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

Explore all topics

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.

Free

(Multiple Choice)

4.9/5

(34)

Question 1

Correct Answer:

Verified

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

Free

(Essay)

4.8/5

(39)

Question 2

Correct Answer:

Verified

Friedman and Phelps predicted that, over time, people would come to expect higher inflation, so the short-run Phillips curve would shift right. When this happened, unemployment would go back to its natural rate, but inflation would be higher. The behaviour of the economy in the late 1960s and the 1970's was consistent with their theory since inflation rose but unemployment did not remain low.

A decrease in the price of foreign oil

Free

(Multiple Choice)

4.8/5

(35)

Question 3

Correct Answer:

Verified

A sudden monetary contraction moves the economy up a short-run Phillips curve, reducing unemployment and increasing inflation.

(True/False)

4.9/5

(35)

Question 4

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

(Essay)

4.7/5

(25)

Question 5

The pattern of employment and inflation observed during the 1970s appeared to confirm the view of Phelps and Friedman that

(Multiple Choice)

4.8/5

(36)

Question 6

The Phillips curve is an extension of the model of aggregate supply and aggregate demand because, in the short run, an increase in aggregate demand increases prices and

(Multiple Choice)

4.8/5

(43)

Question 7

If people have rational expectations, an announced monetary contraction by the central bank that is credible could reduce inflation with little or no increase in unemployment.

(True/False)

4.9/5

(35)

Question 8

When actual inflation exceeds expected inflation,

(Multiple Choice)

4.7/5

(37)

Question 9

If a central bank decreases the money supply, then

(Multiple Choice)

5.0/5

(37)

Question 10

An increase in aggregate demand temporarily reduces unemployment, but after people raise their expectations of inflation, unemployment returns to the natural rate.

(True/False)

4.9/5

(27)

Question 11

Which of the following would tend to shorten recessions associated with the use of anti-inflation policies?

(Multiple Choice)

4.9/5

(44)

Question 12

If a country's policy makers were to continuously use expansionary monetary policy in an attempt to hold unemployment below the natural rate, the long-run result would be

(Multiple Choice)

4.8/5

(29)

Question 13

If people have rational expectations, a monetary policy contraction that is announced and is credible could

(Multiple Choice)

4.9/5

(34)

Question 14

Suppose that an economy is currently experiencing 10 per cent unemployment and 15 per cent inflation. If, in the process of bringing inflation down by 2 per cent real GDP falls by 4 per cent, the sacrifice ratio is

(Multiple Choice)

4.9/5

(32)

Question 15

Which of the following would shift the long-run Phillips curve to the right?

(Multiple Choice)

4.8/5

(37)

Question 16

If people expect less inflation in the future, then the

(Multiple Choice)

4.9/5

(33)

Question 17

Which of the following will reduce the price level and increase real output in the long run?

(Multiple Choice)

4.9/5

(32)

Question 18

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

(Essay)

4.8/5

(38)

Question 19

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

(True/False)

4.9/5

(34)

Question 20

Showing 1 - 20 of 52

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

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.

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

A decrease in the price of foreign oil

A sudden monetary contraction moves the economy up a short-run Phillips curve, reducing unemployment and increasing inflation.

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

The pattern of employment and inflation observed during the 1970s appeared to confirm the view of Phelps and Friedman that

The Phillips curve is an extension of the model of aggregate supply and aggregate demand because, in the short run, an increase in aggregate demand increases prices and

If people have rational expectations, an announced monetary contraction by the central bank that is credible could reduce inflation with little or no increase in unemployment.

When actual inflation exceeds expected inflation,

If a central bank decreases the money supply, then

An increase in aggregate demand temporarily reduces unemployment, but after people raise their expectations of inflation, unemployment returns to the natural rate.

Which of the following would tend to shorten recessions associated with the use of anti-inflation policies?

If a country's policy makers were to continuously use expansionary monetary policy in an attempt to hold unemployment below the natural rate, the long-run result would be

If people have rational expectations, a monetary policy contraction that is announced and is credible could

Suppose that an economy is currently experiencing 10 per cent unemployment and 15 per cent inflation. If, in the process of bringing inflation down by 2 per cent real GDP falls by 4 per cent, the sacrifice ratio is

Which of the following would shift the long-run Phillips curve to the right?

If people expect less inflation in the future, then the

Which of the following will reduce the price level and increase real output in the long run?

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

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

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

Issues in Financial Markets

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

Supply-Side Policies

Common Currency Areas and European Monetary Union

The Financial Crisis and Sovereign Debt

Filters