Question 1

In 1979, when the Fed was deciding how aggressively to fight inflation, the typical estimate of the sacrifice ratio was

Accepted Answer

A)  1.
B)  5.
C)  7.
D)  10.E) None of the above
F) B) and D)

Question 2

The idea that the long-run Phillips curve is

Accepted Answer

A)  vertical stems from the analysis of Samuelson and Solow.
B)  vertical stems from the analysis of Friedman and Phelps.
C)  vertical was disproved by the experiment that monetary and fiscal policymakers inadvertently created in the 1970s.
D)  downward-sloping can be correct if unemployment responds very quickly to unexpected inflation.E) A) and B)
F) C) and D)

Question 3

Which of the following shifts aggregate supply to the right?

Accepted Answer

A)  a decline in the price of imported natural resources
B)  a technological advance
C)  an older labor force that leaves jobs less frequently
D)  All of the above are correct.E) B) and C)
F) A) and D)

Question 4

A central bank sets out to reduce unemployment by changing the money supply growth rate. The long-run Phillips curve shows that in comparison to their original rates, this policy will eventually lead to

Accepted Answer

A)  an increase in both the inflation rate and the unemployment rate.
B)  an increase in the inflation rate and a reduction in the unemployment rate.
C)  no change in either the inflation rate or the unemployment rate.
D)  an increase in the inflation rate and no change in the unemployment rate.E) C) and D)
F) A) and C)

Question 5

If the central bank increases the money supply, then in the short run prices

Accepted Answer

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

Question 6

Refer to Monetary Policy in Mokania. The Bank of Mokania reduced inflation to its announced goal of 5%. However its efforts made the unemployment rate rise by 10 percentage points for a year while output fell by 30 percent for a year. Which of the following is correct?

Accepted Answer

A)  Initially people's inflation expectations had been higher than 5%. The sacrifice ratio was 3.
B)  Initially people's inflation expectations had been higher than 5%. The sacrifice ratio was 1.
C)  Initially people's inflation expectations had been lower than 5%. The sacrifice ratio was 3.
D)  Initially people's inflation expectations had been lower than 5%. The sacrifice ratio was 1.E) A) and B)
F) None of the above

Question 7

The short-run Phillips curve shows the combinations of

Accepted Answer

A)  unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.
B)  unemployment and inflation that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve.
C)  real GDP and the price level that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve.
D)  None of the above is correct.E) B) and C)
F) A) and B)

Question 8

A central bank raises the money supply growth rate and keeps it higher. As the economy moves from the short-run equilibrium created by the increase in the money supply growth back to long-run equilibrium what happens to the unemployment rate?

Accepted Answer

The answer of A central bank raises the money supply...

Question 9

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in government expenditures moves the economy to

Accepted Answer

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

Question 10

More flexible labor markets will shift

Accepted Answer

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

Question 11

Other things the same, if there is an increase in the money supply growth rate that is larger than expected, then in the short run

Accepted Answer

A)  the natural rate of unemployment rises.
B)  the natural rate of unemployment falls.
C)  the unemployment rate will be above its natural rate.
D)  the unemployment rate will be below its natural rate.E) A) and B)
F) A) and C)

Question 12

In which case, if any, will inflation remain higher after a temporary adverse supply shock?

Accepted Answer

A)  both when the central bank maintains a higher money supply growth rate and when the central bank does nothing
B)  only if the central bank does nothing
C)  only if the central bank maintains a higher money supply growth rate
D)  None of the above is correct. Whether the central bank maintains a higher money supply growth rate or not, the inflation rate will return to its original level.E) A) and C)
F) None of the above

Question 13

In the short run, policy that changes aggregate demand changes

Accepted Answer

A)  both unemployment and the price level.
B)  neither unemployment nor the price level.
C)  only unemployment.
D)  only the price level.E) None of the above
F) A) and D)

Question 14

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Accepted Answer

A) True 
 B)False

Question 15

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in aggregate demand moves the economy to

Accepted Answer

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

Question 16

A policy change that changes the natural rate of unemployment changes

Accepted Answer

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

Question 17

Suppose the Fed decreased the growth rate of the money supply. Which of the following would be lower in the long run?

Accepted Answer

A)  both 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 unemployment rate nor the inflation rateE) A) and B)
F) B) and C)

Question 18

In the long run,

Accepted Answer

A)  the natural rate of unemployment depends primarily on the level of aggregate demand.
B)  inflation depends primarily upon the money supply growth rate.
C)  there is a tradeoff between the inflation rate and the natural rate of unemployment.
D)  All of the above are correct.E) None of the above
F) A) and D)

Question 19

If consumer confidence rises, then aggregate demand shifts

Accepted Answer

A)  right, making inflation higher than otherwise.
B)  right, making inflation lower than otherwise.
C)  left, making inflation higher than otherwise.
D)  left, making inflation lower than otherwise.E) A) and D)
F) B) and C)

Question 20

Figure 35-6
Use the graph below to answer the following questions. 
-Refer to Figure 35-6. If the economy starts at C and the money supply growth rate increases, in the long run the economy

Accepted Answer

A)  stays at C.
B)  moves to B.
C)  moves to F.
D)  None of the above is consistent wit an increase in the money supply growth rate.E) A) and D)
F) B) and D)

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

Which of the following shifts aggregate supply to the right?

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In which case, if any, will inflation remain higher after a temporary adverse supply shock?

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If the central bank increases the money supply, then in the short run prices

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The short-run Phillips curve shows the combinations of

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Refer to Monetary Policy in Mokania. The Bank of Mokania reduced inflation to its announced goal of 5%. However its efforts made the unemployment rate rise by 10 percentage points for a year while output fell by 30 percent for a year. Which of the following is correct?

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In the short run, policy that changes aggregate demand changes

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A central bank raises the money supply growth rate and keeps it higher. As the economy moves from the short-run equilibrium created by the increase in the money supply growth back to long-run equilibrium what happens to the unemployment rate?

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The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

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Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. If the economy starts at C and the money supply growth rate increases, in the long run the economy

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A policy change that changes the natural rate of unemployment changes

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Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in government expenditures moves the economy to

Correct AnswerverifiedShow Answer

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in aggregate demand moves the economy to

Correct AnswerverifiedShow Answer

Other things the same, if there is an increase in the money supply growth rate that is larger than expected, then in the short run

Correct AnswerverifiedShow Answer

A central bank sets out to reduce unemployment by changing the money supply growth rate. The long-run Phillips curve shows that in comparison to their original rates, this policy will eventually lead to

Correct AnswerverifiedShow Answer

In 1979, when the Fed was deciding how aggressively to fight inflation, the typical estimate of the sacrifice ratio was

Correct AnswerverifiedShow Answer

In the long run,

Correct AnswerverifiedShow Answer

The idea that the long-run Phillips curve is

Correct AnswerverifiedShow Answer

Suppose the Fed decreased the growth rate of the money supply. Which of the following would be lower in the long run?

Correct AnswerverifiedShow Answer

If consumer confidence rises, then aggregate demand shifts

Correct AnswerverifiedShow Answer

More flexible labor markets will shift

Correct AnswerverifiedShow Answer

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