Question 1

A favorable supply shock will cause

Accepted Answer

A)   unemployment to rise and the short-run Phillips curve to shift right.
B)   unemployment to rise and the short-run Phillips curve to shift left.
C)   unemployment to fall and the short-run Phillips curve to shift right.
D)   unemployment to fall and the short-run Phillips curve to shift left.E) None of the above
F) A) and D)

Question 2

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

Accepted Answer

A)   both the short and long run.
B)   the short run, but not the long run.
C)   the long run, but not the short run.
D)   neither the short nor the long run.E) C) and D)
F) None of the above

Question 3

In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Accepted Answer

A)   The change in inflation, but not the change in unemployment is consistent with what a given short-run Phillips curve implies.
B)   The change in unemployment, but not the change in inflation is consistent with what a given short-run Phillips curve implies.
C)   Both the change in inflation and the change in unemployment are consistent with what a given short-run Phillips curve implies.
D)   Neither the change in inflation nor the change in unemployment are consistent with what a given short-run Phillips curve implies.E) B) and C)
F) A) and D)

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) A) and B)
F) None of the above

Question 5

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) None 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) C) and D)
F) A) and B)

Question 7

In the long run a reduction 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 8

Suppose a central bank takes actions that will lead to a higher inflation rate. The public, however, is slow to adjust its expectation of inflation. Then, in the short run, unemployment

Accepted Answer

A)   rises. As inflation expectations adjust, the short-run Phillips curve shifts right.
B)   rises. As inflation expectations adjust, the short-run Phillips curve shifts left.
C)   falls. As inflation expectations adjust, the short-run Phillips curve shifts right.
D)   falls. As inflation expectations adjust, the short-run Phillips curve shifts left.E) B) and C)
F) A) and C)

Question 9

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 10

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Accepted Answer

A)   short run, and the natural rate is the socially optimal rate of unemployment.
B)   long run, and the natural rate is the socially optimal rate of unemployment.
C)   short run, and the natural rate is not necessarily the socially optimal rate of unemployment.
D)   long run, and the natural rate is not necessarily the socially optimal rate of unemployment.E) A) and D)
F) A) and C)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

Accepted Answer

A)   to a lower unemployment rate and a lower inflation rate than policy B.
B)   to a lower unemployment rate and a higher inflation rate than policy B.
C)   to a higher unemployment rate and lower inflation rate than policy B.
D)   to a higher unemployment rate and higher inflation rate than policy B.E) A) and B)
F) A) and C)

Question 13

In the long run, which of the following depends primarily on the growth rate of the money supply?

Accepted Answer

A)   the natural rate of unemployment and the inflation rate
B)   the natural rate of unemployment but not the inflation rate
C)   the inflation rate but not the natural rate of unemployment
D)   neither the natural rate of unemployment nor the inflation rateE) A) and D)
F) A) and C)

Question 14

The misery index is calculated as the

Accepted Answer

A)   inflation rate plus the unemployment rate.
B)   unemployment rate minus the inflation rate.
C)   actual inflation rate minus the expected inflation rate.
D)   natural unemployment rate times the inflation rateE) A) and D)
F) None of the above

Question 15

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

Question 16

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 D)
F) A) and B)

Question 17

Samuelson and Solow argued that when unemployment is high,

Accepted Answer

A)   aggregate demand is high, which puts upward pressure on wages and prices.
B)   aggregate demand is high, which puts downward pressure on wages and prices.
C)   aggregate demand is low, which puts upward pressure on wages and prices.
D)   aggregate demand is low, which puts downward pressure on wages and prices.E) B) and D)
F) A) and C)

Question 18

A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 19

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 20

How is a decrease in the natural rate of unemployment shown in the Phillips curve diagram? Does this decrease change the inflation rate?

Accepted Answer

Both the long-run and the shor...

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

How is a decrease in the natural rate of unemployment shown in the Phillips curve diagram? Does this decrease change the inflation rate?

Correct AnswerverifiedBoth the long-run and the shor...View AnswerShow Answer

Samuelson and Solow argued that when unemployment is high,

Correct AnswerverifiedShow Answer

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Correct AnswerverifiedShow Answer

In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Correct AnswerverifiedShow Answer

In the long run a reduction in the money supply growth rate affects

Correct AnswerverifiedShow Answer

A favorable supply shock will cause

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.

Correct AnswerverifiedShow Answer

Suppose a central bank takes actions that will lead to a higher inflation rate. The public, however, is slow to adjust its expectation of inflation. Then, in the short run, unemployment

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

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

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

Correct AnswerverifiedShow Answer

Disinflation would eventually cause

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

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

Correct AnswerverifiedShow Answer

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

Correct AnswerverifiedShow Answer

In the long run, which of the following depends primarily on the growth rate of the money supply?

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

The misery index is calculated as the

Correct AnswerverifiedShow Answer

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

Correct AnswerverifiedShow Answer

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Both the long-run and the shor...
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Unemployme...
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Correct Answer
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