Question 1

In the late 1960s, economist Edmund Phelps published a paper that

Accepted Answer

A)   argued that there was no long-run tradeoff between inflation and unemployment.
B)   disproved Friedman's claim that monetary policy was effective in controlling inflation.
C)   showed the optimal point on the Phillips curve was at an unemployment rate of 5 percent and an inflation rate of 2 percent.
D)   argued that the Phillips curve was stable and that it would not shift.E) C) and D)
F) A) and B)

Question 2

A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate towards its previous level it would

Accepted Answer

A)   increase the rate at which the money supply increases. This will also move inflation closer to its previous rate..
B)   increase the rate at which the money supply increases. However, this will make inflation higher than its previous rate
C)   decrease the rate at which the money supply increases. This will also move inflation closer to its original rate
D)   decrease the rate at which the money supply increases. However, this will make higher than its previous rate.E) A) and B)
F) A) and C)

Question 3

Other things the same, a decrease in aggregate demand decreases both inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

Accepted Answer

A)   both the long-run Phillips curve and the aggregate supply and aggregate demand model.
B)   the aggregate demand and aggregate supply model, but not the long-run Phillips curve.
C)   the long-run Phillips curve, but not the aggregate demand and aggregate supply model.
D)   neither the long-run Phillips curve nor the aggregate supply and aggregate demand model.E) B) and C)
F) All of the above

Question 5

Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Accepted Answer

In the short run, unemployment will rise...

Question 6

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 7

There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

Accepted Answer

A)   raise the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve right.
B)   raise the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve left.
C)   reduce the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve right.
D)   reduce the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve left.E) All of the above
F) None of the above

Question 8

Prime Minister Emma Bigshot urges passage of a bill to reduce unemployment benefits from very generous levels in her country. She also urges her country's central bank to raise the rate at which the money supply is increasing. In the long run which, if either, of these policies will reduce the unemployment rate?

Accepted Answer

A)   both reducing the generosity of unemployment benefits and raising the rate at which the money supply is increasing
B)   reducing the generosity of unemployment benefits but not raising the rate at which the money supply is increasing
C)   raising the rate at which the money supply is increasing, but not reducing the generosity of unemployment benefits
D)   neither reducing the generosity of unemployment benefits nor raising the rate at which the money supply is increasingE) A) and B)
F) A) and C)

Question 9

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following results in higher inflation and higher unemployment in the short run?

Accepted Answer

A)   a more expansionary monetary policy
B)   a more contractionary monetary policy
C)   a decrease in the minimum wage
D)   an adverse supply shock such as an increase in the price of oilE) A) and D)
F) B) and C)

Question 11

The equation, Unemployment rate = Natural rate of unemployment - a  ×	imes× ctual inflation - Expected inflation) ,

Accepted Answer

A)   is the equation of the short-run Phillips curve.
B)   implies the short-run Phillips curve shifts every time there is a change in actual inflation.
C)   reflects the reasoning of Samuelson and Solow.
D)   All of the above are correct. E) None of the above
F) All of the above

Question 12

By raising aggregate demand more than anticipated, policymakers

Accepted Answer

A)   reduce unemployment for awhile.
B)   raise unemployment for awhile.
C)   reduce unemployment permanently.
D)   None of the above is correct.E) B) and C)
F) A) and B)

Question 13

If the central bank increases the money supply, in the short run, output

Accepted Answer

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

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

If the unemployment rate is below the natural rate, then

Accepted Answer

A)   inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift right.
B)   inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift left.
C)   inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift left.
D)   inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift right.E) B) and D)
F) A) and D)

Question 16

Which of the following is not associated with an adverse supply shock?

Accepted Answer

A)   the short-run Phillips curve shifts left
B)   unemployment rises
C)   the price level rises
D)   output fallsE) A) and B)
F) All of the above

Question 17

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) A) and B)
F) A) and D)

Question 18

Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have

Accepted Answer

A)   lower unemployment and higher inflation
B)   higher unemployment and higher inflation
C)   lower unemployment and lower inflation
D)   None of the above is necessarily correct.E) None of the above
F) A) and C)

Question 19

If the Federal Reserve accommodates an adverse supply shock,

Accepted Answer

A)   inflation expectations may rise which shifts the short-run Phillips curve shifts right.
B)   inflation expectations may rise which shifts the short-run Phillips curve shifts left.
C)   inflation expectations may fall which shifts the short-run Phillips curve shifts right.
D)   inflation expectations may fall which shifts the short-run Phillips curve shifts leftE) C) and D)
F) A) and D)

Question 20

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Accepted Answer

A)   he would try to fool them by raising inflation to decrease unemployment.
B)   inflation would be unchanged.
C)   inflation would fall but not by as much or as quickly as Volcker claimed.
D)   inflation would fall even further than Volcker was willing to admit.E) A) and B)
F) None of the above

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

A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate towards its previous level it would

Correct Answer
verified

If the unemployment rate is below the natural rate, then

Correct Answer
verified

Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have

Correct Answer
verified

If the central bank increases the money supply, in the short run, output

Correct Answer
verified

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

Correct Answer
verified

There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

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 is not associated with an adverse supply shock?

Correct Answer
verified

If the Federal Reserve accommodates an adverse supply shock,

Correct Answer
verified

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

Correct Answer
verified

The equation, Unemployment rate = Natural rate of unemployment - a $\times$ ctual inflation - Expected inflation) ,

Correct Answer
verified

Which of the following results in higher inflation and higher unemployment in the short run?

Correct Answer
verified

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

Correct Answer
verified

By raising aggregate demand more than anticipated, policymakers

Correct Answer
verified

Other things the same, a decrease in aggregate demand decreases both inflation and unemployment.

Correct Answer
verified

Correct Answer
verified

In the late 1960s, economist Edmund Phelps published a paper that

Correct Answer
verified

Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Correct Answer
verified
In the short run, unemployment will rise...
View Answer

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

Correct Answer
verified

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Correct Answer
verified

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

A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate towards its previous level it would

Correct AnswerverifiedShow Answer

If the unemployment rate is below the natural rate, then

Correct AnswerverifiedShow Answer

Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have

Correct AnswerverifiedShow Answer

If the central bank increases the money supply, in the short run, output

Correct AnswerverifiedShow Answer

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

Correct AnswerverifiedShow Answer

There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

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 is not associated with an adverse supply shock?

Correct AnswerverifiedShow Answer

If the Federal Reserve accommodates an adverse supply shock,

Correct AnswerverifiedShow Answer

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

Correct AnswerverifiedShow Answer

The equation, Unemployment rate = Natural rate of unemployment - a ×\times× ctual inflation - Expected inflation) ,

Correct AnswerverifiedShow Answer

Which of the following results in higher inflation and higher unemployment in the short run?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

By raising aggregate demand more than anticipated, policymakers

Correct AnswerverifiedShow Answer

Other things the same, a decrease in aggregate demand decreases both inflation and unemployment.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the late 1960s, economist Edmund Phelps published a paper that

Correct AnswerverifiedShow Answer

Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Correct AnswerverifiedIn the short run, unemployment will rise...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Correct AnswerverifiedShow Answer

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

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Correct Answer
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Correct Answer
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The equation, Unemployment rate = Natural rate of unemployment - a $\times$ ctual inflation - Expected inflation) ,

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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In the short run, unemployment will rise...
View Answer

Correct Answer
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Correct Answer
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