Question 1

What would a central bank need to do to reverse the effects of a favorable supply shock on inflation? What would its reaction do to the unemployment rate in the short run?

Accepted Answer

It would increase the money su...

Question 2

In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to its natural rate.

Accepted Answer

A) True 
 B)False

Question 3

The large increase in oil prices in the 1970s was caused primarily by a(n)

Accepted Answer

A)   increase in demand for oil.
B)   decrease in demand for oil.
C)   decrease in the supply of oil.
D)   increase in the supply of oil.E) A) and C)
F) B) and C)

Question 4

Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later the inflation rate is lower, but there had been a serious recession. We could conclude with certainty that

Accepted Answer

A)   the rational expectations hypothesis is false.
B)   the rational expectations hypothesis is true.
C)   the policymakers lacked credibility.
D)   None of the above is certain.E) A) and B)
F) None of the above

Question 5

Samuelson and Solow argued that when unemployment is high, there is

Accepted Answer

A)   upward pressure on wages and prices.
B)   upward pressure on wages and downward pressure on prices.
C)   upward pressure on prices and downward pressure on wages.
D)   downward pressure on wages and prices.E) All of the above
F) B) and C)

Question 6

Disinflation would eventually cause

Accepted Answer

A)   the short-run and the long run Phillips curve to shift right.
B)   the short-run and the long run Phillips curve to shift left.
C)   the short-run Phillips curve but not the long run Phillips curve to shift right.
D)   the short-run Phillips curve but not the long run Phillips curve to shift left.E) All of the above
F) B) and C)

Question 7

Figure 35-7
Use the two graphs in the diagram to answer the following questions.  
-Refer to Figure 35-7. Starting from C and 3, in the long run, an increase in money supply growth moves the economy to

Accepted Answer

A)   A and 1.
B)   back to C and 3.
C)   D and 4.
D)   F and 5.E) A) and B)
F) C) and D)

Question 8

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Accepted Answer

A)   0.4.
B)   1.5.
C)   2.5.
D)   5.0.E) A) and B)
F) None of the above

Question 9

In the nineteenth century, some countries were on a gold standard so that on average the money supply growth rate was close to zero and expected inflation was more or less constant. For these countries during this time period, we find that increases in actual inflation were generally associated with falling unemployment. These findings

Accepted Answer

A)   are consistent with Friedman and Phelps's theories, because they argued that when inflation was higher than expected, unemployment would fall.
B)   are consistent with Friedman and Phelps's theories, because they argued that when prices rose unemployment would fall whether actual inflation was higher than expected or not.
C)   are inconsistent with Friedman and Phelps's theories, because they argued that higher inflation would increase unemployment.
D)   are inconsistent with Friedman and Phelps's theories, because they argued that inflation and unemployment are unrelated.E) A) and C)
F) A) and D)

Question 10

If a central bank reduced inflation by 4 percentage points and this made output fall by 5 percent for one year and 3 percent for another year and the unemployment rate rise 2.5 percent above its natural rate for one year and 1.5 percent above its natural rate for another year, the sacrifice ratio was

Accepted Answer

A)   1.
B)   2.
C)   3.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 11

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Accepted Answer

A)   he would try to fool them by raising inflation to decrease unemployment.
B)   inflation would be unchanged.
C)   inflation would fall but not by as much or as quickly as Volcker claimed.
D)   inflation would fall even further than Volcker was willing to admit.E) A) and B)
F) B) and D)

Question 12

For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips curve which of the following could explain this? Country A has

Accepted Answer

A)   maintained a higher money supply growth rate.
B)   maintained a lower money supply growth rate.
C)   a higher minimum wage than country B.
D)   a lower minimum wage than country B.E) All of the above
F) A) and B)

Question 13

If inflation is less than expected, then the unemployment rate is

Accepted Answer

A)   greater than the natural rate. In the long run the short-run Phillips curve will shift right.
B)   greater than the natural rate. In the long run the short-run Phillips curve will shift left.
C)   less than the natural rate. In the long run the short-run Phillips curve will shift right.
D)   less than the natural rate. In the long run the short-run Phillips curve will shift left.E) A) and C)
F) A) and B)

Question 14

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 15

In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that

Accepted Answer

A)   it seemed to work for wages but not for inflation.
B)   monetary policy was ineffective in combating inflation.
C)   the Phillips curve did not apply in the long run.
D)   Phillips had made errors in collecting his data.E) A) and B)
F) B) and D)

Question 16

In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run this change should have

Accepted Answer

A)   reduced inflation and unemployment.
B)   raised inflation and unemployment.
C)   reduce inflation and raised unemployment.
D)   raised inflation and reduced unemployment.E) A) and B)
F) B) and C)

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)   Its position is determined primarily by monetary factors.
B)   If it shifts right, long-run aggregate supply shifts right.
C)   It cannot be changed by any government policy.
D)   Its position depends on the natural rate of unemployment.E) A) and D)
F) None of the above

Question 19

If policymakers increase aggregate demand, then in the short run the price level

Accepted Answer

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

Question 20

A decrease in government expenditures serves as an example of an adverse supply shock.

Accepted Answer

A) True 
 B)False

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

If policymakers increase aggregate demand, then in the short run the price level

Correct Answer
verified

In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that

Correct Answer
verified

Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later the inflation rate is lower, but there had been a serious recession. We could conclude with certainty that

Correct Answer
verified

For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips curve which of the following could explain this? Country A has

Correct Answer
verified

Correct Answer
verified

Disinflation would eventually cause

Correct Answer
verified

What would a central bank need to do to reverse the effects of a favorable supply shock on inflation? What would its reaction do to the unemployment rate in the short run?

Correct Answer
verified
It would increase the money su...
View Answer

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

Correct Answer
verified

In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run this change should have

Correct Answer
verified

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. Starting from C and 3, in the long run, an increase in money supply growth moves the economy to

Correct Answer
verified

In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to its natural rate.

Correct Answer
verified

The large increase in oil prices in the 1970s was caused primarily by a(n)

Correct Answer
verified

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

Correct Answer
verified

If inflation is less than expected, then the unemployment rate is

Correct Answer
verified

Correct Answer
verified

Samuelson and Solow argued that when unemployment is high, there is

Correct Answer
verified

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 Answer
verified
Unemployme...
View Answer

A decrease in government expenditures serves as an example of an adverse supply shock.

Correct Answer
verified

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Correct Answer
verified

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Correct Answer
verified

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

If policymakers increase aggregate demand, then in the short run the price level

Correct AnswerverifiedShow Answer

In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that

Correct AnswerverifiedShow Answer

Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later the inflation rate is lower, but there had been a serious recession. We could conclude with certainty that

Correct AnswerverifiedShow Answer

For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips curve which of the following could explain this? Country A has

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Disinflation would eventually cause

Correct AnswerverifiedShow Answer

What would a central bank need to do to reverse the effects of a favorable supply shock on inflation? What would its reaction do to the unemployment rate in the short run?

Correct AnswerverifiedIt would increase the money su...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run this change should have

Correct AnswerverifiedShow Answer

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. Starting from C and 3, in the long run, an increase in money supply growth moves the economy to

Correct AnswerverifiedShow Answer

In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to its natural rate.

Correct AnswerverifiedShow Answer

The large increase in oil prices in the 1970s was caused primarily by a(n)

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If inflation is less than expected, then the unemployment rate is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Samuelson and Solow argued that when unemployment is high, there is

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 decrease in government expenditures serves as an example of an adverse supply shock.

Correct AnswerverifiedShow Answer

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Correct AnswerverifiedShow Answer

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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It would increase the money su...
View Answer

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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Unemployme...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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