Question 1

If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would

Accepted Answer

A) cost 1 percent of annual output. 
B) cost 4 percent of annual output. 
C) imply that unemployment would rise by 1%. 
D) imply that unemployment would rise by 4%. 
A) cost 1 percent of annual output. 
B) cost 4 percent of annual output. 
C) imply that unemployment would rise by 1%. 
D) imply that unemployment would rise by 4%.

Question 2

If the central bank raises the rate at which it increases the money supply, then in the short run unemployment is

Accepted Answer

A) above its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of unemployment. 
B) above its natural rate. The long-run Phillips curve shifts left as the economy moves back to its natural rate of unemployment. 
C) below its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of unemployment. 
D) below its natural rate. The long-run Phillips curve shifts left as the economy moves back to its natural rate of unemployment. 
A) above its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of unemployment. 
B) above its natural rate. The long-run Phillips curve shifts left as the economy moves back to its natural rate of unemployment. 
C) below its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of unemployment. 
D) below its natural rate. The long-run Phillips curve shifts left as the economy moves back to its natural rate of unemployment.

Question 3

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

Accepted Answer

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

Question 4

An economy has a current inflation rate of 12%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, how much annual output must be sacrificed in the transition?

Accepted Answer

A) 16% 
B) 8% 
C) 4% 
D) None of the above is correct. 
A) 16% 
B) 8% 
C) 4% 
D) None of the above is correct.

Question 5

Figure 22-6
Use the two graphs in the diagram to answer the following questions.  
-Refer to Figure 22-6. The economy would move from 3 to 5

Accepted Answer

A) in the short run if money supply growth increased unexpectedly. 
B) in the short run if money supply growth decreased unexpectedly. 
C) in the long run if money supply growth increases. 
D) in the long run if money supply growth decreases. 
A) in the short run if money supply growth increased unexpectedly. 
B) in the short run if money supply growth decreased unexpectedly. 
C) in the long run if money supply growth increases. 
D) in the long run if money supply growth decreases.

Question 6

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Accepted Answer

A) short run, and the natural rate is the socially optimal rate of unemployment. 
B) long run, and the natural rate is the socially optimal rate of unemployment. 
C) short run, and the natural rate is not necessarily the socially optimal rate of unemployment. 
D) long run, and the natural rate is not necessarily the socially optimal rate of unemployment. 
A) short run, and the natural rate is the socially optimal rate of unemployment. 
B) long run, and the natural rate is the socially optimal rate of unemployment. 
C) short run, and the natural rate is not necessarily the socially optimal rate of unemployment. 
D) long run, and the natural rate is not necessarily the socially optimal rate of unemployment.

Question 7

Which of the following claims concerning the importance of effects that explain the slope of the U.S. ag-gregate-demand curve is correct?

Accepted Answer

A) 	The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. 
B) 	The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes. 
C) 	The wealth effect is relatively large because money holdings are a significant portion of most households' wealth. 
D) None of the above is correct. 
A) 	The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. 
B) 	The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes. 
C) 	The wealth effect is relatively large because money holdings are a significant portion of most households' wealth. 
D) None of the above is correct.

Question 8

Which of the following is upward-sloping?

Accepted Answer

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

Question 9

Any policy change that reduced the natural rate of unemployment

Accepted Answer

A) would shift the long-run Phillips curve to the right. 
B) would shift the long-run aggregate-supply curve to the right. 
C) would be a policy change that impeded the functioning of the labor market. 
D) All of the above are correct. 
A) would shift the long-run Phillips curve to the right. 
B) would shift the long-run aggregate-supply curve to the right. 
C) would be a policy change that impeded the functioning of the labor market. 
D) All of the above are correct.

Question 10

In the late 1970s, proponents of rational expectations argued that

Accepted Answer

A) the Fed should not attempt to aggressively fight inflation. 
B) the sacrifice ratio was smaller than previously thought. 
C) the short run was relatively long. 
D) None of the above is correct. 
A) the Fed should not attempt to aggressively fight inflation. 
B) the sacrifice ratio was smaller than previously thought. 
C) the short run was relatively long. 
D) None of the above is correct.

Question 11

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 the short-run Phillips curve shifts every time there is a change in actual inflation. 
C) reflects the reasoning of Samuelson and Solow. 
D) All of the above are correct. 
A) is the equation of the short-run Phillips curve. 
B) implies the short-run Phillips curve shifts every time there is a change in actual inflation. 
C) reflects the reasoning of Samuelson and Solow. 
D) All of the above are correct.

Question 12

A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate towards its previous level it would

Accepted Answer

A) increase the rate at which the money supply increases. This will also move inflation closer to its previous rate.. 
B) increase the rate at which the money supply increases. However, this will make inflation higher than its previous rate 
C) decrease the rate at which the money supply increases. This will also move inflation closer to its original rate 
D) decrease the rate at which the money supply increases. However, this will make higher than its previous rate. 
A) increase the rate at which the money supply increases. This will also move inflation closer to its previous rate.. 
B) increase the rate at which the money supply increases. However, this will make inflation higher than its previous rate 
C) decrease the rate at which the money supply increases. This will also move inflation closer to its original rate 
D) decrease the rate at which the money supply increases. However, this will make higher than its previous rate.

Question 13

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 14

Suppose that the money supply decreases. In the short run, this increases prices according to

Accepted Answer

A) both the short-run Phillips curve and the aggregate demand and aggregate supply model. 
B) neither the short-run Phillips curve nor the aggregate demand and aggregate supply model. 
C) the short-run Phillips curve, but not the aggregate demand and aggregate supply model. 
D) the aggregate demand and aggregate supply model but not the short-run Phillips curve. 
A) both the short-run Phillips curve and the aggregate demand and aggregate supply model. 
B) neither the short-run Phillips curve nor the aggregate demand and aggregate supply model. 
C) the short-run Phillips curve, but not the aggregate demand and aggregate supply model. 
D) the aggregate demand and aggregate supply model but not the short-run Phillips curve.

Question 15

Which of the following is correct if there is an adverse supply shock?

Accepted Answer

A) The short-run aggregate supply curve and the short-run Phillips curve both shift right. 
B) The short-run aggregate supply curve and the short-run Phillips curve both shift left. 
C) The short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left. 
D) The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right. 
A) The short-run aggregate supply curve and the short-run Phillips curve both shift right. 
B) The short-run aggregate supply curve and the short-run Phillips curve both shift left. 
C) The short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left. 
D) The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right.

Question 16

An adverse supply shock will cause output

Accepted Answer

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

Question 17

If the central bank increases the money supply, in the short run, output

Accepted Answer

A) rises so unemployment rises. 
B) rises so unemployment falls. 
C) falls so unemployment rises. 
D) falls so unemployment falls. 
A) rises so unemployment rises. 
B) rises so unemployment falls. 
C) falls so unemployment rises. 
D) falls so unemployment falls.

Question 18

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 19

In the long run, which of the following depends primarily on the growth rate of the money supply?

Accepted Answer

A) the natural rate of unemployment and the inflation rate 
B) the natural rate of unemployment but not the inflation rate 
C) the inflation rate but not the natural rate of unemployment 
D) neither the natural rate of unemployment nor the inflation rate 
A) the natural rate of unemployment and the inflation rate 
B) the natural rate of unemployment but not the inflation rate 
C) the inflation rate but not the natural rate of unemployment 
D) neither the natural rate of unemployment nor the inflation rate

Question 20

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.

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

If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would

If the central bank raises the rate at which it increases the money supply, then in the short run unemployment is

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

An economy has a current inflation rate of 12%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, how much annual output must be sacrificed in the transition?

Figure 22-6 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 22-6. The economy would move from 3 to 5

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Which of the following claims concerning the importance of effects that explain the slope of the U.S. ag-gregate-demand curve is correct?

Which of the following is upward-sloping?

Any policy change that reduced the natural rate of unemployment

In the late 1970s, proponents of rational expectations argued that

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

A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate towards its previous level it would

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

Suppose that the money supply decreases. In the short run, this increases prices according to

Which of the following is correct if there is an adverse supply shock?

An adverse supply shock will cause output

If the central bank increases the money supply, in the short run, output

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

In the long run, which of the following depends primarily on the growth rate of the money supply?

A favorable supply shock will cause the price level

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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