Question 1

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) B) and D)
F) C) and D)

Question 2

-Refer to the Figure above.Suppose that the government in the economy of this diagram regards 9 per cent unemployment as unacceptable.If the government insists on trying to reduce the unemployment rate from 9 per cent to 7 per cent, regardless of the consequences, then

Accepted Answer

A)  pressure will build in the economy to continuously reduce the rate of inflation.
B)  the long run Phillips curve becomes horizontal, freezing the rates of inflation and unemployment.
C)  the inflation rate will increase but the unemployment rate will stay at 7 per cent.
D)  in the long run the rate of unemployment remains unchanged, but inflation will probably accelerate.E) A) and B)
F) A) and C)

Question 3

-Refer to the Figure above.Suppose the government decreases tax rates dramatically in order to decrease the level of employment.We would expect to see aggregate demand shift to the

Accepted Answer

A)  left and a move up the short run Phillips curve.
B)  left and a move down the short run Phillips curve.
C)  right and a move up the short run Phillips curve.
D)  right and a move down the short run Phillips curve.E) A) and D)
F) None of the above

Question 4

-Refer to Exhibit 6 above.Suppose the economy is operating in long run equilibrium at point E.An unexpected monetary contraction will move the economy in the direction of point

Accepted Answer

A)  A.
B)  C.
C)  E.
D)  F.
E)  H.F) A) and D)
G) A) and C)

Question 5

The long run Phillips curve is vertical at

Accepted Answer

A)  zero unemployment.
B)  zero frictional unemployment.
C)  the natural rate of unemployment.
D)  the natural rate of inflation.E) C) and D)
F) None of the above C

Question 6

If a central bank decreases the money supply, then

Accepted Answer

A)  prices, output, and unemployment rise.
B)  prices and output rise and unemployment falls.
C)  prices rise and output and unemployment fall.
D)  prices and output fall and unemployment rises.E) None of the above
F) B) and C)

Question 7

According to Friedman and Phelps, the unemployment rate is equal to

Accepted Answer

A)  (the natural rate)  + a(the expected inflation rate) .
B)  (the natural rate)  - a(the expected inflation rate) .
C)  (the expected inflation rate)  + (the actual inflation rate) .
D)  (the natural rate)  - a(the actual inflation rate - the expected inflation rate) .E) A) and B)
F) None of the above

Question 8

For centuries economists have puzzled over the relationship between a nation's money supply and its economic prosperity.In 1752, __________ suggested that if the money supply is increased when an economy is below full employment, spending will increase, which in turn creates economic expansion.

Accepted Answer

A)  Arthur Brown
B)  Jan Tinbergen
C)  Karl Marx
D)  David HumeE) C) and D)
F) A) and B) D

Question 9

Explain how the effects of a shift in the aggregate demand curve are consistent with the Phillips curve.

Accepted Answer

Consider what happens when the aggregate...

Question 10

An increase in expected inflation

Accepted Answer

A)  shifts the short run Phillips curve downward and the unemployment inflation trade-off is less favourable.
B)  shifts the short run Phillips curve upward and the unemployment inflation trade-off is more favourable.
C)  shifts the short run Phillips curve downward and the unemployment inflation trade-off is more favourable.
D)  shifts the short run Phillips curve upward and the unemployment inflation trade-off is less favourable.E) None of the above
F) B) and D)

Question 11

In the short run, an increase in aggregate demand increases prices and output, and decreases unemployment.

Accepted Answer

A) True 
 B)False

Question 12

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 13

-Refer to Exhibit 6 above.If people in the economy expect inflation to be 6 per cent but inflation turns out to be 3 per cent, the economy is operating at point

Accepted Answer

A)  A.
B)  C.
C)  D.
D)  F.
E)  H.F) A) and E)
G) C) and E)

Question 14

The Phillips curve illustrates the positive relationship between inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 15

If policymakers expand aggregate demand, then in the long run

Accepted Answer

A)  prices will be higher and unemployment will be lower.
B)  prices will be higher and unemployment will be unchanged.
C)  prices and unemployment will be unchanged.
D)  None of the above is correct.E) B) and C)
F) B) and D) B

Question 16

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) C) and D)
F) B) and C)

Question 17

In the long run, the unemployment rate is independent of inflation, and the Phillips curve is vertical at the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 18

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Accepted Answer

In the long run the natural rate of unem...

Question 19

A decrease the price of foreign oil

Accepted Answer

A)  shifts the short run Phillips curve downward, and makes the unemployment inflation trade-off less favourable.
B)  shifts the short run Phillips curve upward, and makes the unemployment inflation trade-off less favourable.
C)  shifts the short run Phillips curve upward, and makes the unemployment inflation trade-off more favourable.
D)  shifts the short run Phillips curve downward, and makes the unemployment inflation trade-off more favourable.E) A) and B)
F) A) and D)

Question 20

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) A) and B)
F) A) and C)

Exam 17: The Short Run Trade-Off Between Inflation and Unemployment

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

-Refer to the Figure above.Suppose that the government in the economy of this diagram regards 9 per cent unemployment as unacceptable.If the government insists on trying to reduce the unemployment rate from 9 per cent to 7 per cent, regardless of the consequences, then

Correct Answer
verified

-Refer to the Figure above.Suppose the government decreases tax rates dramatically in order to decrease the level of employment.We would expect to see aggregate demand shift to the

Correct Answer
verified

-Refer to Exhibit 6 above.Suppose the economy is operating in long run equilibrium at point E.An unexpected monetary contraction will move the economy in the direction of point

Correct Answer
verified

The long run Phillips curve is vertical at

Correct Answer
verified
C

If a central bank decreases the money supply, then

Correct Answer
verified

According to Friedman and Phelps, the unemployment rate is equal to

Correct Answer
verified

For centuries economists have puzzled over the relationship between a nation's money supply and its economic prosperity.In 1752, __________ suggested that if the money supply is increased when an economy is below full employment, spending will increase, which in turn creates economic expansion.

Correct Answer
verified
D

Explain how the effects of a shift in the aggregate demand curve are consistent with the Phillips curve.

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

An increase in expected inflation

Correct Answer
verified

In the short run, an increase in aggregate demand increases prices and output, and decreases unemployment.

Correct Answer
verified

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

-Refer to Exhibit 6 above.If people in the economy expect inflation to be 6 per cent but inflation turns out to be 3 per cent, the economy is operating at point

Correct Answer
verified

The Phillips curve illustrates the positive relationship between inflation and unemployment.

Correct Answer
verified

If policymakers expand aggregate demand, then in the long run

Correct Answer
verified
B

An independent central bank is an advantage for monetary policy because

Correct Answer
verified

In the long run, the unemployment rate is independent of inflation, and the Phillips curve is vertical at the natural rate of unemployment.

Correct Answer
verified

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Correct Answer
verified
In the long run the natural rate of unem...
View Answer

A decrease the price of foreign oil

Correct Answer
verified

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

Correct Answer
verified

Exam 17: The Short Run Trade-Off Between Inflation and Unemployment

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

-Refer to the Figure above.Suppose that the government in the economy of this diagram regards 9 per cent unemployment as unacceptable.If the government insists on trying to reduce the unemployment rate from 9 per cent to 7 per cent, regardless of the consequences, then

Correct AnswerverifiedShow Answer

-Refer to the Figure above.Suppose the government decreases tax rates dramatically in order to decrease the level of employment.We would expect to see aggregate demand shift to the

Correct AnswerverifiedShow Answer

-Refer to Exhibit 6 above.Suppose the economy is operating in long run equilibrium at point E.An unexpected monetary contraction will move the economy in the direction of point

Correct AnswerverifiedShow Answer

The long run Phillips curve is vertical at

Correct AnswerverifiedC

If a central bank decreases the money supply, then

Correct AnswerverifiedShow Answer

According to Friedman and Phelps, the unemployment rate is equal to

Correct AnswerverifiedShow Answer

For centuries economists have puzzled over the relationship between a nation's money supply and its economic prosperity.In 1752, __________ suggested that if the money supply is increased when an economy is below full employment, spending will increase, which in turn creates economic expansion.

Correct AnswerverifiedD

Explain how the effects of a shift in the aggregate demand curve are consistent with the Phillips curve.

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

An increase in expected inflation

Correct AnswerverifiedShow Answer

In the short run, an increase in aggregate demand increases prices and output, and decreases unemployment.

Correct AnswerverifiedShow Answer

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

-Refer to Exhibit 6 above.If people in the economy expect inflation to be 6 per cent but inflation turns out to be 3 per cent, the economy is operating at point

Correct AnswerverifiedShow Answer

The Phillips curve illustrates the positive relationship between inflation and unemployment.

Correct AnswerverifiedShow Answer

If policymakers expand aggregate demand, then in the long run

Correct AnswerverifiedB

An independent central bank is an advantage for monetary policy because

Correct AnswerverifiedShow Answer

In the long run, the unemployment rate is independent of inflation, and the Phillips curve is vertical at the natural rate of unemployment.

Correct AnswerverifiedShow Answer

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Correct AnswerverifiedIn the long run the natural rate of unem...View AnswerShow Answer

A decrease the price of foreign oil

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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C

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D

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Consider what happens when the aggregate...
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If people believe that the government re...
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B

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In the long run the natural rate of unem...
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