Question 1

Where does the short-run Phillips curve intersect the long-run Phillips curve?

Accepted Answer

A)  where expected inflation is greater than actual inflation 
B)  where expected inflation equals actual inflation 
C)  where the quantity of goods and services demanded equals the quantity supplied 
D)  where the quantity of labour demanded equals the quantity supplied 
A)  where expected inflation is greater than actual inflation 
B)  where expected inflation equals actual inflation 
C)  where the quantity of goods and services demanded equals the quantity supplied 
D)  where the quantity of labour demanded equals the quantity supplied

Question 2

If the short-run Phillips curve were stable, what would be unusual?

Accepted Answer

A)  an increase in inflation and an increase in output 
B)  a decrease in inflation and an increase in unemployment 
C)  an increase in both inflation and unemployment 
D)  an increase in output and a decrease in unemployment 
A)  an increase in inflation and an increase in output 
B)  a decrease in inflation and an increase in unemployment 
C)  an increase in both inflation and unemployment 
D)  an increase in output and a decrease in unemployment

Question 3

Suppose the long-run Phillips curve shifts to the left. For any given rate of money growth and inflation, how would unemployment and output change?

Accepted Answer

A)  Unemployment would be higher, and output would be lower. 
B)  Unemployment would be higher, and output would be higher. 
C)  Unemployment would be lower, and output would be lower. 
D)  Unemployment would be lower, and output would be higher. 
A)  Unemployment would be higher, and output would be lower. 
B)  Unemployment would be higher, and output would be higher. 
C)  Unemployment would be lower, and output would be lower. 
D)  Unemployment would be lower, and output would be higher.

Question 4

If policymakers accommodate an adverse supply shock, what will happen to the unemployment rate and inflation?

Accepted Answer

A)  The unemployment rate and the inflation rate will rise. 
B)  The unemployment rate and the inflation rate will fall. 
C)  The unemployment rate will rise and the inflation rate will fall. 
D)  The unemployment rate will fall and the inflation rate will rise. 
A)  The unemployment rate and the inflation rate will rise. 
B)  The unemployment rate and the inflation rate will fall. 
C)  The unemployment rate will rise and the inflation rate will fall. 
D)  The unemployment rate will fall and the inflation rate will rise.

Question 5

Suppose the Bank of Canada reduces the rate of inflation by 4 percentage points. Suppose, as well, that the sacrifice ratio has a value of 2. Which of the following describes what happens to GDP?

Accepted Answer

A)  GDP increases by 8 percentage points 
B)  GDP decreases by 8 percentage points 
C)  GDP increases by one-half of a percentage point 
D)  GDP decreases by one-half of a percentage point 
A)  GDP increases by 8 percentage points 
B)  GDP decreases by 8 percentage points 
C)  GDP increases by one-half of a percentage point 
D)  GDP decreases by one-half of a percentage point

Question 6

In 1968, economist Milton Friedman published a paper that was critical of the Phillips curve. On what grounds did Friedman criticize the Phillips curve?

Accepted Answer

A)  It seemed to work for wages but not for inflation. 
B)  Monetary policy was ineffective in combating inflation. 
C)  The tradeoff illustrated by the Phillips curve did not apply in the long run. 
D)  Phillips had made errors in collecting his data. 
A)  It seemed to work for wages but not for inflation. 
B)  Monetary policy was ineffective in combating inflation. 
C)  The tradeoff illustrated by the Phillips curve did not apply in the long run. 
D)  Phillips had made errors in collecting his data.

Question 7

Milton Friedman argued that a central bank's control over the money supply could be used to peg which of the following?

Accepted Answer

A)  the level or growth rate of a nominal variable, but not the level or growth rate of a real variable 
B)  the level of a nominal or real variable, but not the growth rate of a real or nominal variable 
C)  the level or growth rate of a real variable, but not the level or growth rate of a nominal variable 
D)  both levels and growth rates of both real and nominal variables 
A)  the level or growth rate of a nominal variable, but not the level or growth rate of a real variable 
B)  the level of a nominal or real variable, but not the growth rate of a real or nominal variable 
C)  the level or growth rate of a real variable, but not the level or growth rate of a nominal variable 
D)  both levels and growth rates of both real and nominal variables

Question 8

If there is an adverse supply shock, what will most likely happen?

Accepted Answer

A)  The aggregate supply curve and the short-run Phillips curve will both shift right. 
B)  The aggregate supply curve and the short-run Phillips curve will both shift left. 
C)  The aggregate supply curve will shift right, and the short-run Phillips curve will shift left. 
D)  The aggregate supply curve will shift left, and the short-run Phillips curve will shift right. 
A)  The aggregate supply curve and the short-run Phillips curve will both shift right. 
B)  The aggregate supply curve and the short-run Phillips curve will both shift left. 
C)  The aggregate supply curve will shift right, and the short-run Phillips curve will shift left. 
D)  The aggregate supply curve will shift left, and the short-run Phillips curve will shift right.

Question 9

What did Friedman and Phelps argue about the effectiveness of monetary policies?

Accepted Answer

A)  As long as people's inflation expectations were fixed, an increase in the money supply growth rate could not change output in the short or long run. 
B)  If people's inflation expectations were fixed, in the short run, a decrease in the money supply growth rate could raise output and unemployment. 
C)  When the money supply growth rate changed, people would eventually revise their inflation expectations so that any change in unemployment created by an increase in the money supply growth rate would be temporary. 
D)  When the money supply growth rate changes, people slowly adjust their inflation expectations; therefore, the unemployment rate changes only in the long run but not in the short run. 
A)  As long as people's inflation expectations were fixed, an increase in the money supply growth rate could not change output in the short or long run. 
B)  If people's inflation expectations were fixed, in the short run, a decrease in the money supply growth rate could raise output and unemployment. 
C)  When the money supply growth rate changed, people would eventually revise their inflation expectations so that any change in unemployment created by an increase in the money supply growth rate would be temporary. 
D)  When the money supply growth rate changes, people slowly adjust their inflation expectations; therefore, the unemployment rate changes only in the long run but not in the short run.

Question 10

What did proponents of rational expectations argue about the sacrifice ratio and why?

Accepted Answer

A)  The sacrifice ratio would be high because it was rational for people not to immediately change their expectations. 
B)  The sacrifice ratio would be high because people might adjust their expectations quickly if they found anti-inflation policy credible. 
C)  The sacrifice ratio could be low because it was rational for people not to immediately change their expectations. 
D)  The sacrifice ratio could be low because people might adjust their expectations quickly if they found anti-inflation policy credible. 
A)  The sacrifice ratio would be high because it was rational for people not to immediately change their expectations. 
B)  The sacrifice ratio would be high because people might adjust their expectations quickly if they found anti-inflation policy credible. 
C)  The sacrifice ratio could be low because it was rational for people not to immediately change their expectations. 
D)  The sacrifice ratio could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.

Question 11

Who releases the closely watched indicators such as the inflation rate and unemployment each month?

Accepted Answer

A)  Auditor General 
B)  Ministry of Finance 
C)  The Royal Canadian Mint 
D)  Statistics Canada 
A)  Auditor General 
B)  Ministry of Finance 
C)  The Royal Canadian Mint 
D)  Statistics Canada

Question 12

Figure 17-4  
-Refer to Figure 17-4. Along SRPC1, what is the expected rate of inflation?

Accepted Answer

A)  0 percent 
B)  2 percent 
C)  5 percent 
D)  8 percent 
A)  0 percent 
B)  2 percent 
C)  5 percent 
D)  8 percent

Question 13

When aggregate demand decreases, what happens to prices and employment?

Accepted Answer

A)  Prices will fall and unemployment will rise. 
B)  Prices and unemployment fall. 
C)  Prices and unemployment rise. 
D)  Prices will rise and unemployment will fall. 
A)  Prices will fall and unemployment will rise. 
B)  Prices and unemployment fall. 
C)  Prices and unemployment rise. 
D)  Prices will rise and unemployment will fall.

Question 14

Figure 17-3  
-Refer to Figure 17-3. Starting from c and 3, where does a decrease in aggregate demand move the economy to, in the short run and the long run?

Accepted Answer

A)  a and 1 in the short run, b and 2 in the long run 
B)  b and 2 in the short run, a and 1 in the long run 
C)  d and 4 in the short run, e and 5 in the long run 
D)  b and 4 in the short run, e and 1 in the long run 
A)  a and 1 in the short run, b and 2 in the long run 
B)  b and 2 in the short run, a and 1 in the long run 
C)  d and 4 in the short run, e and 5 in the long run 
D)  b and 4 in the short run, e and 1 in the long run

Question 15

In the long run, the inflation rate depends primarily on interest rates

Accepted Answer

A) True 
 B)False

Question 16

Figure 17-4  
-Refer to Figure 17-4. At point b, how do actual and expected inflation rates and unemployment rates compare?

Accepted Answer

A)  The actual inflation rate is less than the expected inflation rate, and the actual rate of unemployment exceeds the natural rate of unemployment. 
B)  The actual inflation rate is greater than the expected inflation rate, and the actual rate of unemployment exceeds the natural rate of unemployment. 
C)  The actual inflation rate is less than the expected inflation rate, and the actual rate of unemployment is less than the natural rate of unemployment. 
D)  The actual inflation rate is greater than the expected inflation rate, and the actual rate of unemployment is less than the natural rate of unemployment. 
A)  The actual inflation rate is less than the expected inflation rate, and the actual rate of unemployment exceeds the natural rate of unemployment. 
B)  The actual inflation rate is greater than the expected inflation rate, and the actual rate of unemployment exceeds the natural rate of unemployment. 
C)  The actual inflation rate is less than the expected inflation rate, and the actual rate of unemployment is less than the natural rate of unemployment. 
D)  The actual inflation rate is greater than the expected inflation rate, and the actual rate of unemployment is less than the natural rate of unemployment.

Question 17

In the late 1960s and early 1970s, how did the short-run Phillips curve shift?

Accepted Answer

A)  It shifted right as inflation expectations rose. 
B)  It shifted right as inflation expectations fell. 
C)  It shifted left as inflation expectations rose. 
D)  It shifted left as inflation expectations fell. 
A)  It shifted right as inflation expectations rose. 
B)  It shifted right as inflation expectations fell. 
C)  It shifted left as inflation expectations rose. 
D)  It shifted left as inflation expectations fell.

Question 18

Which statement best defines disinflation?

Accepted Answer

A)  It is a zero rate of inflation. 
B)  It is a constant rate of inflation. 
C)  It is a reduction in the rate of inflation. 
D)  It is a negative rate of inflation. 
A)  It is a zero rate of inflation. 
B)  It is a constant rate of inflation. 
C)  It is a reduction in the rate of inflation. 
D)  It is a negative rate of inflation.

Question 19

Suppose the natural rate of unemployment is 6 percent, the expected inflation is 2 percent, and the constant "a" in the short-run Phillips curve equation is 0.8. Change the expected inflation to 3 percent and draw the new Phillips curve. How did it change?

Accepted Answer

The 3 percent expected inflation SRPC is

Question 20

Fiscal policy can be used to move the economy along the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

Where does the short-run Phillips curve intersect the long-run Phillips curve?

If the short-run Phillips curve were stable, what would be unusual?

Suppose the long-run Phillips curve shifts to the left. For any given rate of money growth and inflation, how would unemployment and output change?

If policymakers accommodate an adverse supply shock, what will happen to the unemployment rate and inflation?

Suppose the Bank of Canada reduces the rate of inflation by 4 percentage points. Suppose, as well, that the sacrifice ratio has a value of 2. Which of the following describes what happens to GDP?

In 1968, economist Milton Friedman published a paper that was critical of the Phillips curve. On what grounds did Friedman criticize the Phillips curve?

Milton Friedman argued that a central bank's control over the money supply could be used to peg which of the following?

If there is an adverse supply shock, what will most likely happen?

What did Friedman and Phelps argue about the effectiveness of monetary policies?

What did proponents of rational expectations argue about the sacrifice ratio and why?

Who releases the closely watched indicators such as the inflation rate and unemployment each month?

Figure 17-4 -Refer to Figure 17-4. Along SRPC1, what is the expected rate of inflation?

When aggregate demand decreases, what happens to prices and employment?

Figure 17-3 -Refer to Figure 17-3. Starting from c and 3, where does a decrease in aggregate demand move the economy to, in the short run and the long run?

In the long run, the inflation rate depends primarily on interest rates

Figure 17-4 -Refer to Figure 17-4. At point b, how do actual and expected inflation rates and unemployment rates compare?

In the late 1960s and early 1970s, how did the short-run Phillips curve shift?

Which statement best defines disinflation?

Suppose the natural rate of unemployment is 6 percent, the expected inflation is 2 percent, and the constant "a" in the short-run Phillips curve equation is 0.8. Change the expected inflation to 3 percent and draw the new Phillips curve. How did it change?

Fiscal policy can be used to move the economy along the short-run Phillips curve.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

Five Debates Over Macroeconomic Policy

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Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

Where does the short-run Phillips curve intersect the long-run Phillips curve?

If the short-run Phillips curve were stable, what would be unusual?

Suppose the long-run Phillips curve shifts to the left. For any given rate of money growth and inflation, how would unemployment and output change?

If policymakers accommodate an adverse supply shock, what will happen to the unemployment rate and inflation?

Suppose the Bank of Canada reduces the rate of inflation by 4 percentage points. Suppose, as well, that the sacrifice ratio has a value of 2. Which of the following describes what happens to GDP?

In 1968, economist Milton Friedman published a paper that was critical of the Phillips curve. On what grounds did Friedman criticize the Phillips curve?

Milton Friedman argued that a central bank's control over the money supply could be used to peg which of the following?

If there is an adverse supply shock, what will most likely happen?

What did Friedman and Phelps argue about the effectiveness of monetary policies?

What did proponents of rational expectations argue about the sacrifice ratio and why?

Who releases the closely watched indicators such as the inflation rate and unemployment each month?

Figure 17-4 -Refer to Figure 17-4. Along SRPC1, what is the expected rate of inflation?

When aggregate demand decreases, what happens to prices and employment?

Figure 17-3 -Refer to Figure 17-3. Starting from c and 3, where does a decrease in aggregate demand move the economy to, in the short run and the long run?

In the long run, the inflation rate depends primarily on interest rates

Figure 17-4 -Refer to Figure 17-4. At point b, how do actual and expected inflation rates and unemployment rates compare?

In the late 1960s and early 1970s, how did the short-run Phillips curve shift?

Which statement best defines disinflation?

Suppose the natural rate of unemployment is 6 percent, the expected inflation is 2 percent, and the constant "a" in the short-run Phillips curve equation is 0.8. Change the expected inflation to 3 percent and draw the new Phillips curve. How did it change?

Fiscal policy can be used to move the economy along the short-run Phillips curve.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

Five Debates Over Macroeconomic Policy

Filters