Question 1

If prices and wages adjusted rapidly and producers could quickly distinguish the difference between a change in the price level and a change in the relative price of their products, then an increase in the money supply growth rate would have at most a very short-lived affect on unemployment.

Accepted Answer

A) True 
 B)False

Question 2

Monetary Policy in Highland
Highland has had inflation of 15% for many years. Highland establishes a new central bank, the Bank of Highland, with the hopes of reducing the inflation rate.
-Refer to Monetary Policy in Highland. The Bank of Highland reduced inflation to its announced goal of 5%. However, people were expecting inflation to fall to 7% and there was a favorable supply shock. In the short run which of the following made unemployment lower than otherwise?

Accepted Answer

A)  both people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock
B)  neither people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock
C)  only the favorable supply shock
D)  only people expecting inflation to fall to 7% instead of 5%E) B) and D)
F) A) and D)

Question 3

Monetary Policy in Highland
Highland has had inflation of 15% for many years. Highland establishes a new central bank, the Bank of Highland, with the hopes of reducing the inflation rate.
-Refer to Monetary Policy in Highland. The Bank of Highland reduced inflation to its announced goal of 5%. However the unemployment rate was on average higher for many years after. A newspaper editorial argues that the unemployment rate had moved to this higher natural rate because (1)  by itself the decrease in inflation had permanently increased unemployment and (2)  that at the same time the central bank was fighting inflation the government of Highland had made a large increase in the minimum wage. Which of these arguments is consistent with the Phillip's curve model?

Accepted Answer

A)  both explanations 1 and 2
B)  neither explanation 1 nor 2
C)  explanation 1 but not explanation 2
D)  explanation 2 but not explanation 1E) B) and C)
F) A) and D)

Question 4

As aggregate demand shifts right along the 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) A) and C)
F) A) and D)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

Accepted Answer

A)  It would shift the long-run Phillips curve right.
B)  It would shift the long-run Phillips curve left.
C)  There would be an upward movement along a given long-run Phillips curve.
D)  There would be a downward movement along a given long-run Philips curve.E) A) and B)
F) A) and C)

Question 7

Monetary Policy in Southland
In Southland the Department of Finance is responsible for monetary policy. Southland has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Southland. Suppose the Southland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% and actually reduces inflation to that level. Suppose at first that the public thought inflation would only drop to 18%, but eventually become convinced that the inflation rate will stay at 12.5%.

Accepted Answer

A)  unemployment rises in the short run, and remains higher than it's original value in the long run.
B)  unemployment rises in the short run, and is the same as it's original value in the long run.
C)  unemployment falls in the short run, and is lower than it's original value in the long run.
D)  unemployment falls in the short run, and is the same as it's original value in the long run.E) A) and B)
F) B) and C)

Question 8

Which of the following is an example of 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) C) and D)
F) B) and C)

Question 9

If the unemployment rate is below the natural rate, then

Accepted Answer

A)  inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift right.
B)  inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift left.
C)  inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift left.
D)  inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift right.E) A) and B)
F) None of the above

Question 10

In 1980, the combination of inflation and unemployment the U.S. was experiencing

Accepted Answer

A)  resulted from a leftward shift of the short-run Phillips curve.
B)  was consistent with feasible inflation-unemployment combinations provided by the Phillips curve of the 1960s.
C)  followed two supply shocks that were triggered by the Organization of Petroleum Exporting Countries.
D)  All of the above are correct.E) A) and B)
F) B) and C)

Question 11

For a number of years Canada and many European countries have had higher average unemployment rates than the United States. The Phillips curve suggests that these countries

Accepted Answer

A)  have higher average inflation rates than the United States.
B)  have long-run Phillips curves to the right of the United States'.
C)  may have less generous unemployment compensation or lower minimum wages.
D)  All of the above are consistent with the evidence on unemployment rates.E) A) and D)
F) C) and D)

Question 12

Figure 22-1. 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 22-1. 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) A) and C)

Question 13

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) None of the above
F) C) and D)

Question 14

In the long run, if the Fed decreases the rate at which it increases the money supply,

Accepted Answer

A)  inflation will be lower.
B)  unemployment will be higher.
C)  real GDP will be lower.
D)  All of the above are correct.E) B) and C)
F) All of the above

Question 15

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

Accepted Answer

A)  above the natural rate. In the long run the short-run Phillips curve will shift right.
B)  above the natural rate. In the long run the short-run Phillips curve will shift left.
C)  below the natural rate. In the long run the short-run Phillips curve will shift right.
D)  below the natural rate. In the long run the short-run Phillips curve will shift left.E) A) and D)
F) All of the above

Question 16

An increase in expected inflation shifts

Accepted Answer

A)  the long-run Phillips curve right.
B)  the short-run Phillips curve right.
C)  neither the short-run nor long-run Phillips curve right.
D)  both the short-run and long-run Phillips curve right.E) B) and C)
F) A) and D)

Question 17

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

Question 18

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

Accepted Answer

A)  aggregate demand right.
B)  aggregate demand left.
C)  aggregate supply right.
D)  aggregate supply left.E) All of the above
F) A) and C)

Question 19

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

Accepted Answer

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

Question 20

The experience of the Volcker disinflation of the early 1980s

Accepted Answer

A)  generally increased estimates of the sacrifice ratio.
B)  generally decreased estimates of the sacrifice ratio.
C)  clearly refuted the predictions of the proponents of rational expectations.
D)  clearly refuted the predictions of the opponents of rational expectations.E) A) and D)
F) B) and D)

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

In 1980, the combination of inflation and unemployment the U.S. was experiencing

Correct Answer
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If the unemployment rate is below the natural rate, then

Correct Answer
verified

Figure 22-1. 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 22-1. What is measured along the horizontal axis of the left-hand graph?

Correct Answer
verified

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

Correct Answer
verified

If prices and wages adjusted rapidly and producers could quickly distinguish the difference between a change in the price level and a change in the relative price of their products, then an increase in the money supply growth rate would have at most a very short-lived affect on unemployment.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

In the long run, if the Fed decreases the rate at which it increases the money supply,

Correct Answer
verified

Correct Answer
verified

Which of the following is an example of an adverse supply shock?

Correct Answer
verified

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

Correct Answer
verified

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

Correct Answer
verified

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

Correct Answer
verified

The experience of the Volcker disinflation of the early 1980s

Correct Answer
verified

An increase in expected inflation shifts

Correct Answer
verified

Correct Answer
verified

For a number of years Canada and many European countries have had higher average unemployment rates than the United States. The Phillips curve suggests that these countries

Correct Answer
verified

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

Correct Answer
verified

As aggregate demand shifts right along the aggregate supply curve,

Correct Answer
verified

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

Correct Answer
verified

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

In 1980, the combination of inflation and unemployment the U.S. was experiencing

Correct AnswerverifiedShow Answer

If the unemployment rate is below the natural rate, then

Correct AnswerverifiedShow Answer

Figure 22-1. 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 22-1. What is measured along the horizontal axis of the left-hand graph?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If prices and wages adjusted rapidly and producers could quickly distinguish the difference between a change in the price level and a change in the relative price of their products, then an increase in the money supply growth rate would have at most a very short-lived affect on unemployment.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long run, if the Fed decreases the rate at which it increases the money supply,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is an example of an adverse supply shock?

Correct AnswerverifiedShow Answer

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

Correct AnswerverifiedShow Answer

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The experience of the Volcker disinflation of the early 1980s

Correct AnswerverifiedShow Answer

An increase in expected inflation shifts

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For a number of years Canada and many European countries have had higher average unemployment rates than the United States. The Phillips curve suggests that these countries

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

As aggregate demand shifts right along the aggregate supply curve,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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