Question 1

If asset prices fall and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

Accepted Answer

Inflation falls and unemployment rises.

Question 2

The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate above its natural rate.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) Teresa reads in the newspaper that the central bank recently raised the money supply. 
B) Jackie gets fewer job offers. 
C) Miguel makes larger increases in the prices at his health food store. 
D) Julie's nominal wage increase is larger. 
A) Teresa reads in the newspaper that the central bank recently raised the money supply. 
B) Jackie gets fewer job offers. 
C) Miguel makes larger increases in the prices at his health food store. 
D) Julie's nominal wage increase is larger.

Question 4

Figure 35-4. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, the price level is measured on the vertical axis; on the right-hand diagram, the inflation rate is measured on the vertical axis.    
-Refer to Figure 35-4. What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A) the wage rate 
B) the inflation rate 
C) output 
D) the interest rate 
A) the wage rate 
B) the inflation rate 
C) output 
D) the interest rate

Question 5

Disinflation is defined as a

Accepted Answer

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

Question 6

For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips curve which of the following could explain this? Country A has

Accepted Answer

A) maintained a higher money supply growth rate. 
B) maintained a lower money supply growth rate. 
C) a higher minimum wage than country B. 
D) a lower minimum wage than country B. 
A) maintained a higher money supply growth rate. 
B) maintained a lower money supply growth rate. 
C) a higher minimum wage than country B. 
D) a lower minimum wage than country B.

Question 7

In the long run, if the Fed increases the growth rate of the money supply,

Accepted Answer

A) inflation will be higher. 
B) unemployment will be lower. 
C) real GDP will be higher. 
D) All of the above are correct. 
A) inflation will be higher. 
B) unemployment will be lower. 
C) real GDP will be higher. 
D) All of the above are correct.

Question 8

The position of the long-run Phillips curve depends on

Accepted Answer

A) the inflation rate and the natural rate of unemployment. 
B) the inflation rate but not the natural rate of unemployment. 
C) the natural rate of unemployment, but not the inflation rate. 
D) neither the natural rate of unemployment nor the inflation rate. 
A) the inflation rate and the natural rate of unemployment. 
B) the inflation rate but not the natural rate of unemployment. 
C) the natural rate of unemployment, but not the inflation rate. 
D) neither the natural rate of unemployment nor the inflation rate.

Question 9

If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same, then policymakers

Accepted Answer

A) can not exploit a tradeoff between inflation and unemployment in either the short or long run. 
B) can exploit a tradeoff between inflation and unemployment in the short run but not in the long run. 
C) can exploit a tradeoff between inflation and unemployment in both the short run and the long run. 
D) can exploit a tradeoff between inflation and unemployment in the long run, but not the short run. 
A) can not exploit a tradeoff between inflation and unemployment in either the short or long run. 
B) can exploit a tradeoff between inflation and unemployment in the short run but not in the long run. 
C) can exploit a tradeoff between inflation and unemployment in both the short run and the long run. 
D) can exploit a tradeoff between inflation and unemployment in the long run, but not the short run.

Question 10

If a central bank reduced inflation by 4 percentage points and this made output fall by 5 percent for one year and 3 percent for another year and the unemployment rate rise 2.5 percent above its natural rate for one year and 1.5 percent above its natural rate for another year, the sacrifice ratio was

Accepted Answer

A) 1. 
B) 2. 
C) 3. 
D) None of the above is correct. 
A) 1. 
B) 2. 
C) 3. 
D) None of the above is correct.

Question 11

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. 
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.

Question 12

Which of the following would cause the price level to rise and output to fall in the short run?

Accepted Answer

A) an increase in the money supply 
B) a decrease in the money supply 
C) an adverse supply shock 
D) a favorable supply shock 
A) an increase in the money supply 
B) a decrease in the money supply 
C) an adverse supply shock 
D) a favorable supply shock

Question 13

If a central bank announced that it was going to decrease inflation by 5%, people revised their inflation expectations downward by 4%, and the central bank only lowered inflation by 1%, the short run Phillips curve would shift

Accepted Answer

A) right and unemployment would rise. 
B) right and unemployment would fall. 
C) left and unemployment would rise. 
D) left and unemployment would fall. 
A) right and unemployment would rise. 
B) right and unemployment would fall. 
C) left and unemployment would rise. 
D) left and unemployment would fall.

Question 14

According to the Phillips curve, which fiscal policies can be used to reduce unemployment in the short run?

Accepted Answer

An increase in gover

Question 15

The misery index is calculated as the

Accepted Answer

A) inflation rate plus the unemployment rate. 
B) unemployment rate minus the inflation rate. 
C) actual inflation rate minus the expected inflation rate. 
D) natural unemployment rate times the inflation rate 
A) inflation rate plus the unemployment rate. 
B) unemployment rate minus the inflation rate. 
C) actual inflation rate minus the expected inflation rate. 
D) natural unemployment rate times the inflation rate

Question 16

Figure 35-8
Use this graph to answer the questions below.  
-Refer to figure 35-8. If the economy starts at 5% unemployment and 5% inflation then if the Federal Reserve pursues a contractionary monetary policy, in the short run the economy moves to

Accepted Answer

A) 3% unemployment and 5% inflation. In the long run the economy moves to 5% unemployment and 5% inflation. 
B) 3% unemployment and 5% inflation. In the long run the economy moves to 5% unemployment and 3% inflation. 
C) 7% unemployment and 3% inflation. In the long run the economy moves to 5% unemployment and 5% inflation. 
D) 7% unemployment and 3% inflation. In the long run the economy moves to 5% unemployment and 3% inflation. 
A) 3% unemployment and 5% inflation. In the long run the economy moves to 5% unemployment and 5% inflation. 
B) 3% unemployment and 5% inflation. In the long run the economy moves to 5% unemployment and 3% inflation. 
C) 7% unemployment and 3% inflation. In the long run the economy moves to 5% unemployment and 5% inflation. 
D) 7% unemployment and 3% inflation. In the long run the economy moves to 5% unemployment and 3% inflation.

Question 17

Friedman and Phelps argued

Accepted Answer

A) that in the long run, monetary growth did not influence those factors that determine the economy's unemployment rate. 
B) that the Phillips curve could be exploited in the long run by using monetary, but not fiscal policy. 
C) that the short-run Phillips curve was very steep, but not vertical. 
D) that there was neither a short-run nor long-run tradeoff between inflation and unemployment. 
A) that in the long run, monetary growth did not influence those factors that determine the economy's unemployment rate. 
B) that the Phillips curve could be exploited in the long run by using monetary, but not fiscal policy. 
C) that the short-run Phillips curve was very steep, but not vertical. 
D) that there was neither a short-run nor long-run tradeoff between inflation and unemployment.

Question 18

There is a

Accepted Answer

A) short-run tradeoff between inflation and unemployment. 
B) short-run tradeoff between the actual unemployment rate and the natural rate of unemployment. 
C) long-run tradeoff between inflation and unemployment. 
D) long-run tradeoff between the actual unemployment rate and the natural rate of unemployment. 
A) short-run tradeoff between inflation and unemployment. 
B) short-run tradeoff between the actual unemployment rate and the natural rate of unemployment. 
C) long-run tradeoff between inflation and unemployment. 
D) long-run tradeoff between the actual unemployment rate and the natural rate of unemployment.

Question 19

Refer to Monetary Policy in Mokania. The Bank of Mokania reduced inflation to its announced goal of 5%. However, people were expecting inflation to fall to 7% and there was a favorable supply shock. In the short run which of the following made unemployment lower than otherwise?

Accepted Answer

A) both people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock 
B) neither people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock 
C) only the favorable supply shock 
D) only people expecting inflation to fall to 7% instead of 5% 
A) both people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock 
B) neither people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock 
C) only the favorable supply shock 
D) only people expecting inflation to fall to 7% instead of 5%

Question 20

In the equation,
​
Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation),
​
The variable a is a parameter that measures how much

Accepted Answer

A) actual inflation responds to expected inflation. 
B) expected inflation responds to actual inflation. 
C) the natural rate of unemployment responds to unexpected inflation. 
D) actual unemployment responds to unexpected inflation. 
A) actual inflation responds to expected inflation. 
B) expected inflation responds to actual inflation. 
C) the natural rate of unemployment responds to unexpected inflation. 
D) actual unemployment responds to unexpected inflation.

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

If asset prices fall and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate above its natural rate.

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

Disinflation is defined as a

For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips curve which of the following could explain this? Country A has

In the long run, if the Fed increases the growth rate of the money supply,

The position of the long-run Phillips curve depends on

If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same, then policymakers

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

Which of the following would cause the price level to rise and output to fall in the short run?

If a central bank announced that it was going to decrease inflation by 5%, people revised their inflation expectations downward by 4%, and the central bank only lowered inflation by 1%, the short run Phillips curve would shift

According to the Phillips curve, which fiscal policies can be used to reduce unemployment in the short run?

The misery index is calculated as the

Figure 35-8 Use this graph to answer the questions below. -Refer to figure 35-8. If the economy starts at 5% unemployment and 5% inflation then if the Federal Reserve pursues a contractionary monetary policy, in the short run the economy moves to

Friedman and Phelps argued

There is a

Refer to Monetary Policy in Mokania. The Bank of Mokania reduced inflation to its announced goal of 5%. However, people were expecting inflation to fall to 7% and there was a favorable supply shock. In the short run which of the following made unemployment lower than otherwise?

In the equation, ​ Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation), ​ The variable a is a parameter that measures how much

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

Filters

In the equation, Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation), The variable a is a parameter that measures how much