Question 1

If policymakers reduce aggregate demand, what happens to inflation and unemployment?

Accepted Answer

A)  Inflation and unemployment rise. 
B)  Inflation rises, but unemployment falls. 
C)  Inflation falls, but unemployment rises. 
D)  Inflation and unemployment fall. 
A)  Inflation and unemployment rise. 
B)  Inflation rises, but unemployment falls. 
C)  Inflation falls, but unemployment rises. 
D)  Inflation and unemployment fall.

Question 2

What will a favourable supply shock cause the price level and output to do?

Accepted Answer

A)  It will cause the price level and output to rise. 
B)  It will cause the price level and output to fall. 
C)  It will cause the price level to rise and output to fall. 
D)  It will cause the price level to fall and output to rise. 
A)  It will cause the price level and output to rise. 
B)  It will cause the price level and output to fall. 
C)  It will cause the price level to rise and output to fall. 
D)  It will cause the price level to fall and output to rise.

Question 3

How does an increase in the expected rate of inflation shift the Phillips curves?

Accepted Answer

A)  It shifts only the short-run Phillips curve to the right. 
B)  It shifts only the short-run Phillips curve to the left. 
C)  It shifts the long-run Phillips curve right and the short-run Phillips curve left. 
D)  It shifts both the short-run and long-run Phillips curves to the left. 
A)  It shifts only the short-run Phillips curve to the right. 
B)  It shifts only the short-run Phillips curve to the left. 
C)  It shifts the long-run Phillips curve right and the short-run Phillips curve left. 
D)  It shifts both the short-run and long-run Phillips curves to the left.

Question 4

If policymakers expand aggregate demand, what happens to inflation and unemployment in the long run?

Accepted Answer

A)  Inflation will be higher and unemployment will be lower. 
B)  Inflation will be higher and unemployment will be unchanged. 
C)  Inflation and unemployment will be unchanged. 
D)  Both inflation and unemployment will be higher. 
A)  Inflation will be higher and unemployment will be lower. 
B)  Inflation will be higher and unemployment will be unchanged. 
C)  Inflation and unemployment will be unchanged. 
D)  Both inflation and unemployment will be higher.

Question 5

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 6

Proponents of rational expectations theory have argued that, in the most extreme case, if policymakers are credibly committed to reducing inflation, and if rational people understand that commitment and quickly lower their inflation expectation, the sacrifice ratio could be as small as what?

Accepted Answer

A)  0 
B)  1 
C)  3 
D)  5 
A)  0 
B)  1 
C)  3 
D)  5

Question 7

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 8

How does the short-run Phillips curve reflect an increase in the price of oil such as occurred in the early 1970s?

Accepted Answer

A)  as a leftward shift in the short-run Phillips curve 
B)  as a rightward shift in the short-run Phillips curve 
C)  as a downward movement along the short-run Phillips curve 
D)  as an upward movement along the short-run Phillips curve 
A)  as a leftward shift in the short-run Phillips curve 
B)  as a rightward shift in the short-run Phillips curve 
C)  as a downward movement along the short-run Phillips curve 
D)  as an upward movement along the short-run Phillips curve

Question 9

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists?

Accepted Answer

If inflation remains low, even

Question 10

What do the data for the period of 1968 through 1973 demonstrate?

Accepted Answer

A)  that there is a short-run tradeoff between inflation and unemployment 
B)  that a supply shock can disrupt the short-run tradeoff between inflation and unemployment 
C)  that there is a long-run tradeoff between inflation and unemployment 
D)  that a demand shock can disrupt the short-run tradeoff between inflation and unemployment 
A)  that there is a short-run tradeoff between inflation and unemployment 
B)  that a supply shock can disrupt the short-run tradeoff between inflation and unemployment 
C)  that there is a long-run tradeoff between inflation and unemployment 
D)  that a demand shock can disrupt the short-run tradeoff between inflation and unemployment

Question 11

A vertical long-run Phillips curve is consistent with which of the following?

Accepted Answer

A)  the principle of monetary neutrality 
B)  unemployment depends on money growth 
C)  a natural rate of unemployment that depends on the inflation rate 
D)  a downward-sloping aggregate-demand curve 
A)  the principle of monetary neutrality 
B)  unemployment depends on money growth 
C)  a natural rate of unemployment that depends on the inflation rate 
D)  a downward-sloping aggregate-demand curve

Question 12

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

Accepted Answer

A) True 
 B)False

Question 13

How does an increase in the aggregate demand translate in the Phillips curve model?

Accepted Answer

A)  as an upward movement along the short-run Phillips curve 
B)  as a shift to the right of the short-run Phillips curve 
C)  as a downward movement along the short-run Phillips curve 
D)  as a shift to the left of the short-run Phillips curve 
A)  as an upward movement along the short-run Phillips curve 
B)  as a shift to the right of the short-run Phillips curve 
C)  as a downward movement along the short-run Phillips curve 
D)  as a shift to the left of the short-run Phillips curve

Question 14

According to Friedman and Phelps, when is the unemployment rate above the natural rate?

Accepted Answer

A)  when actual inflation is greater than expected inflation 
B)  when actual inflation is less than expected inflation 
C)  when actual inflation equals expected inflation 
D)  when actual inflation is high 
A)  when actual inflation is greater than expected inflation 
B)  when actual inflation is less than expected inflation 
C)  when actual inflation equals expected inflation 
D)  when actual inflation is high

Question 15

In the long run, how does an increase in the rate of growth of the money supply shift the Phillips curves?

Accepted Answer

A)  It shifts both the short-run and long-run Phillips curves to the right. 
B)  It shifts the long-run Phillips curve right and the short-run Phillips curve left. 
C)  It shifts only the short-run Phillips curve to the right. 
D)  It shifts only the short-run Phillips curve to the left. 
A)  It shifts both the short-run and long-run Phillips curves to the right. 
B)  It shifts the long-run Phillips curve right and the short-run Phillips curve left. 
C)  It shifts only the short-run Phillips curve to the right. 
D)  It shifts only the short-run Phillips curve to the left.

Question 16

Suppose the long-run Phillips curve shifts to the right. 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 17

What is one determinant of the natural rate of unemployment?

Accepted Answer

A)  the rate of growth of the money supply 
B)  the generosity of Employment Insurance 
C)  the expected inflation rate 
D)  the exchange rate 
A)  the rate of growth of the money supply 
B)  the generosity of Employment Insurance 
C)  the expected inflation rate 
D)  the exchange rate

Question 18

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops. What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?

Accepted Answer

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

Question 19

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 20

What did Friedman and Phelps argue about inflation and unemployment?

Accepted Answer

A)  that in the long run, monetary growth did not influence those factors that determine the 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 the long-run curve was very flat 
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 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 the long-run curve was very flat 
D)  that there was neither a short-run nor long-run tradeoff between inflation and unemployment

If policymakers reduce aggregate demand, what happens to inflation and unemployment?

What will a favourable supply shock cause the price level and output to do?

How does an increase in the expected rate of inflation shift the Phillips curves?

If policymakers expand aggregate demand, what happens to inflation and unemployment in the long run?

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

Proponents of rational expectations theory have argued that, in the most extreme case, if policymakers are credibly committed to reducing inflation, and if rational people understand that commitment and quickly lower their inflation expectation, the sacrifice ratio could be as small as what?

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

How does the short-run Phillips curve reflect an increase in the price of oil such as occurred in the early 1970s?

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists?

What do the data for the period of 1968 through 1973 demonstrate?

A vertical long-run Phillips curve is consistent with which of the following?

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

How does an increase in the aggregate demand translate in the Phillips curve model?

According to Friedman and Phelps, when is the unemployment rate above the natural rate?

In the long run, how does an increase in the rate of growth of the money supply shift the Phillips curves?

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

What is one determinant of the natural rate of unemployment?

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops. What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?

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

What did Friedman and Phelps argue about inflation and unemployment?

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 and Fiscal Policy on Aggregate Demand

Five Debates Over Macroeconomic Policy

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Exam 16: The Short-Run Tradeoff Between Inflation and Unemployment

If policymakers reduce aggregate demand, what happens to inflation and unemployment?

What will a favourable supply shock cause the price level and output to do?

How does an increase in the expected rate of inflation shift the Phillips curves?

If policymakers expand aggregate demand, what happens to inflation and unemployment in the long run?

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

Proponents of rational expectations theory have argued that, in the most extreme case, if policymakers are credibly committed to reducing inflation, and if rational people understand that commitment and quickly lower their inflation expectation, the sacrifice ratio could be as small as what?

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

How does the short-run Phillips curve reflect an increase in the price of oil such as occurred in the early 1970s?

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists?

What do the data for the period of 1968 through 1973 demonstrate?

A vertical long-run Phillips curve is consistent with which of the following?

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

How does an increase in the aggregate demand translate in the Phillips curve model?

According to Friedman and Phelps, when is the unemployment rate above the natural rate?

In the long run, how does an increase in the rate of growth of the money supply shift the Phillips curves?

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

What is one determinant of the natural rate of unemployment?

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops. What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?

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

What did Friedman and Phelps argue about inflation and unemployment?

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 and Fiscal Policy on Aggregate Demand

Five Debates Over Macroeconomic Policy

Filters