Question 1

The natural rate of unemployment is

Accepted Answer

A)   the socially desired rate of unemployment.
B)   the unemployment rate that is observed in the long-run regardless of the monetary policy pursued by the central bank.
C)   the unemployment rate that is observed in the long-run regardless of all economic policies pursued by the government or central bank.
D)   always below 5 per cent.E) A) and D)
F) B) and D)

Question 2

If, in the long run, people adjust their price expectations so that all prices and incomes move proportionately to an increase in the price level, then the long-run Phillips curve

Accepted Answer

A)   has a slope that is determined by how fast people adjust their price expectations.
B)   is negatively sloped.
C)   is vertical.
D)   is positively sloped.E) C) and D)
F) B) and C)

Question 3

Some countries have had relatively high inflation and relatively high unemployment for long periods of time. Is this consistent with the Phillips curve? Defend your answer.

Accepted Answer

They are consistent with the long-run Ph...

Question 4

When actual inflation exceeds expected inflation, unemployment exceeds the natural rate.

Accepted Answer

A) True 
 B)False

Question 5

Along a short-run Phillips curve, a higher rate of

Accepted Answer

A)   growth in output is associated with a higher unemployment rate.
B)   growth in output is associated with a lower unemployment rate.
C)   inflation is associated with a higher unemployment rate.
D)   inflation is associated with a lower unemployment rate.E) B) and C)
F) A) and D)

Question 6

An increase in expected inflation will shift

Accepted Answer

A)   both the short-run and the long-run Phillips curves to the right.
B)   only the short-run Phillips curve to the right.
C)   only the long-run Phillips curve to the right.
D)   the short-run Phillips curve to the right and increase the slope of the long-run Phillips curve.E) C) and D)
F) A) and D)

Question 7

An independent central bank is an advantage for monetary policy because

Accepted Answer

A)   central banks can employ the most able staff if they have the independence to pay high salaries.
B)   central banks have direct and frequent contact with commercial banks.
C)   central banks do not have the same incentive as politicians to break their promises to keep inflation down.
D)   central banks have greater expertise in monetary policy than government finance departments.E) A) and B)
F) A) and C)

Question 8

When unemployment is below the natural rate the labour market is unusually tight, putting pressure on wages and prices to rise.

Accepted Answer

A) True 
 B)False

Question 9

Some economists argue 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 fiscal reforms, people will expect the government will eventually need to expand the money supply to pay for its expenditures. Thus, the promise to fight inflation will not be credible. Explain why credibility is important to a reduction in the inflation rate.

Accepted Answer

If people believe that the government re...

Question 10

The original Phillips curve illustrates the

Accepted Answer

A)   trade-off between inflation and unemployment.
B)   trade-off between output and unemployment.
C)   positive relationship between output and unemployment.
D)   positive relationship between inflation and unemployment.E) A) and C)
F) C) and D)

Question 11

The natural rate hypothesis argues that

Accepted Answer

A)   in the long run, the unemployment rate returns to the natural rate, regardless of inflation.
B)   unemployment is always below the natural rate.
C)   unemployment is always above the natural rate.
D)   unemployment is always equal to the natural rate.E) A) and D)
F) A) and B)

Question 12

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Accepted Answer

Both reflect the classical dichotomy. Th...

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

When unemployment is below the natural rate the labour market is unusually tight, putting pressure on wages and prices to rise.

Correct Answer
verified

The original Phillips curve illustrates the

Correct Answer
verified

The natural rate hypothesis argues that

Correct Answer
verified

Correct Answer
verified
If people believe that the government re...
View Answer

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Correct Answer
verified
Both reflect the classical dichotomy. Th...
View Answer

An independent central bank is an advantage for monetary policy because

Correct Answer
verified

The natural rate of unemployment is

Correct Answer
verified

Some countries have had relatively high inflation and relatively high unemployment for long periods of time. Is this consistent with the Phillips curve? Defend your answer.

Correct Answer
verified
They are consistent with the long-run Ph...
View Answer

An increase in expected inflation will shift

Correct Answer
verified

When actual inflation exceeds expected inflation, unemployment exceeds the natural rate.

Correct Answer
verified

Along a short-run Phillips curve, a higher rate of

Correct Answer
verified

If, in the long run, people adjust their price expectations so that all prices and incomes move proportionately to an increase in the price level, then the long-run Phillips curve

Correct Answer
verified

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

When unemployment is below the natural rate the labour market is unusually tight, putting pressure on wages and prices to rise.

Correct AnswerverifiedShow Answer

The original Phillips curve illustrates the

Correct AnswerverifiedShow Answer

The natural rate hypothesis argues that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIf people believe that the government re...View AnswerShow Answer

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Correct AnswerverifiedBoth reflect the classical dichotomy. Th...View AnswerShow Answer

An independent central bank is an advantage for monetary policy because

Correct AnswerverifiedShow Answer

The natural rate of unemployment is

Correct AnswerverifiedShow Answer

Some countries have had relatively high inflation and relatively high unemployment for long periods of time. Is this consistent with the Phillips curve? Defend your answer.

Correct AnswerverifiedThey are consistent with the long-run Ph...View AnswerShow Answer

An increase in expected inflation will shift

Correct AnswerverifiedShow Answer

When actual inflation exceeds expected inflation, unemployment exceeds the natural rate.

Correct AnswerverifiedShow Answer

Along a short-run Phillips curve, a higher rate of

Correct AnswerverifiedShow Answer

If, in the long run, people adjust their price expectations so that all prices and incomes move proportionately to an increase in the price level, then the long-run Phillips curve

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If people believe that the government re...
View Answer

Correct Answer
verified
Both reflect the classical dichotomy. Th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
They are consistent with the long-run Ph...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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