Question 1

How does a central bank's accommodation of an adverse supply shock change the long-run results of the shock?

Accepted Answer

If a central bank accommodates an adverse supply shock by increasing the growth rate of the money supply, then inflation is higher in the long run. The increased growth rate of the money supply increases inflation and eventually increases expected inflation. The increase in expected inflation shifts the short-run Phillips curve to the right. If the central bank does nothing, then the short-run Phillips curve shifts back to its original position when the shock ends.

Question 2

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky-wage theory to explain your answer.

Accepted Answer

If unemployment is above its natural rat...

Question 3

Which of the following describes the Volcker disinflation most accurately?

Accepted Answer

A)  Almost all of the public believed that the Fed would keep money growth low, so unemployment rose less than it would have otherwise.
B)  Almost all of the public believed that the Fed would keep money growth low, so unemployment rose more than it would have otherwise.
C)  Much of the public did not believe that the Fed would keep money growth low, so unemployment rose less than it would have otherwise.
D)  Much of the public did not believe that the Fed would keep money growth low, so unemployment rose more than it would have otherwise.E) A) and B)
F) All of the above

Question 4

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 5

A central bank disinflates. Output falls by 3% for one year, 2% the second year, and 1% the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Accepted Answer

The answer of A central bank disinflates. Output falls by...

Question 6

An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.

Accepted Answer

A) True 
 B)False

Question 7

If monetary policy moves unemployment below its natural rate, both expected and actual inflation will rise.

Accepted Answer

A) True 
 B)False

Question 8

In the long 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) C) and D)
F) A) and B)

Question 9

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

Accepted Answer

A)  decreased the money supply.
B)  increased government expenditures.
C)  decreased taxes.
D)  increased the money supply.E) None of the above
F) A) and B)

Question 10

Other things constant, which of the following would reduce unemployment and raise inflation?

Accepted Answer

A)  The government lowers government spending.
B)  Because of low growth abroad, net exports falls.
C)  The government raises taxes.
D)  Businesses become more optimistic about the future of the economy.E) None of the above
F) A) and D)

Question 11

If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run.

Accepted Answer

A) True 
 B)False

Question 12

Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.

Accepted Answer

Consider what happens when the aggregate...

Question 13

An improved functioning of the 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) C) and D)
F) A) and C) D

Question 14

Suppose the Federal Reserve pursues contractionary monetary policy. In the long run

Accepted Answer

A)  both inflation and the unemployment rate are higher than they were prior to the change in policy.
B)  inflation is higher and the unemployment rate is the same as it was prior to the change in policy.
C)  inflation is lower and the unemployment rate is lower than it was prior to the change in policy.
D)  inflation is lower and unemployment is the same as it was prior to the change in policy.E) B) and C)
F) A) and B)

Question 15

According to the Phillips curve, which fiscal policies can be used to reduce unemployment in the short run?

Accepted Answer

An increase in government expenditures or a decrease in taxes.

Question 16

If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?

Accepted Answer

A)  Both the price level and output
B)  The price level but not output
C)  Output but not the price level
D)  Neither output nor the price levelE) A) and B)
F) All of the above

Question 17

In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to its natural rate.

Accepted Answer

A) True 
 B)False

Question 18

If there is a large and sudden but temporary increase in the price of oil, which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

Accepted Answer

The short-run Phillips curve s...

Question 19

A central bank pledges to reduce the inflation rate from 10% to 3%. People reduce their inflation expectations to 5%, but the central bank reduces inflation to 3%. What happens to the unemployment rate?

Accepted Answer

The answer of A central bank pledges to reduce the...

Question 20

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

Accepted Answer

A downward-sloping Phillips curve implie...

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

How does a central bank's accommodation of an adverse supply shock change the long-run results of the shock?

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky-wage theory to explain your answer.

Correct Answer
verified
If unemployment is above its natural rat...
View Answer

Which of the following describes the Volcker disinflation most accurately?

Correct Answer
verified

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

Correct Answer
verified

A central bank disinflates. Output falls by 3% for one year, 2% the second year, and 1% the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Correct Answer
verified

An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.

Correct Answer
verified

If monetary policy moves unemployment below its natural rate, both expected and actual inflation will rise.

Correct Answer
verified

In the long run, policy that changes aggregate demand changes

Correct Answer
verified

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

Correct Answer
verified

Other things constant, which of the following would reduce unemployment and raise inflation?

Correct Answer
verified

If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run.

Correct Answer
verified

Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.

Correct Answer
verified
Consider what happens when the aggregate...
View Answer

An improved functioning of the labor markets will shift

Correct Answer
verified
D

Suppose the Federal Reserve pursues contractionary monetary policy. In the long run

Correct Answer
verified

According to the Phillips curve, which fiscal policies can be used to reduce unemployment in the short run?

Correct Answer
verified
An increase in government expenditures or a decrease in taxes.

If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?

Correct Answer
verified

In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to its natural rate.

Correct Answer
verified

If there is a large and sudden but temporary increase in the price of oil, which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

Correct Answer
verified
The short-run Phillips curve s...
View Answer

A central bank pledges to reduce the inflation rate from 10% to 3%. People reduce their inflation expectations to 5%, but the central bank reduces inflation to 3%. What happens to the unemployment rate?

Correct Answer
verified

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

Correct Answer
verified
A downward-sloping Phillips curve implie...
View Answer

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

How does a central bank's accommodation of an adverse supply shock change the long-run results of the shock?

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky-wage theory to explain your answer.

Correct AnswerverifiedIf unemployment is above its natural rat...View AnswerShow Answer

Which of the following describes the Volcker disinflation most accurately?

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

A central bank disinflates. Output falls by 3% for one year, 2% the second year, and 1% the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Correct AnswerverifiedShow Answer

An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.

Correct AnswerverifiedShow Answer

If monetary policy moves unemployment below its natural rate, both expected and actual inflation will rise.

Correct AnswerverifiedShow Answer

In the long run, policy that changes aggregate demand changes

Correct AnswerverifiedShow Answer

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

Correct AnswerverifiedShow Answer

Other things constant, which of the following would reduce unemployment and raise inflation?

Correct AnswerverifiedShow Answer

If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run.

Correct AnswerverifiedShow Answer

Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.

Correct AnswerverifiedConsider what happens when the aggregate...View AnswerShow Answer

An improved functioning of the labor markets will shift

Correct AnswerverifiedD

Suppose the Federal Reserve pursues contractionary monetary policy. In the long run

Correct AnswerverifiedShow Answer

According to the Phillips curve, which fiscal policies can be used to reduce unemployment in the short run?

Correct AnswerverifiedAn increase in government expenditures or a decrease in taxes.

If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?

Correct AnswerverifiedShow Answer

In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to its natural rate.

Correct AnswerverifiedShow Answer

If there is a large and sudden but temporary increase in the price of oil, which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

Correct AnswerverifiedThe short-run Phillips curve s...View AnswerShow Answer

A central bank pledges to reduce the inflation rate from 10% to 3%. People reduce their inflation expectations to 5%, but the central bank reduces inflation to 3%. What happens to the unemployment rate?

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

Correct Answer
verified
If unemployment is above its natural rat...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Consider what happens when the aggregate...
View Answer

Correct Answer
verified
D

Correct Answer
verified

Correct Answer
verified
An increase in government expenditures or a decrease in taxes.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The short-run Phillips curve s...
View Answer

Correct Answer
verified

Correct Answer
verified
A downward-sloping Phillips curve implie...
View Answer