggregate demand move the economy?

Correct Answer
verified

In responding to the Phillips curve hypothesis, what did Friedman argue that a central bank can peg?

Correct Answer
verified

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 Answer
verified

Which term refers to the short-run relationship between inflation and unemployment?

Correct Answer
verified

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Correct Answer
verified

Proponents of rational expectations argue that failing to account for people's revised expectations led to estimates of the sacrifice ratio that were too high.

Correct Answer
verified

According to Friedman and Phelps, when is the unemployment rate below the natural rate?

Correct Answer
verified

A policy change that reduced the natural rate of unemployment would shift both the long-run aggregate-supply curve and the long-run Phillips curve left.

Correct Answer
verified

What does the position of the long-run Phillips curve depend on?

Correct Answer
verified

If technological change shifts the long-run aggregate-supply curve to the right, it will also do which of the following?

Correct Answer
verified

Figure 17-2 -Refer to Figure 17-2. Where is the money supply growth rate the greatest?

Correct Answer
verified

How will an adverse supply shock shift the short-run aggregate-supply curve, and what will be the effect on prices?

Correct Answer
verified

What did Phillips discover?

Correct Answer
verified

Suppose that the money supply increases. According to the Phillips curve model, what are the effects of this policy change?

Correct Answer
verified

Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

Figure 17-3 -Refer to Figure 17-3. Starting from c and 3, in the long run, where does a decrease in money supply growth move the economy to?

Correct AnswerverifiedShow Answer

Which of the following is an adverse supply shock?

Correct AnswerverifiedShow Answer

Figure 17-3 -Refer to Figure 17-3. When would the economy move from c and 3 to e and 5?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIf the Phillips curve is steep, then an ...View AnswerShow Answer

What do the data for the period of 1973 through 1980 demonstrate?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIn a country where expected inflation ha...View AnswerShow Answer

Figure 17-1 -Refer to Figure 17-1. If the economy starts at c and 1, then in the short run, where does a decrease in aggregate demand move the economy?

Correct AnswerverifiedShow Answer

In responding to the Phillips curve hypothesis, what did Friedman argue that a central bank can peg?

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

Which term refers to the short-run relationship between inflation and unemployment?

Correct AnswerverifiedShow Answer

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Correct AnswerverifiedShow Answer

Proponents of rational expectations argue that failing to account for people's revised expectations led to estimates of the sacrifice ratio that were too high.

Correct AnswerverifiedShow Answer

According to Friedman and Phelps, when is the unemployment rate below the natural rate?

Correct AnswerverifiedShow Answer

A policy change that reduced the natural rate of unemployment would shift both the long-run aggregate-supply curve and the long-run Phillips curve left.

Correct AnswerverifiedShow Answer

What does the position of the long-run Phillips curve depend on?

Correct AnswerverifiedShow Answer

If technological change shifts the long-run aggregate-supply curve to the right, it will also do which of the following?

Correct AnswerverifiedShow Answer

Figure 17-2 -Refer to Figure 17-2. Where is the money supply growth rate the greatest?

Correct AnswerverifiedShow Answer

How will an adverse supply shock shift the short-run aggregate-supply curve, and what will be the effect on prices?

Correct AnswerverifiedShow Answer

What did Phillips discover?

Correct AnswerverifiedShow Answer

Suppose that the money supply increases. According to the Phillips curve model, what are the effects of this policy change?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
If the Phillips curve is steep, then an ...
View Answer

Correct Answer
verified

Correct Answer
verified
In a country where expected inflation ha...
View Answer

Correct Answer
verified

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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