Question 1

Some countries have inflation around or in excess of 8 percent.Suppose that the sacrifice ratio is 2.5.What is the cost of reducing inflation from 8 percent to 2 percent? In your answer,define the sacrifice ratio and show and explain how you found the cost of inflation reduction.

Accepted Answer

The sacrifice ratio gives the annual per...

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

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Accepted Answer

Friedman and Phelps predicted that,over ...

Question 4

Although monetary policy cannot reduce the natural rate of unemployment,other types of policies can.

Accepted Answer

A) True 
 B)False

Question 5

If the government reduced the minimum wage and pursued contractionary monetary policy,then in the long run

Accepted Answer

A)  both the unemployment rate and the inflation rate would be lower.
B)  the unemployment rate would be lower and the inflation rate would be higher.
C)  the unemployment rate would be higher and the inflation rate would be lower.
D)  the unemployment rate and the inflation rate would be higher.E) None of the above
F) All of the above

Question 6

Which of the following would cause the price level to rise and output to fall in the short run?

Accepted Answer

A)  an increase in the money supply
B)  a decrease in the money supply
C)  an adverse supply shock
D)  a favorable supply shockE) C) and D)
F) None of the above

Question 7

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) All of the above
F) None of the above

Question 8

If a central bank reduced inflation by 2 percentage points and that made output fall by 1 percentage points for 2 years and the unemployment rate rises from 3 percent to 5 percent for 2 years,the sacrifice ratio is

Accepted Answer

A)  1/2.
B)  1.
C)  2.
D)  4.E) C) and D)
F) None of the above

Question 9

In the short run

Accepted Answer

A)  unemployment and inflation are positively related.In the long run they are largely unrelated problems.
B)  and in the long run inflation and unemployment are positively related.
C)  unemployment and inflation are negatively related.In the long run they are largely unrelated problems.
D)  and in the long run inflation and unemployment are negatively related.E) All of the above
F) C) and D)

Question 10

Use the pair of diagrams below to answer the following questions.
Figure 35-1
 
-Refer to Figure 35-1.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 D)
F) C) and D)

Question 11

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,

Accepted Answer

A)  unemployment equals the natural rate and expected inflation equals actual inflation.
B)  unemployment is above the natural rate and expected inflation equals actual inflation.
C)  unemployment equals the natural rate and expected inflation is greater than actual inflation.
D)  None of the above is necessarily correct.E) B) and C)
F) B) and D)

Question 12

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year,the sacrifice ratio is

Accepted Answer

A)  1/5.
B)  2.
C)  5/2.
D)  5.E) None of the above
F) A) and D)

Question 13

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on

Accepted Answer

A)  the natural rate of unemployment and monetary growth.
B)  the natural rate of unemployment, but not monetary growth.
C)  monetary growth, but not the natural rate of unemployment.
D)  neither monetary growth nor the natural rate of unemployment.E) B) and D)
F) A) and D)

Question 14

In 1980,the U.S.economy had an inflation rate of

Accepted Answer

A)  about 1 percent and an unemployment rate of about 7 percent.
B)  less than 4 percent and an unemployment rate of less than 6 percent.
C)  less than 7 percent and an unemployment rate of about 9 percent.
D)  more than 9 percent and an unemployment rate of about 7 percent.E) All of the above
F) None of the above

Question 15

Monetary Policy in Hyperion
In Hyperion the Department of Finance is responsible for monetary policy. Hyperion has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Hyperion.Suppose that the Hyperion Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% but that it actually leaves inflation at 25%.Suppose that the public had expected that the Department of Finance would reduce inflation,but only to 20%.Then

Accepted Answer

A)  unemployment falls, but it would have fallen more if people had been expecting 12.5% inflation.
B)  unemployment falls, but it would have fallen more if people had been expecting 22% inflation.
C)  unemployment rises, but it would have risen more if people had been expecting 12.5% inflation.
D)  unemployment rises, but it would have risen more if people had been expecting 22% inflation.E) All of the above
F) A) and B)

Question 16

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 17

Monetary Policy in Hyperion
In Hyperion the Department of Finance is responsible for monetary policy. Hyperion has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Hyperion.Suppose that the Hyperion Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% and that it actually reduces inflation to that level.Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%.Then

Accepted Answer

A)  unemployment falls, but it would have fallen more if people had been expecting 12.5% inflation.
B)  unemployment falls, but it would have fallen more if people had been expecting 25% inflation.
C)  unemployment rises, but it would have risen more if people had been expecting 12.5% inflation.
D)  unemployment rises, but it would have risen more if people had been expecting 25% inflation.E) B) and C)
F) A) and C)

Question 18

An adverse supply shock will cause output

Accepted Answer

A)  and prices to rise.
B)  and prices to fall.
C)  to rise and prices to fall.
D)  to fall and prices to rise.E) A) and D)
F) A) and C)

Question 19

For most of the 1990s,the Phillips curve was

Accepted Answer

A)  fairly far to the right partly because of lower inflation expectations.
B)  fairly far to the left partly because of lower inflation expectations.
C)  fairly far to the right partly because of adverse supply shocks.
D)  fairly far to the left partly because of adverse supply shocks.E) C) and D)
F) None of the above

Question 20

Which of the following is an adverse supply shock?

Accepted Answer

A)  a decrease in the money supply
B)  a tax cut
C)  a worldwide drought
D)  decreased government spendingE) None of the above
F) C) and D)

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

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Correct Answer
verified

Which of the following is an adverse supply shock?

Correct Answer
verified

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 would cause the price level to rise and output to fall in the short run?

Correct Answer
verified

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year,the sacrifice ratio is

Correct Answer
verified

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Correct Answer
verified
Friedman and Phelps predicted that,over ...
View Answer

In the short run

Correct Answer
verified

In 1980,the U.S.economy had an inflation rate of

Correct Answer
verified

An adverse supply shock will cause output

Correct Answer
verified

Correct Answer
verified

Although monetary policy cannot reduce the natural rate of unemployment,other types of policies can.

Correct Answer
verified

Some countries have inflation around or in excess of 8 percent.Suppose that the sacrifice ratio is 2.5.What is the cost of reducing inflation from 8 percent to 2 percent? In your answer,define the sacrifice ratio and show and explain how you found the cost of inflation reduction.

Correct Answer
verified
The sacrifice ratio gives the annual per...
View Answer

A favorable supply shock will cause

Correct Answer
verified

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on

Correct Answer
verified

For most of the 1990s,the Phillips curve was

Correct Answer
verified

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

If a central bank reduced inflation by 2 percentage points and that made output fall by 1 percentage points for 2 years and the unemployment rate rises from 3 percent to 5 percent for 2 years,the sacrifice ratio is

Correct Answer
verified

If the government reduced the minimum wage and pursued contractionary monetary policy,then in the long run

Correct Answer
verified

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

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Correct AnswerverifiedShow Answer

Which of the following is an adverse supply shock?

Correct AnswerverifiedShow Answer

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 would cause the price level to rise and output to fall in the short run?

Correct AnswerverifiedShow Answer

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year,the sacrifice ratio is

Correct AnswerverifiedShow Answer

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Correct AnswerverifiedFriedman and Phelps predicted that,over ...View AnswerShow Answer

In the short run

Correct AnswerverifiedShow Answer

In 1980,the U.S.economy had an inflation rate of

Correct AnswerverifiedShow Answer

An adverse supply shock will cause output

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Although monetary policy cannot reduce the natural rate of unemployment,other types of policies can.

Correct AnswerverifiedShow Answer

Some countries have inflation around or in excess of 8 percent.Suppose that the sacrifice ratio is 2.5.What is the cost of reducing inflation from 8 percent to 2 percent? In your answer,define the sacrifice ratio and show and explain how you found the cost of inflation reduction.

Correct AnswerverifiedThe sacrifice ratio gives the annual per...View AnswerShow Answer

A favorable supply shock will cause

Correct AnswerverifiedShow Answer

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on

Correct AnswerverifiedShow Answer

For most of the 1990s,the Phillips curve was

Correct AnswerverifiedShow Answer

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Use the pair of diagrams below to answer the following questions. Figure 35-1 -Refer to Figure 35-1.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

If a central bank reduced inflation by 2 percentage points and that made output fall by 1 percentage points for 2 years and the unemployment rate rises from 3 percent to 5 percent for 2 years,the sacrifice ratio is

Correct AnswerverifiedShow Answer

If the government reduced the minimum wage and pursued contractionary monetary policy,then in the long run

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Friedman and Phelps predicted that,over ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The sacrifice ratio gives the annual per...
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
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