Question 1

Most economists believe that a tradeoff between inflation and unemployment exists

Accepted Answer

A) only in the short run. 
B) only in the long run. 
C) in both the short and long run. 
D) in neither the short nor long run. 
A) only in the short run. 
B) only in the long run. 
C) in both the short and long run. 
D) in neither the short nor long run.

Question 2

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

Accepted Answer

A) existed in the long run and the short run. 
B) existed in the long run but not the short run. 
C) existed in the short run but not the long run. 
D) did not exist. 
A) existed in the long run and the short run. 
B) existed in the long run but not the short run. 
C) existed in the short run but not the long run. 
D) did not exist.

Question 3

If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run.

Accepted Answer

A) True 
 B)False

Question 4

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Accepted Answer

A) True 
 B)False

Question 5

The natural rate of unemployment

Accepted Answer

A) is constant over time. 
B) varies over time, but can't be changed by the government. 
C) is the unemployment rate that the economy tends to move to in the long run. 
D) depends on the rate at which the Fed increases the money supply. 
A) is constant over time. 
B) varies over time, but can't be changed by the government. 
C) is the unemployment rate that the economy tends to move to in the long run. 
D) depends on the rate at which the Fed increases the money supply.

Question 6

If the long-run Phillips curve shifts to the right, then for any given rate of money growth and inflation the economy has

Accepted Answer

A) higher unemployment and lower output. 
B) higher unemployment and higher output. 
C) lower unemployment and lower output. 
D) lower unemployment and higher output. 
A) higher unemployment and lower output. 
B) higher unemployment and higher output. 
C) lower unemployment and lower output. 
D) lower unemployment and higher output.

Question 7

Monetary Policy in Southland
In Southland the Department of Finance is responsible for monetary policy. Southland has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Southland. Suppose that the Southland 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 8

The equation, Unemployment rate = Natural rate of unemployment - a * ctual inflation - Expected inflation),

Accepted Answer

A) is the equation of the short-run Phillips curve. 
B) implies there can be no stable short-run Phillips curve. 
C) reflects the reasoning of Friedman and Phelps. 
D) All of the above are correct. 
A) is the equation of the short-run Phillips curve. 
B) implies there can be no stable short-run Phillips curve. 
C) reflects the reasoning of Friedman and Phelps. 
D) All of the above are correct.

Question 9

The short-run Phillips curve shows the combinations of

Accepted Answer

A) unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve. 
B) unemployment and inflation that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve. 
C) real GDP and the price level that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve. 
D) None of the above is correct. 
A) unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve. 
B) unemployment and inflation that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve. 
C) real GDP and the price level that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve. 
D) None of the above is correct.

Question 10

Monetary Policy in Southland
In Southland the Department of Finance is responsible for monetary policy. Southland has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Southland. Suppose that the Southland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% and that it actually reduces inflation to that level. Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%. 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 25% 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 25% 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 25% 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 25% inflation.

Question 11

Figure 22-8. 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 22-8. 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 12

Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the Phillips curve is

Accepted Answer

A) downward-sloping, which implies that monetary and fiscal policies can influence the level of unemployment in the long run. 
B) downward-sloping, which implies that monetary and fiscal policies cannot influence the rate of inflation in the long run. 
C) vertical, which implies that monetary and fiscal policies cannot influence the level of unemployment in the long run. 
D) vertical, which implies that monetary and fiscal policies cannot influence the rate of inflation in the long run. 
A) downward-sloping, which implies that monetary and fiscal policies can influence the level of unemployment in the long run. 
B) downward-sloping, which implies that monetary and fiscal policies cannot influence the rate of inflation in the long run. 
C) vertical, which implies that monetary and fiscal policies cannot influence the level of unemployment in the long run. 
D) vertical, which implies that monetary and fiscal policies cannot influence the rate of inflation in the long run.

Question 13

Ultimately, the change in unemployment associated with a change in inflation is due to

Accepted Answer

A) the shape of the long-run aggregate supply curve. 
B) unanticipated inflation, not inflation per se. 
C) anticipated inflation, not inflation per se. 
D) a change in the natural rate of unemployment. 
A) the shape of the long-run aggregate supply curve. 
B) unanticipated inflation, not inflation per se. 
C) anticipated inflation, not inflation per se. 
D) a change in the natural rate of unemployment.

Question 14

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 15

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 16

Other things the same, a country that decides to reduce inflation will

Accepted Answer

A) have a higher unemployment rate in the short run and the long run. 
B) have a higher unemployment rate only in the long run. 
C) have a higher unemployment rate only in the short run. 
D) not have a higher unemployment rate in either the short run or the long run. 
A) have a higher unemployment rate in the short run and the long run. 
B) have a higher unemployment rate only in the long run. 
C) have a higher unemployment rate only in the short run. 
D) not have a higher unemployment rate in either the short run or the long run.

Question 17

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 18

An increase in expected inflation shifts the

Accepted Answer

A) short-run Phillips curve right. 
B) short-run Phillips curve left. 
C) long-run Phillips curve right. 
D) long-run Phillips curve left. 
A) short-run Phillips curve right. 
B) short-run Phillips curve left. 
C) long-run Phillips curve right. 
D) long-run Phillips curve left.

Question 19

France has a higher natural rate of unemployment than the United States. This suggests that

Accepted Answer

A) France is at a higher point on its long-run Phillips curve and so has higher inflation than the United States. 
B) France is at a lower point on its long-run Phillips curve and so has lower inflation than the United States. 
C) France's Phillips curve is to the left of that of the United States, possibly because they have higher inflation. 
D) France's Phillips curve is to the right of that of the United States, possibly because they have more generous unemployment compensation. 
A) France is at a higher point on its long-run Phillips curve and so has higher inflation than the United States. 
B) France is at a lower point on its long-run Phillips curve and so has lower inflation than the United States. 
C) France's Phillips curve is to the left of that of the United States, possibly because they have higher inflation. 
D) France's Phillips curve is to the right of that of the United States, possibly because they have more generous unemployment compensation.

Question 20

The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-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.

Most economists believe that a tradeoff between inflation and unemployment exists

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run.

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

The natural rate of unemployment

If the long-run Phillips curve shifts to the right, then for any given rate of money growth and inflation the economy has

The equation, Unemployment rate = Natural rate of unemployment - a * ctual inflation - Expected inflation),

The short-run Phillips curve shows the combinations of

Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the Phillips curve is

Ultimately, the change in unemployment associated with a change in inflation is due to

Friedman and Phelps argued

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

Other things the same, a country that decides to reduce inflation will

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

An increase in expected inflation shifts the

France has a higher natural rate of unemployment than the United States. This suggests that

The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to The Economy in 2008. In the short-run the effects of the housing and financial crises

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

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

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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Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

Most economists believe that a tradeoff between inflation and unemployment exists

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run.

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

The natural rate of unemployment

If the long-run Phillips curve shifts to the right, then for any given rate of money growth and inflation the economy has

The equation, Unemployment rate = Natural rate of unemployment - a * ctual inflation - Expected inflation),

The short-run Phillips curve shows the combinations of

Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the Phillips curve is

Ultimately, the change in unemployment associated with a change in inflation is due to

Friedman and Phelps argued

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

Other things the same, a country that decides to reduce inflation will

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

An increase in expected inflation shifts the

France has a higher natural rate of unemployment than the United States. This suggests that

The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to The Economy in 2008. In the short-run the effects of the housing and financial crises

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

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

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