Question 1

A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 2

An adverse supply shock will shift short-run aggregate supply

Accepted Answer

A) right, making prices rise. 
B) left, making prices rise. 
C) right, making prices fall. 
D) left, making prices fall. 
A) right, making prices rise. 
B) left, making prices rise. 
C) right, making prices fall. 
D) left, making prices fall.

Question 3

If the government reduced the minimum wage and pursued expansionary monetary policy, then in the long run

Accepted Answer

A) both the unemployment rate and the inflation rate would be higher. 
B) both the unemployment rate and the inflation rate would be lower. 
C) the unemployment rate would be higher and the inflation rate would be lower. 
D) the unemployment rate would be lower and the inflation rate would be higher. 
A) both the unemployment rate and the inflation rate would be higher. 
B) both the unemployment rate and the inflation rate would be lower. 
C) the unemployment rate would be higher and the inflation rate would be lower. 
D) the unemployment rate would be lower and the inflation rate would be higher.

Question 4

Prime Minister Emma Bigshot urges passage of a bill to reduce unemployment benefits from very generous levels in her country. She also urges her country's central bank to raise the rate at which the money supply is increasing. In the long run which, if either, of these policies will reduce the unemployment rate?

Accepted Answer

A) both reducing the generosity of unemployment benefits and raising the rate at which the money supply is increasing 
B) reducing the generosity of unemployment benefits but not raising the rate at which the money supply is increasing 
C) raising the rate at which the money supply is increasing, but not reducing the generosity of unemployment benefits 
D) neither reducing the generosity of unemployment benefits nor raising the rate at which the money supply is increasing 
A) both reducing the generosity of unemployment benefits and raising the rate at which the money supply is increasing 
B) reducing the generosity of unemployment benefits but not raising the rate at which the money supply is increasing 
C) raising the rate at which the money supply is increasing, but not reducing the generosity of unemployment benefits 
D) neither reducing the generosity of unemployment benefits nor raising the rate at which the money supply is increasing

Question 5

Figure 35-2
Use the pair of diagrams below to answer the following questions.    
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to

Accepted Answer

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

Question 6

If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run

Accepted Answer

A) both the unemployment rate and the inflation rate would be lower. 
B) the unemployment rate would be lower and the inflation rate would be higher. 
C) the unemployment rate would be higher and the inflation rate would be lower. 
D) the unemployment rate and the inflation rate would be higher. 
A) both the unemployment rate and the inflation rate would be lower. 
B) the unemployment rate would be lower and the inflation rate would be higher. 
C) the unemployment rate would be higher and the inflation rate would be lower. 
D) the unemployment rate and the inflation rate would be higher.

Question 7

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve.
Actual inflation rate
Unemployment rate
5%
4%
4%
4)5%
3%
5%
2%
5)5%
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. 
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.

Question 8

If policymakers decrease aggregate demand, then in the long run

Accepted Answer

A) prices will be lower and unemployment will be higher. 
B) prices will be lower and unemployment will be unchanged. 
C) prices and unemployment will be unchanged. 
D) None of the above is correct. 
A) prices will be lower and unemployment will be higher. 
B) prices will be lower and unemployment will be unchanged. 
C) prices and unemployment will be unchanged. 
D) None of the above is correct.

Question 9

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

Accepted Answer

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

Question 10

The Phillips curve and the short-run aggregate supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Accepted Answer

The Phillips curve shows the relation be

Question 11

If a central bank attempts to lower the inflation rate but the public doesn't believe the inflation rate will fall as far as the central bank says, then in the short run unemployment

Accepted Answer

A) rises. As inflation expectations adjust, the short-run Phillips curve shifts right. 
B) rises. As inflation expectations adjust, the short-run Phillips curve shifts left. 
C) falls. As inflation expectations adjust, the short-run Phillips curve shifts right. 
D) falls. As inflation expectations adjust, the short-run Phillips curve shifts left. 
A) rises. As inflation expectations adjust, the short-run Phillips curve shifts right. 
B) rises. As inflation expectations adjust, the short-run Phillips curve shifts left. 
C) falls. As inflation expectations adjust, the short-run Phillips curve shifts right. 
D) falls. As inflation expectations adjust, the short-run Phillips curve shifts left.

Question 12

In 1979, Fed chair Paul Volcker decided to pursue a policy

Accepted Answer

A) that would lead to disinflation. 
B) that would create falling prices. 
C) to accommodate continuing adverse supply shocks. 
D) that maintained money growth at its current level. 
A) that would lead to disinflation. 
B) that would create falling prices. 
C) to accommodate continuing adverse supply shocks. 
D) that maintained money growth at its current level.

Question 13

If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

Accepted Answer

A) 2 percent of annual output. 
B) 6 percent of annual output. 
C) 8 percent of annual output. 
D) 11 percent of annual output. 
A) 2 percent of annual output. 
B) 6 percent of annual output. 
C) 8 percent of annual output. 
D) 11 percent of annual output.

Question 14

Refer to Monetary Policy in Flosserland. Suppose the Flosserland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% and actually reduces inflation to that level. Suppose at first that the public thought inflation would only drop to 18%, but eventually become convinced that the inflation rate will stay at 12.5%.

Accepted Answer

A) unemployment rises in the short run, and remains higher than it's original value in the long run. 
B) unemployment rises in the short run, and is the same as it's original value in the long run. 
C) unemployment falls in the short run, and is lower than it's original value in the long run. 
D) unemployment falls in the short run, and is the same as it's original value in the long run. 
A) unemployment rises in the short run, and remains higher than it's original value in the long run. 
B) unemployment rises in the short run, and is the same as it's original value in the long run. 
C) unemployment falls in the short run, and is lower than it's original value in the long run. 
D) unemployment falls in the short run, and is the same as it's original value in the long run.

Question 15

An increase in expected inflation shifts

Accepted Answer

A) the long-run Phillips curve right. 
B) the short-run Phillips curve right. 
C) neither the short-run nor long-run Phillips curve right. 
D) both the short-run and long-run Phillips curve right. 
A) the long-run Phillips curve right. 
B) the short-run Phillips curve right. 
C) neither the short-run nor long-run Phillips curve right. 
D) both the short-run and long-run Phillips curve right.

Question 16

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Accepted Answer

A) he would try to fool them by raising inflation to decrease unemployment. 
B) inflation would be unchanged. 
C) inflation would fall but not by as much or as quickly as Volcker claimed. 
D) inflation would fall even further than Volcker was willing to admit. 
A) he would try to fool them by raising inflation to decrease unemployment. 
B) inflation would be unchanged. 
C) inflation would fall but not by as much or as quickly as Volcker claimed. 
D) inflation would fall even further than Volcker was willing to admit.

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

A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.

An adverse supply shock will shift short-run aggregate supply

If the government reduced the minimum wage and pursued expansionary monetary policy, then in the long run

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to

If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve. Actual inflation rate Unemployment rate 5% 4% 4% 4)5% 3% 5% 2% 5)5% Which of the following statements is correct?

If policymakers decrease aggregate demand, then in the long run

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

The Phillips curve and the short-run aggregate supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

If a central bank attempts to lower the inflation rate but the public doesn't believe the inflation rate will fall as far as the central bank says, then in the short run unemployment

In 1979, Fed chair Paul Volcker decided to pursue a policy

If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

An increase in expected inflation shifts

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

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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