Question 1

What did Friedman and Phelps argue about the effectiveness of monetary policies?

Accepted Answer

A)  As long as people's inflation expectations were fixed, an increase in the money supply growth rate could not change output in the short or long run. 
B)  If people's inflation expectations were fixed, in the short run, a decrease in the money supply growth rate could raise output and unemployment. 
C)  When the money supply growth rate changed, people would eventually revise their inflation expectations so that any change in unemployment created by an increase in the money supply growth rate would be temporary. 
D)  When the money supply growth rate changes, people slowly adjust their inflation expectations; therefore, the unemployment rate changes only in the long run but not in the short run. 
A)  As long as people's inflation expectations were fixed, an increase in the money supply growth rate could not change output in the short or long run. 
B)  If people's inflation expectations were fixed, in the short run, a decrease in the money supply growth rate could raise output and unemployment. 
C)  When the money supply growth rate changed, people would eventually revise their inflation expectations so that any change in unemployment created by an increase in the money supply growth rate would be temporary. 
D)  When the money supply growth rate changes, people slowly adjust their inflation expectations; therefore, the unemployment rate changes only in the long run but not in the short run.

Question 2

In the Friedman-Phelps analysis, when inflation is less than expected, unemployment is greater than the natural rate.

Accepted Answer

A) True 
 B)False

Question 3

Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 5 percentage points for four years, and it made the unemployment rate rise from 3 percent to 9 percent for three years. What is the sacrifice ratio?

Accepted Answer

A)  1 
B)  3 
C)  4 
D)  5 
A)  1 
B)  3 
C)  4 
D)  5

Question 4

What would we NOT expect to happen if government policy moved the economy up along a given short-run Phillips curve?

Accepted Answer

A)  Ravi reads in the newspaper that the central bank decreased the money supply. 
B)  Tony gets more job offers. 
C)  Louis makes larger increases in the prices at his health food store. 
D)  Jessica's nominal wage increases at a faster rate. 
A)  Ravi reads in the newspaper that the central bank decreased the money supply. 
B)  Tony gets more job offers. 
C)  Louis makes larger increases in the prices at his health food store. 
D)  Jessica's nominal wage increases at a faster rate.

Question 5

Figure 16-3
  
-Refer to the Figure 16-3. Starting from c and 3, in the short run, where does an unexpected decrease in money supply growth move the economy to?

Accepted Answer

A)  a and 1 
B)  b and 2 
C)  e and 5 
D)  d and 4 
A)  a and 1 
B)  b and 2 
C)  e and 5 
D)  d and 4

Question 6

Some countries have inflation in excess of 20 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 20 percent to 6 percent?

Accepted Answer

The sacrifice ratio gives the annual per

Question 7

According to Phelps and Friedman, in the short run, what effect does an increase in the money supply have on prices and unemployment?

Accepted Answer

A)  It raises prices and unemployment. 
B)  It raises prices and reduces unemployment. 
C)  It reduces prices and raises unemployment. 
D)  It reduces prices and leaves unemployment unchanged. 
A)  It raises prices and unemployment. 
B)  It raises prices and reduces unemployment. 
C)  It reduces prices and raises unemployment. 
D)  It reduces prices and leaves unemployment unchanged.

Question 8

Which statement best describes how the natural rate of unemployment changes?

Accepted Answer

A)  It cannot change; it is constant over time. 
B)  It does not change by any actions of the government. 
C)  It changes if the maximum legal number of work hours a week changes. 
D)  It changes if the rate at which the Bank of Canada increases the money supply changes. 
A)  It cannot change; it is constant over time. 
B)  It does not change by any actions of the government. 
C)  It changes if the maximum legal number of work hours a week changes. 
D)  It changes if the rate at which the Bank of Canada increases the money supply changes.

Question 9

What happened to expected inflation in Canada during the 1970s?

Accepted Answer

A)  It increased substantially. 
B)  It increased slightly. 
C)  It decreased slightly. 
D)  It decreased substantially. 
A)  It increased substantially. 
B)  It increased slightly. 
C)  It decreased slightly. 
D)  It decreased substantially.

Question 10

Which of the following is an adverse supply shock?

Accepted Answer

A)  a decrease in the money supply 
B)  a tax cut 
C)  a worldwide drought 
D)  decreased government spending 
A)  a decrease in the money supply 
B)  a tax cut 
C)  a worldwide drought 
D)  decreased government spending

Question 11

Figure 16-2
  
-Refer to the Figure 16-2. What is Curve 1?

Accepted Answer

A)  the long-run aggregate-supply curve 
B)  the short-run aggregate-supply curve 
C)  the long-run Phillips curve 
D)  the short-run Phillips curve 
A)  the long-run aggregate-supply curve 
B)  the short-run aggregate-supply curve 
C)  the long-run Phillips curve 
D)  the short-run Phillips curve

Question 12

What does the position of the long-run Phillips curve depend on?

Accepted Answer

A)  the natural rate of unemployment 
B)  the actual rate of unemployment 
C)  the actual inflation rate 
D)  the expected inflation rate 
A)  the natural rate of unemployment 
B)  the actual rate of unemployment 
C)  the actual inflation rate 
D)  the expected inflation rate

Question 13

Which equation summarize the analysis of Friedman and Phelps (where a is a positive number)?

Accepted Answer

A)  unemployment rate = natural rate of unemployment - a(actual inflation - expected inflation) 
B)  unemployment rate = natural rate of unemployment - a(expected inflation - actual inflation) 
C)  unemployment rate = expected rate of inflation - a(actual inflation - expected inflation) 
D)  unemployment rate = actual rate of inflation - a(actual unemployment - expected unemployment) 
A)  unemployment rate = natural rate of unemployment - a(actual inflation - expected inflation) 
B)  unemployment rate = natural rate of unemployment - a(expected inflation - actual inflation) 
C)  unemployment rate = expected rate of inflation - a(actual inflation - expected inflation) 
D)  unemployment rate = actual rate of inflation - a(actual unemployment - expected unemployment)

Question 14

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 15

In the long run, what will happen if the Bank of Canada increases the rate at which it increases the money supply?

Accepted Answer

A)  Inflation will be higher. 
B)  Unemployment will be lower. 
C)  Real GDP will be higher. 
D)  Unemployment will be higher. 
A)  Inflation will be higher. 
B)  Unemployment will be lower. 
C)  Real GDP will be higher. 
D)  Unemployment will be higher.

Question 16

Who releases the closely watched indicators such as the inflation rate and unemployment each month?

Accepted Answer

A)  Department for Business, Innovation, and Skills 
B)  Ministry of Finance 
C)  Department of the Treasury 
D)  Statistics Canada 
A)  Department for Business, Innovation, and Skills 
B)  Ministry of Finance 
C)  Department of the Treasury 
D)  Statistics Canada

Question 17

Proponents of rational expectations argue that failing to account for people's revised expectations led to estimates of the sacrifice ratio that were too high.

Accepted Answer

A) True 
 B)False

Question 18

Although monetary policy cannot reduce the natural rate of unemployment, other types of policies can.

Accepted Answer

A) True 
 B)False

Question 19

In the long run, what are the effects of a decrease in the rate of growth of the money supply?

Accepted Answer

A)  It will increase inflation and shift the short-run Phillips curve right. 
B)  It will increase inflation and shift the short-run Phillips curve left. 
C)  It will decrease inflation and shift the short-run Philips curve right. 
D)  It will decrease inflation and shift the short-run Phillips curve left. 
A)  It will increase inflation and shift the short-run Phillips curve right. 
B)  It will increase inflation and shift the short-run Phillips curve left. 
C)  It will decrease inflation and shift the short-run Philips curve right. 
D)  It will decrease inflation and shift the short-run Phillips curve left.

Question 20

More flexible labour markets will shift the long-run Phillips curve and the long-run aggregate-supply curve in which direction?

Accepted Answer

A)  They will shift both the long-run Phillips curve and the long-run aggregate-supply curve to the right. 
B)  They will shift both the long-run Phillips curve and the long-run aggregate-supply curve to the left. 
C)  They will shift the long-run Phillips curve to the right and the long-run aggregate-supply curve to the left. 
D)  They will shift the long-run Phillips curve to the left and the long-run aggregate-supply curve to the right. 
A)  They will shift both the long-run Phillips curve and the long-run aggregate-supply curve to the right. 
B)  They will shift both the long-run Phillips curve and the long-run aggregate-supply curve to the left. 
C)  They will shift the long-run Phillips curve to the right and the long-run aggregate-supply curve to the left. 
D)  They will shift the long-run Phillips curve to the left and the long-run aggregate-supply curve to the right.

What did Friedman and Phelps argue about the effectiveness of monetary policies?

In the Friedman-Phelps analysis, when inflation is less than expected, unemployment is greater than the natural rate.

Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 5 percentage points for four years, and it made the unemployment rate rise from 3 percent to 9 percent for three years. What is the sacrifice ratio?

What would we NOT expect to happen if government policy moved the economy up along a given short-run Phillips curve?

Figure 16-3 -Refer to the Figure 16-3. Starting from c and 3, in the short run, where does an unexpected decrease in money supply growth move the economy to?

Some countries have inflation in excess of 20 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 20 percent to 6 percent?

According to Phelps and Friedman, in the short run, what effect does an increase in the money supply have on prices and unemployment?

Which statement best describes how the natural rate of unemployment changes?

What happened to expected inflation in Canada during the 1970s?

Which of the following is an adverse supply shock?

Figure 16-2 -Refer to the Figure 16-2. What is Curve 1?

What does the position of the long-run Phillips curve depend on?

Which equation summarize the analysis of Friedman and Phelps (where a is a positive number)?

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

In the long run, what will happen if the Bank of Canada increases the rate at which it increases the money supply?

Who releases the closely watched indicators such as the inflation rate and unemployment each month?

Proponents of rational expectations argue that failing to account for people's revised expectations led to estimates of the sacrifice ratio that were too high.

Although monetary policy cannot reduce the natural rate of unemployment, other types of policies can.

In the long run, what are the effects of a decrease in the rate of growth of the money supply?

More flexible labour markets will shift the long-run Phillips curve and the long-run aggregate-supply curve in which direction?

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

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

What did Friedman and Phelps argue about the effectiveness of monetary policies?

In the Friedman-Phelps analysis, when inflation is less than expected, unemployment is greater than the natural rate.

Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 5 percentage points for four years, and it made the unemployment rate rise from 3 percent to 9 percent for three years. What is the sacrifice ratio?

What would we NOT expect to happen if government policy moved the economy up along a given short-run Phillips curve?

Figure 16-3 -Refer to the Figure 16-3. Starting from c and 3, in the short run, where does an unexpected decrease in money supply growth move the economy to?

Some countries have inflation in excess of 20 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 20 percent to 6 percent?

According to Phelps and Friedman, in the short run, what effect does an increase in the money supply have on prices and unemployment?

Which statement best describes how the natural rate of unemployment changes?

What happened to expected inflation in Canada during the 1970s?

Which of the following is an adverse supply shock?

Figure 16-2 -Refer to the Figure 16-2. What is Curve 1?

What does the position of the long-run Phillips curve depend on?

Which equation summarize the analysis of Friedman and Phelps (where a is a positive number)?

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

In the long run, what will happen if the Bank of Canada increases the rate at which it increases the money supply?

Who releases the closely watched indicators such as the inflation rate and unemployment each month?

Proponents of rational expectations argue that failing to account for people's revised expectations led to estimates of the sacrifice ratio that were too high.

Although monetary policy cannot reduce the natural rate of unemployment, other types of policies can.

In the long run, what are the effects of a decrease in the rate of growth of the money supply?

More flexible labour markets will shift the long-run Phillips curve and the long-run aggregate-supply curve in which direction?

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