Question 1

A vertical long-run Phillips curve is consistent with

Accepted Answer

A)   the conclusion of Friedman and Phelps, but it is not consistent with the classical idea of monetary neutrality.
B)   the classical idea of monetary neutrality, but it is not consistent with the conclusion of Friedman and Phelps.
C)   both the conclusion of Friedman and Phelps and the classical idea of monetary neutrality.
D)   neither the conclusion of Friedman and Phelps nor the classical idea of monetary neutrality.E) B) and C)
F) A) and B)

Question 2

The sacrifice ratio is the

Accepted Answer

A)   sum of the inflation and unemployment rates.
B)   inflation rate divided by the unemployment rate.
C)   number of percentage points annual output falls for each percentage point reduction in inflation.
D)   number of percentage points unemployment rises for each percentage point reduction in inflation.E) None of the above
F) A) and B)

Question 3

If a government redesigned its unemployment insurance programs so that the unemployed had greater incentives to quickly find appropriate jobs, then which of the following curves would shift right?

Accepted Answer

A)   the long-run Phillips curve and the long-run aggregate supply curve
B)   the long-run Phillips curve but not the long-run aggregate supply curve
C)   the long-run aggregate supply curve but not the long-run Phillips curve
D)   neither the long-run Phillips curve nor the long-run aggregate supply curveE) None of the above
F) B) and C)

Question 4

One way to express the classical idea of monetary neutrality is to draw

Accepted Answer

A)   a downward-sloping short-run Phillips curve.
B)   an upward-sloping short-run Phillips curve.
C)   a downward-sloping long-run Phillips curve.
D)   a vertical long-run Phillips curve.E) A) and B)
F) All of the above

Question 5

U.S. monetary policy in the early 1980s reduced the inflation rate by more than half.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that a small economy that produces mostly agricultural goods experiences a year with exceptionally good conditions for growing crops. The good weather would

Accepted Answer

A)   shift both the short-run aggregate supply and the short-run Phillips curve right.
B)   shift both the short-run aggregate supply and the short-run Phillips curve left.
C)   shift the short-run aggregate supply curve to the right, and the short-run Phillips curve to the left.
D)   shift the short-run aggregate supply curve to the left, and the short-run Phillips curve to the right.E) B) and C)
F) A) and D)

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, a decrease 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) All of the above
F) None of the above

Question 8

Most economists believe that a tradeoff between inflation and unemployment exists

Accepted Answer

A)   only in the short run.
B)   only in the long run.
C)   in both the short and long run.
D)   in neither the short nor long run.E) A) and B)
F) A) and C)

Question 9

According to classical macroeconomic theory, in the long run

Accepted Answer

A)   monetary growth affects both real and nominal variables.
B)   the only real variable affected by monetary growth is the unemployment rate.
C)   a number of factors that affect unemployment are influenced by monetary growth.
D)   monetary growth affects nominal but not real variables.E) All of the above
F) B) and D)

Question 10

An adverse supply shock causes inflation to

Accepted Answer

A)   rise and the short-run Phillips curve to shift right.
B)   rise and the short-run Phillips curve to shift left.
C)   fall and the short-run Phillips curve to shift right.
D)   fall and the short-run Phillips curve to shift left.E) B) and D)
F) A) and C)

Question 11

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."  
-Refer to Figure 35-9. A significant increase in the world price of oil could explain

Accepted Answer

A)   the shift of the aggregate-supply curve from AS1 to AS2, but it could not explain the shift of the Phillips curve from PC1 to PC2.
B)   the shift of the Phillips curve from PC1 to PC2, but it could not explain the shift of the aggregate-supply curve from AS1 to AS2.
C)   both the shift of the aggregate-supply curve from AS1 to AS2 and the shift of the Phillips curve from PC1 to PC2.
D)   neither the shift of the aggregate-supply curve from AS1 to AS2 nor the shift of the Phillips curve from PC1 to PC2.E) C) and D)
F) B) and D)

Question 12

Closely watched indicators such as the inflation rate and unemployment are released each month by the

Accepted Answer

A)   Bureau of the Budget.
B)   Bureau of Labor Statistics.
C)   Department of the Treasury.
D)   President's Council of Economic Advisors.E) A) and B)
F) None of the above

Question 13

Figure 35-8
Use this graph to answer the questions below. 
-Refer to figure 35-8. If the economy starts at 5% unemployment and 5% inflation then if the Federal Reserve pursues a contractionary monetary policy, in the short run the economy moves to

Accepted Answer

A)   3% unemployment and 5% inflation. In the long run the economy moves to 5% unemployment and 5% inflation.
B)   3% unemployment and 5% inflation. In the long run the economy moves to 5% unemployment and 3% inflation.
C)   7% unemployment and 3% inflation. In the long run the economy moves to 5% unemployment and 5% inflation.
D)   7% unemployment and 3% inflation. In the long run the economy moves to 5% unemployment and 3% inflation.E) A) and B)
F) None of the above

Question 14

The equation, Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation) ,

Accepted Answer

A)   is the equation of the short-run Phillips curve.
B)   implies there can be no stable short-run Phillips curve.
C)   reflects the reasoning of Friedman and Phelps.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 15

Between 1993 and 2001 the U.S. economy experienced

Accepted Answer

A)   relatively low inflation and unemployment rates.
B)   relatively high inflation and unemployment rates.
C)   relatively low inflation rates and relatively high unemployment rates.
D)   relatively high inflation rates and relatively low unemployment rates.E) A) and C)
F) None of the above

Question 16

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Accepted Answer

A downward-sloping Phillips curve implie...

Question 17

The equation, Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation) ,

Accepted Answer

A)   is the equation of the short-run Phillips curve.
B)   implies the short-run Phillips curve shifts every time there is a change in actual inflation.
C)   reflects the reasoning of Samuelson and Solow.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 18

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action

Accepted Answer

A)   lowers both inflation and unemployment.
B)   lowers inflation but raises unemployment.
C)   raises inflation but lowers unemployment.
D)   raises both inflation and unemployment.E) A) and B)
F) B) and C)

Question 19

If people believe that the central bank is going to reduce inflation, then

Accepted Answer

A)   the short-run Phillips curve shifts right and the sacrifice ratio will rise.
B)   the short-run Phillips curve shifts right and the sacrifice ratio will fall.
C)   the short-run Phillips curve shifts left and the sacrifice ratio will rise.
D)   the short-run Phillips curve shifts left and the sacrifice ratio will fall.E) B) and D)
F) None of the above

Question 20

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

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

An adverse supply shock causes inflation to

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If people believe that the central bank is going to reduce inflation, then

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Between 1993 and 2001 the U.S. economy experienced

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U.S. monetary policy in the early 1980s reduced the inflation rate by more than half.

Correct AnswerverifiedShow Answer

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action

Correct AnswerverifiedShow Answer

One way to express the classical idea of monetary neutrality is to draw

Correct AnswerverifiedShow Answer

If a government redesigned its unemployment insurance programs so that the unemployed had greater incentives to quickly find appropriate jobs, then which of the following curves would shift right?

Correct AnswerverifiedShow Answer

Figure 35-8 Use this graph to answer the questions below. -Refer to figure 35-8. If the economy starts at 5% unemployment and 5% inflation then if the Federal Reserve pursues a contractionary monetary policy, in the short run the economy moves to

Correct AnswerverifiedShow Answer

Suppose that a small economy that produces mostly agricultural goods experiences a year with exceptionally good conditions for growing crops. The good weather would

Correct AnswerverifiedShow Answer

Most economists believe that a tradeoff between inflation and unemployment exists

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, a decrease in money supply growth moves the economy to

Correct AnswerverifiedShow Answer

The equation, Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation) ,

Correct AnswerverifiedShow Answer

A vertical long-run Phillips curve is consistent with

Correct AnswerverifiedShow Answer

Closely watched indicators such as the inflation rate and unemployment are released each month by the

Correct AnswerverifiedShow Answer

The sacrifice ratio is the

Correct AnswerverifiedShow Answer

The equation, Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation) ,

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory, in the long run

Correct AnswerverifiedShow Answer

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Correct AnswerverifiedA downward-sloping Phillips curve implie...View AnswerShow Answer

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Correct AnswerverifiedShow Answer

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. A significant increase in the world price of oil could explain

Correct AnswerverifiedShow Answer

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A downward-sloping Phillips curve implie...
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