Question 1

In 1979, Fed Chair Paul Volcker

Accepted Answer

A) instituted an accommodative monetary policy to address adverse supply shocks. 
B) believed that inflation had not yet reached unacceptable levels. 
C) believed decreasing inflation would temporarily decrease output growth. 
D) All of the above are correct. 
A) instituted an accommodative monetary policy to address adverse supply shocks. 
B) believed that inflation had not yet reached unacceptable levels. 
C) believed decreasing inflation would temporarily decrease output growth. 
D) All of the above are correct. C

Question 2

Which of the following is correct if there is a favorable supply shock?

Accepted Answer

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

Question 3

Over the long run the Volcker disinflation

Accepted Answer

A) shifted the short-run and long-run Phillips curves left. 
B) shifted the short-run, but not the long-run Phillips curve left. 
C) shifted the long-run, but not the short-run Phillips curve left. 
D) None of the above is correct. 
A) shifted the short-run and long-run Phillips curves left. 
B) shifted the short-run, but not the long-run Phillips curve left. 
C) shifted the long-run, but not the short-run Phillips curve left. 
D) None of the above is correct. B

Question 4

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid:
Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - x).
In this equation,

Accepted Answer

A) a is a parameter that measures how much actual inflation responds to expected inflation. 
B) a = 0 at the point of intersection of the short-run and long-run Phillips curves. 
C) x is the expected rate of inflation. 
D) All of the above are correct. 
A) a is a parameter that measures how much actual inflation responds to expected inflation. 
B) a = 0 at the point of intersection of the short-run and long-run Phillips curves. 
C) x is the expected rate of inflation. 
D) All of the above are correct.

Question 5

Refer to Monetary Policy in Flosserland. Suppose that the Flosserland 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 was very skeptical and in fact thought the Flosserland Department of Finance was going to raise inflation to 30% so it could increase its expenditures. Then

Accepted Answer

A) unemployment falls, but it would have fallen less if people had been expecting 25% inflation. 
B) unemployment falls, but it would have fallen less if people had been expecting 35% inflation. 
C) unemployment rises, but it would have risen less if people had been expecting 25% inflation. 
D) unemployment rises, but it would have risen less if people had been expecting 35% inflation. 
A) unemployment falls, but it would have fallen less if people had been expecting 25% inflation. 
B) unemployment falls, but it would have fallen less if people had been expecting 35% inflation. 
C) unemployment rises, but it would have risen less if people had been expecting 25% inflation. 
D) unemployment rises, but it would have risen less if people had been expecting 35% inflation.

Question 6

Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by

Accepted Answer

A) moving to the left along the short-run Phillips curve. 
B) moving to the right along the short-run Phillips curve. 
C) shifting the short-run Phillips curve to the right. 
D) shifting the short-run Phillips curve to the left. 
A) moving to the left along the short-run Phillips curve. 
B) moving to the right along the short-run Phillips curve. 
C) shifting the short-run Phillips curve to the right. 
D) shifting the short-run Phillips curve to the left.

Question 7

Disinflation is like

Accepted Answer

A) slowing a car down, whereas deflation is like putting the car into reverse gear. 
B) maintaining a car's speed, whereas deflation is like slowing the car down. 
C) putting a car into reverse gear, whereas deflation is like slowing the car down. 
D) maintaining a car's speed, whereas deflation is like putting the car into reverse gear. 
A) slowing a car down, whereas deflation is like putting the car into reverse gear. 
B) maintaining a car's speed, whereas deflation is like slowing the car down. 
C) putting a car into reverse gear, whereas deflation is like slowing the car down. 
D) maintaining a car's speed, whereas deflation is like putting the car into reverse gear.

Question 8

Refer to the Economy in 2008. In the short-run the housing and financial crises

Accepted Answer

A) raised both the price level and output. 
B) raised the price level and reduced output. 
C) reduced the price level and raised output. 
D) reduced both the price level and output. 
A) raised both the price level and output. 
B) raised the price level and reduced output. 
C) reduced the price level and raised output. 
D) reduced both the price level and output.

Question 9

According to Friedman and Phelps, the unemployment rate

Accepted Answer

A) is never below its natural rate. 
B) is below its natural rate when actual inflation is greater than expected inflation. 
C) is below its natural rate when actual inflation is less than expected inflation. 
D) is below its natural rate when actual inflation equals expected inflation. 
A) is never below its natural rate. 
B) is below its natural rate when actual inflation is greater than expected inflation. 
C) is below its natural rate when actual inflation is less than expected inflation. 
D) is below its natural rate when actual inflation equals expected inflation.

Question 10

In the long run,

Accepted Answer

A) the natural rate of unemployment depends primarily on the level of aggregate demand. 
B) inflation depends primarily upon the money supply growth rate. 
C) there is a tradeoff between the inflation rate and the natural rate of unemployment. 
D) All of the above are correct. 
A) the natural rate of unemployment depends primarily on the level of aggregate demand. 
B) inflation depends primarily upon the money supply growth rate. 
C) there is a tradeoff between the inflation rate and the natural rate of unemployment. 
D) All of the above are correct.

Question 11

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

Accepted Answer

A) increasing the money supply. 
B) increasing government expenditures. 
C) raising taxes. 
D) None of the above is correct. 
A) increasing the money supply. 
B) increasing government expenditures. 
C) raising taxes. 
D) None of the above is correct.

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. 
A) 1/5. 
B) 2. 
C) 5/2. 
D) 5.

Question 13

Which of the following would we not expect if government policy moves the economy up along a given short-run Phillips curve?

Accepted Answer

A) Mark gets an increase in his nominal wage. 
B) Bob gets more job offers. 
C) Susan reduces prices at her pizza restaurant. 
D) Tom reads that the central bank recently raised the money supply 
A) Mark gets an increase in his nominal wage. 
B) Bob gets more job offers. 
C) Susan reduces prices at her pizza restaurant. 
D) Tom reads that the central bank recently raised the money supply

Question 14

If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would

Accepted Answer

A) cost 1 percent of annual output. 
B) cost 4 percent of annual output. 
C) imply that unemployment would rise by 1%. 
D) imply that unemployment would rise by 4%. 
A) cost 1 percent of annual output. 
B) cost 4 percent of annual output. 
C) imply that unemployment would rise by 1%. 
D) imply that unemployment would rise by 4%.

Question 15

The theory by which people optimally use all available information when forecasting the future is known as

Accepted Answer

A) rational expectations. 
B) perfect expectations. 
C) credible expectations. 
D) predictive expectations. 
A) rational expectations. 
B) perfect expectations. 
C) credible expectations. 
D) predictive expectations.

Question 16

If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the

Accepted Answer

A) right. It remains to the right regardless of monetary policy. 
B) right. It remains to the right if the central bank pursues expansionary monetary policy. 
C) left. It remains to the left regardless of monetary policy. 
D) left. It remains to the left if the central bank pursues expansionary monetary policy. 
A) right. It remains to the right regardless of monetary policy. 
B) right. It remains to the right if the central bank pursues expansionary monetary policy. 
C) left. It remains to the left regardless of monetary policy. 
D) left. It remains to the left if the central bank pursues expansionary monetary policy.

Question 17

If the short-run Phillips curve were stable, which of the following would be unusual?

Accepted Answer

A) an increase in government spending and a fall in unemployment 
B) an increase in inflation and a decrease in output 
C) a decrease in the inflation rate and a rise in the unemployment rate 
D) a decrease in the money supply and a rise in the unemployment rate. 
A) an increase in government spending and a fall in unemployment 
B) an increase in inflation and a decrease in output 
C) a decrease in the inflation rate and a rise in the unemployment rate 
D) a decrease in the money supply and a rise in the unemployment rate.

Question 18

As aggregate demand shifts left along the short-run aggregate supply curve,

Accepted Answer

A) inflation and unemployment are higher. 
B) inflation is higher and unemployment is lower. 
C) unemployment is higher and inflation is lower. 
D) unemployment and inflation are lower. 
A) inflation and unemployment are higher. 
B) inflation is higher and unemployment is lower. 
C) unemployment is higher and inflation is lower. 
D) unemployment and inflation are lower.

Question 19

List three things that shift the short-run Phillips curve to the right.

Accepted Answer

1. An increase in expected inf

Question 20

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate.    
-Refer to Figure 35-1. Suppose points F and G on the right-hand graph represent two possible outcomes for an imaginary economy in the year 2012, and those two points correspond to points B and C, respectively, on the left-hand graph. Then it is apparent that the price index equaled

Accepted Answer

A) 130 in 2011. 
B) 115 in 2011. 
C) 110 in 2011. 
D) 100 in 2011. 
A) 130 in 2011. 
B) 115 in 2011. 
C) 110 in 2011. 
D) 100 in 2011.

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

In 1979, Fed Chair Paul Volcker

Which of the following is correct if there is a favorable supply shock?

Over the long run the Volcker disinflation

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - x). In this equation,

Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by

Disinflation is like

Refer to the Economy in 2008. In the short-run the housing and financial crises

According to Friedman and Phelps, the unemployment rate

In the long run,

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

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

Which of the following would we not expect if government policy moves the economy up along a given short-run Phillips curve?

If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would

The theory by which people optimally use all available information when forecasting the future is known as

If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the

If the short-run Phillips curve were stable, which of the following would be unusual?

As aggregate demand shifts left along the short-run aggregate supply curve,

List three things that shift the short-run Phillips curve to the right.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

Six Debates Over Macroeconomic Policy

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