Question 1

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?

Accepted Answer

A)   Short-run aggregate supply decreases.
B)   The natural rate of unemployment increases.
C)   The price level increases more rapidly.
D)   The money supply increases less rapidly.E) A) and D)
F) C) and D)

Question 2

Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS)  curve and two aggregate-demand AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."  
-Refer to Figure 35-9. Faced with the shift of the Phillips curve from PC1 to PC2, policymakers will

Accepted Answer

A)   ask whether the shift is temporary or permanent.
B)   be concerned with how people adjust their expectations of inflation as a result of the shift.
C)   face, as well, a decision as to whether to accommodate the shock.
D)   All of the above are correct.E) C) and D)
F) B) and C)

Question 3

According to the long-run Phillips curve, if the Fed increases the growth rate of the money supply, what happens to the inflation rate and the unemployment rate in the long run?

Accepted Answer

The inflation rate r...

Question 4

List one specific policy that would shift the long-run Phillips curve to the right.

Accepted Answer

More generous unempl...

Question 5

In the long run, a decrease in the money supply growth rate

Accepted Answer

A)   increases inflation and shifts the short-run Phillips curve right.
B)   increases inflation and shifts the short-run Phillips curve left.
C)   decreases inflation and shifts the short-run Philips curve right.
D)   decreases inflation and shifts the short-run Phillips curve left.E) None of the above
F) B) and C)

Question 6

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

Accepted Answer

A)   businesses become more optimistic about the future of the economy
B)   because of high growth abroad, net exports rise
C)   the government cuts taxes
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 7

For a given level of inflation expectations, if the central bank increases the money supply growth rate, then in the short run

Accepted Answer

A)   the economy moves down along the short-run Phillips curve.
B)   the economy moves up along the short-run Phillips curve.
C)   the Phillips curve shifts right.
D)   the Phillips curve shifts left.E) B) and C)
F) All of the above

Question 8

Refer to Figure 35-4. Assume the figure depicts possible outcomes for the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was

Accepted Answer

A)   106.
B)   108.
C)   110.
D)   112.E) C) and D)
F) A) and B)

Question 9

The Volcker disinflation

Accepted Answer

A)   had virtually no impact on output, just as the classical dichotomy suggested.
B)   was associated with rising output, perhaps due to expansionary fiscal policy.
C)   caused output to fall, but by less than the typical estimate of the sacrifice ratio suggested.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 10

Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS)  curve and two aggregate-demand AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."  
-Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2

Accepted Answer

A)   results in a more favorable trade-off between inflation and unemployment.
B)   results in a more favorable trade-off between inflation and the growth rate of real GDP.
C)   represents an adverse shock to aggregate supply.
D)   represents a favorable shock to aggregate supply.E) B) and C)
F) A) and D)

Question 11

A central bank raises the money supply growth rate and keeps it at that higher rate. Explain the process by which the economy moves to long-run equilibrium.

Accepted Answer

Continued higher money supply growth rai...

Question 12

Between 1993 and 2001 the U.S. economy experienced

Accepted Answer

A)   relatively low inflation and unemployment rates.
B)   relatively high inflation and unemployment rates.
C)   relatively low inflation rates and relatively high unemployment rates.
D)   relatively high inflation rates and relatively low unemployment rates.E) All of the above
F) A) and B)

Question 13

A change in expected inflation shifts

Accepted Answer

A)   the short-run Phillips curve, but not the long run Phillips curve.
B)   the long-run Phillips curve, but not the long run Phillips curve.
C)   neither the short-run nor the long-run Phillips curve.
D)   both the short-run and long-run Phillips curve right.E) B) and C)
F) A) and D)

Question 14

The long-run Phillips curve would shift left if

Accepted Answer

A)   the money supply increased or if the minimum wage was reduced.
B)   the money supply increased but not if the minimum wage was reduced.
C)   the minimum wage was reduced but not if the money supply increased.
D)   None of the above is correct.E) A) and D)
F) B) and D)

Question 15

Suppose the central bank decreases the growth rate of the money supply. In the short run, this policy change will affect

Accepted Answer

A)   both the unemployment rate and the inflation rate.
B)   the unemployment rate but not the inflation rate.
C)   the inflation rate but not the unemployment rate.
D)   neither the inflation rate nor the unemployment rate.E) A) and D)
F) None of the above

Question 16

Friedman and Phelps believed that the natural rate of unemployment was constant.

Accepted Answer

A) True 
 B)False

Question 17

Other things the same, if the central bank decreases the rate at which it increases the money supply, then

Accepted Answer

A)   unemployment and inflation rise in the short run.
B)   unemployment rises and inflation falls in the short run.
C)   unemployment falls and inflation rises in the short run.
D)   unemployment and inflation fall in the short run.E) All of the above
F) C) and D)

Question 18

A favorable supply shock will cause the price level

Accepted Answer

A)   and output to rise.
B)   and output to fall.
C)   to rise and output to fall.
D)   to fall and output to rise.E) All of the above
F) B) and D)

Question 19

If expected inflation increases, which of the following shifts right?

Accepted Answer

A)   both the short-run and the long-run Phillips curves
B)   the short-run but not the long-run Phillips curve
C)   the long-run but not the short-run Phillips curve
D)   neither the long-run nor the short-run Phillips curveE) B) and D)
F) A) and B)

Question 20

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve.  Which of the following statements is correct?

Accepted Answer

A)   These points are consistent with the theoretical long-run Phillips curve, but not with the short-run Phillips curve.
B)   These points are consistent with the theoretical short-run Phillips curve, but not with the long-run Phillips curve.
C)   These points are consistent with both the theoretical short-run and long-run Phillips curves.
D)   These points are not consistent with either the theoretical short-run or long-run Phillips curves.E) None of the above
F) A) and B)

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

List one specific policy that would shift the long-run Phillips curve to the right.

Correct AnswerverifiedMore generous unempl...View AnswerShow Answer

Other things the same, if the central bank decreases the rate at which it increases the money supply, then

Correct AnswerverifiedShow Answer

According to the long-run Phillips curve, if the Fed increases the growth rate of the money supply, what happens to the inflation rate and the unemployment rate in the long run?

Correct AnswerverifiedThe inflation rate r...View AnswerShow Answer

A central bank raises the money supply growth rate and keeps it at that higher rate. Explain the process by which the economy moves to long-run equilibrium.

Correct AnswerverifiedContinued higher money supply growth rai...View AnswerShow Answer

The long-run Phillips curve would shift left if

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

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Suppose the central bank decreases the growth rate of the money supply. In the short run, this policy change will affect

Correct AnswerverifiedShow Answer

Between 1993 and 2001 the U.S. economy experienced

Correct AnswerverifiedShow Answer

Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2

Correct AnswerverifiedShow Answer

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

A change in expected inflation shifts

Correct AnswerverifiedShow Answer

In the long run, a decrease in the money supply growth rate

Correct AnswerverifiedShow Answer

Refer to Figure 35-4. Assume the figure depicts possible outcomes for the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was

Correct AnswerverifiedShow Answer

Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. Faced with the shift of the Phillips curve from PC1 to PC2, policymakers will

Correct AnswerverifiedShow Answer

For a given level of inflation expectations, if the central bank increases the money supply growth rate, then in the short run

Correct AnswerverifiedShow Answer

A favorable supply shock will cause the price level

Correct AnswerverifiedShow Answer

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?

Correct AnswerverifiedShow Answer

If expected inflation increases, which of the following shifts right?

Correct AnswerverifiedShow Answer

The Volcker disinflation

Correct AnswerverifiedShow Answer

Friedman and Phelps believed that the natural rate of unemployment was constant.

Correct AnswerverifiedShow Answer

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More generous unempl...
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The inflation rate r...
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Continued higher money supply growth rai...
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