Question 1

If people correctly anticipate that inflation will fall by 1%, then

Accepted Answer

A) the short-run Phillips curve shifts right and unemployment is unchanged. 
B) the short-run Phillips curve shifts right and unemployment rises. 
C) the short-run Phillips curve shifts left and unemployment is unchanged. 
D) the short-run Phillips curve would shift left and unemployment falls. 
A) the short-run Phillips curve shifts right and unemployment is unchanged. 
B) the short-run Phillips curve shifts right and unemployment rises. 
C) the short-run Phillips curve shifts left and unemployment is unchanged. 
D) the short-run Phillips curve would shift left and unemployment falls.

Question 2

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

Accepted Answer

A) raise both inflation and the unemployment rate. 
B) raise the inflation rate and reduce the unemployment rate. 
C) reduce the inflation rate and raise the unemployment rate. 
D) reduce both the inflation rate and the unemployment rate. 
A) raise both inflation and the unemployment rate. 
B) raise the inflation rate and reduce the unemployment rate. 
C) reduce the inflation rate and raise the unemployment rate. 
D) reduce both the inflation rate and the unemployment rate.

Question 3

Figure 35-3. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate.    
-Refer to Figure 35-3. What is measured along the vertical axis of the right-hand graph?

Accepted Answer

A) the interest rate 
B) the inflation rate 
C) the government's budget deficit as a percent of GDP 
D) the growth rate of the nominal money supply 
A) the interest rate 
B) the inflation rate 
C) the government's budget deficit as a percent of GDP 
D) the growth rate of the nominal money supply

Question 4

An event that directly affects firms' costs of production and thus the prices they charge is called

Accepted Answer

A) a Phillips contraction. 
B) an inflationary spiral. 
C) a demand shock. 
D) a supply shock. 
A) a Phillips contraction. 
B) an inflationary spiral. 
C) a demand shock. 
D) a supply shock.

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% but that it actually leaves inflation at 25%. Suppose that the public had expected that the Department of Finance would reduce inflation, but only to 20%. Then

Accepted Answer

A) unemployment falls, but it would have fallen more if people had been expecting 12.5% inflation. 
B) unemployment falls, but it would have fallen more if people had been expecting 22% inflation. 
C) unemployment rises, but it would have risen more if people had been expecting 12.5% inflation. 
D) unemployment rises, but it would have risen more if people had been expecting 22% inflation. 
A) unemployment falls, but it would have fallen more if people had been expecting 12.5% inflation. 
B) unemployment falls, but it would have fallen more if people had been expecting 22% inflation. 
C) unemployment rises, but it would have risen more if people had been expecting 12.5% inflation. 
D) unemployment rises, but it would have risen more if people had been expecting 22% inflation.

Question 6

If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?

Accepted Answer

A) Inflation expectations rise which shifts the short-run Phillips curve to the right. 
B) Inflation expectations rise which shifts the short-run Phillips curve to the left. 
C) Inflation expectations fall which shifts the short-run Phillips curve to the right. 
D) Inflation expectations fall which shifts the short-run Phillips curve to the left. 
A) Inflation expectations rise which shifts the short-run Phillips curve to the right. 
B) Inflation expectations rise which shifts the short-run Phillips curve to the left. 
C) Inflation expectations fall which shifts the short-run Phillips curve to the right. 
D) Inflation expectations fall which shifts the short-run Phillips curve to the left.

Question 7

A.W. Phillips found a

Accepted Answer

A) positive relation between unemployment and inflation in the United Kingdom. 
B) positive relation between unemployment and inflation in the United States. 
C) negative relation between unemployment and inflation in the United States. 
D) negative relation between unemployment and inflation in the United Kingdom. 
A) positive relation between unemployment and inflation in the United Kingdom. 
B) positive relation between unemployment and inflation in the United States. 
C) negative relation between unemployment and inflation in the United States. 
D) negative relation between unemployment and inflation in the United Kingdom.

Question 8

In the late 1960s, economist Edmund Phelps published a paper that

Accepted Answer

A) argued that there was no long-run tradeoff between inflation and unemployment. 
B) disproved Friedman's claim that monetary policy was effective in controlling inflation. 
C) showed the optimal point on the Phillips curve was at an unemployment rate of 5 percent and an inflation rate of 2 percent. 
D) argued that the Phillips curve was stable and that it would not shift. 
A) argued that there was no long-run tradeoff between inflation and unemployment. 
B) disproved Friedman's claim that monetary policy was effective in controlling inflation. 
C) showed the optimal point on the Phillips curve was at an unemployment rate of 5 percent and an inflation rate of 2 percent. 
D) argued that the Phillips curve was stable and that it would not shift.

Question 9

Refer to Monetary Policy in Mokania. The Bank of Mokania reduced inflation to its announced goal of 5%. However the unemployment rate was on average higher for many years after. A newspaper editorial argues that the unemployment rate had moved to this higher natural rate because (1) by itself the decrease in inflation had permanently increased unemployment and (2) that at the same time the central bank was fighting inflation the government of Mokania had made a large increase in the minimum wage. Which of these arguments is consistent with the Phillip's curve model?

Accepted Answer

A) both explanations 1 and 2 
B) neither explanation 1 nor 2 
C) explanation 1 but not explanation 2 
D) explanation 2 but not explanation 1 
A) both explanations 1 and 2 
B) neither explanation 1 nor 2 
C) explanation 1 but not explanation 2 
D) explanation 2 but not explanation 1

Question 10

If policymakers accommodate an adverse supply shock, then in the short run the unemployment rate

Accepted Answer

A) and the inflation rate rise. 
B) and the inflation rate fall. 
C) rises and the inflation rate falls. 
D) falls and the inflation rate rises. 
A) and the inflation rate rise. 
B) and the inflation rate fall. 
C) rises and the inflation rate falls. 
D) falls and the inflation rate rises.

Question 11

The short-run Phillips curve intersects the long-run Phillips curve where

Accepted Answer

A) the actual rate of inflation equals the expected rate of inflation. 
B) the actual rate of unemployment equals the natural rate of unemployment. 
C) Both A and B are correct. 
D) None of the above is correct. 
A) the actual rate of inflation equals the expected rate of inflation. 
B) the actual rate of unemployment equals the natural rate of unemployment. 
C) Both A and B are correct. 
D) None of the above is correct.

Question 12

Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 4%.

Accepted Answer

The econom

Question 13

According to the Phillips curve, unemployment and inflation are negatively related in

Accepted Answer

A) the short run and in the long run. 
B) the short run, but not in the long run. 
C) the long run, but not in the short run. 
D) neither the long run nor the short run. 
A) the short run and in the long run. 
B) the short run, but not in the long run. 
C) the long run, but not in the short run. 
D) neither the long run nor the short run.

Question 14

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 15

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."    
-Refer to Figure 35-9. Subsequent to the shift of the Phillips curve from PC1 to PC2, the curve will soon shift back to PC1 if people perceive the

Accepted Answer

A) increase in the inflation rate as a temporary aberration. 
B) economic boom as a temporary aberration. 
C) increase in the inflation rate as a sign of a new era of higher inflation. 
D) economic boom as a sign of a new era of higher economic growth. 
A) increase in the inflation rate as a temporary aberration. 
B) economic boom as a temporary aberration. 
C) increase in the inflation rate as a sign of a new era of higher inflation. 
D) economic boom as a sign of a new era of higher economic growth.

Question 16

A favorable supply shock will cause the price level

Accepted Answer

A) and output to rise. 
B) and output to fall. 
C) to rise and output to fall. 
D) to fall and output to rise. 
A) and output to rise. 
B) and output to fall. 
C) to rise and output to fall. 
D) to fall and output to rise.

Question 17

Some countries have had relatively high inflation and relatively high unemployment for long periods of time. Is this consistent with the Phillips curve? Defend your answer.

Accepted Answer

They are consistent with the long-run Ph

Question 18

In the long run, an increase in the money supply growth rate

Accepted Answer

A) increases inflation and shifts the short-run Phillips curve right. 
B) increases inflation and shifts the short-run Phillips curve left. 
C) decreases inflation and shifts the short-run Philips curve right. 
D) decreases inflation and shifts the short-run Phillips curve left. 
A) increases inflation and shifts the short-run Phillips curve right. 
B) increases inflation and shifts the short-run Phillips curve left. 
C) decreases inflation and shifts the short-run Philips curve right. 
D) decreases inflation and shifts the short-run Phillips curve left.

Question 19

If more firms chose to pay efficiency wages, which of the following would shift to the right?

Accepted Answer

A) both the long-run Phillips curve and the long-run aggregate supply curve 
B) the long-run Phillips curve but not the long-run aggregate supply curve 
C) the long-run aggregate supply curve but not the long-run Phillips curve 
D) neither the long-run Phillips curve nor the long-run aggregate supply curve 
A) both the long-run Phillips curve and the long-run aggregate supply curve 
B) the long-run Phillips curve but not the long-run aggregate supply curve 
C) the long-run aggregate supply curve but not the long-run Phillips curve 
D) neither the long-run Phillips curve nor the long-run aggregate supply curve

Question 20

For a number of years Canada and many European countries have had higher average unemployment rates than the United States. The Phillips curve suggests that these countries

Accepted Answer

A) have higher average inflation rates than the United States. 
B) have long-run Phillips curves to the right of the United States'. 
C) may have less generous unemployment compensation or lower minimum wages. 
D) All of the above are consistent with the evidence on unemployment rates. 
A) have higher average inflation rates than the United States. 
B) have long-run Phillips curves to the right of the United States'. 
C) may have less generous unemployment compensation or lower minimum wages. 
D) All of the above are consistent with the evidence on unemployment rates.

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

If people correctly anticipate that inflation will fall by 1%, then

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

An event that directly affects firms' costs of production and thus the prices they charge is called

If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?

A.W. Phillips found a

In the late 1960s, economist Edmund Phelps published a paper that

If policymakers accommodate an adverse supply shock, then in the short run the unemployment rate

The short-run Phillips curve intersects the long-run Phillips curve where

Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 4%.

According to the Phillips curve, unemployment and inflation are negatively related in

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

A favorable supply shock will cause the price level

Some countries have had relatively high inflation and relatively high unemployment for long periods of time. Is this consistent with the Phillips curve? Defend your answer.

In the long run, an increase in the money supply growth rate

If more firms chose to pay efficiency wages, which of the following would shift to the right?

For a number of years Canada and many European countries have had higher average unemployment rates than the United States. The Phillips curve suggests that these countries

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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