Question 1

The experience of the Volcker disinflation of the early 1980s

Accepted Answer

A) generally increased estimates of the sacrifice ratio. 
B) generally decreased estimates of the sacrifice ratio. 
C) clearly refuted the predictions of the proponents of rational expectations. 
D) clearly refuted the predictions of the opponents of rational expectations. 
A) generally increased estimates of the sacrifice ratio. 
B) generally decreased estimates of the sacrifice ratio. 
C) clearly refuted the predictions of the proponents of rational expectations. 
D) clearly refuted the predictions of the opponents of rational expectations.

Question 2

Which of the following is an example of 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 3

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.

Question 4

Monetary Policy in Highland
Highland has had inflation of 15% for many years. Highland establishes a new central bank, the Bank of Highland, with the hopes of reducing the inflation rate.
-Refer to Monetary Policy in Highland. The Bank of Highland reduced inflation to its announced goal of 5%. However, people were expecting inflation to fall to 7% and there was a favorable supply shock. In the short run which of the following made unemployment lower than otherwise?

Accepted Answer

A) both people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock 
B) neither people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock 
C) only the favorable supply shock 
D) only people expecting inflation to fall to 7% instead of 5% 
A) both people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock 
B) neither people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock 
C) only the favorable supply shock 
D) only people expecting inflation to fall to 7% instead of 5%

Question 5

Monetary Policy in Highland
Highland has had inflation of 15% for many years. Highland establishes a new central bank, the Bank of Highland, with the hopes of reducing the inflation rate.
-Refer to Monetary Policy in Highland. The Bank of Highland 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 Highland 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 6

When aggregate demand shifts left along the short-run aggregate supply curve,

Accepted Answer

A) unemployment and prices rise. 
B) unemployment rises and prices fall. 
C) unemployment falls and prices rise. 
D) unemployment and prices fall. 
A) unemployment and prices rise. 
B) unemployment rises and prices fall. 
C) unemployment falls and prices rise. 
D) unemployment and prices fall.

Question 7

If inflation is greater than expected, then the unemployment rate is

Accepted Answer

A) above the natural rate. In the long run the short-run Phillips curve will shift right. 
B) above the natural rate. In the long run the short-run Phillips curve will shift left. 
C) below the natural rate. In the long run the short-run Phillips curve will shift right. 
D) below the natural rate. In the long run the short-run Phillips curve will shift left. 
A) above the natural rate. In the long run the short-run Phillips curve will shift right. 
B) above the natural rate. In the long run the short-run Phillips curve will shift left. 
C) below the natural rate. In the long run the short-run Phillips curve will shift right. 
D) below the natural rate. In the long run the short-run Phillips curve will shift left.

Question 8

Figure 22-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 22-1. What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A) the wage rate 
B) the inflation rate 
C) employment 
D) output 
A) the wage rate 
B) the inflation rate 
C) employment 
D) output

Question 9

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

Accepted Answer

A) aggregate demand right. 
B) aggregate demand left. 
C) aggregate supply right. 
D) aggregate supply left. 
A) aggregate demand right. 
B) aggregate demand left. 
C) aggregate supply right. 
D) aggregate supply left.

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 the Southland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% and actually reduces inflation to that level. Suppose at first that the public thought inflation would only drop to 18%, but eventually become convinced that the inflation rate will stay at 12.5%.

Accepted Answer

A) unemployment rises in the short run, and remains higher than it's original value in the long run. 
B) unemployment rises in the short run, and is the same as it's original value in the long run. 
C) unemployment falls in the short run, and is lower than it's original value in the long run. 
D) unemployment falls in the short run, and is the same as it's original value in the long run. 
A) unemployment rises in the short run, and remains higher than it's original value in the long run. 
B) unemployment rises in the short run, and is the same as it's original value in the long run. 
C) unemployment falls in the short run, and is lower than it's original value in the long run. 
D) unemployment falls in the short run, and is the same as it's original value in the long run.

Question 11

As aggregate demand shifts right along the aggregate supply curve,

Accepted Answer

A) inflation and unemployment are higher. 
B) inflation is higher and unemployment is lower. 
C) unemployment is higher and inflation is lower. 
D) unemployment and inflation are lower. 
A) inflation and unemployment are higher. 
B) inflation is higher and unemployment is lower. 
C) unemployment is higher and inflation is lower. 
D) unemployment and inflation are lower.

Question 12

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

Accepted Answer

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

Question 13

An increase in expected inflation shifts

Accepted Answer

A) the long-run Phillips curve right. 
B) the short-run Phillips curve right. 
C) neither the short-run nor long-run Phillips curve right. 
D) both the short-run and long-run Phillips curve right. 
A) the long-run Phillips curve right. 
B) the short-run Phillips curve right. 
C) neither the short-run nor long-run Phillips curve right. 
D) both the short-run and long-run Phillips curve right.

Question 14

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

Accepted Answer

A) It would shift the long-run Phillips curve right. 
B) It would shift the long-run Phillips curve left. 
C) There would be an upward movement along a given long-run Phillips curve. 
D) There would be a downward movement along a given long-run Philips curve. 
A) It would shift the long-run Phillips curve right. 
B) It would shift the long-run Phillips curve left. 
C) There would be an upward movement along a given long-run Phillips curve. 
D) There would be a downward movement along a given long-run Philips curve.

Question 15

If prices and wages adjusted rapidly and producers could quickly distinguish the difference between a change in the price level and a change in the relative price of their products, then an increase in the money supply growth rate would have at most a very short-lived affect on unemployment.

Accepted Answer

A) True 
 B)False

Question 16

A policy change that reduces the natural rate of unemployment shifts both the long-run aggregate-supply curve and the long-run Phillips curve left.

Accepted Answer

A) True 
 B)False

Question 17

In 1980, the combination of inflation and unemployment the U.S. was experiencing

Accepted Answer

A) resulted from a leftward shift of the short-run Phillips curve. 
B) was consistent with feasible inflation-unemployment combinations provided by the Phillips curve of the 1960s. 
C) followed two supply shocks that were triggered by the Organization of Petroleum Exporting Countries. 
D) All of the above are correct. 
A) resulted from a leftward shift of the short-run Phillips curve. 
B) was consistent with feasible inflation-unemployment combinations provided by the Phillips curve of the 1960s. 
C) followed two supply shocks that were triggered by the Organization of Petroleum Exporting Countries. 
D) All of the above are correct.

Question 18

In the long run, if the Fed decreases the rate at which it increases the money supply,

Accepted Answer

A) inflation will be lower. 
B) unemployment will be higher. 
C) real GDP will be lower. 
D) All of the above are correct. 
A) inflation will be lower. 
B) unemployment will be higher. 
C) real GDP will be lower. 
D) All of the above are correct.

Question 19

If the unemployment rate is below the natural rate, then

Accepted Answer

A) inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift right. 
B) inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift left. 
C) inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift left. 
D) inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift right. 
A) inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift right. 
B) inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift left. 
C) inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift left. 
D) inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift right.

Question 20

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

Accepted Answer

A) is greater than expected inflation. 
B) is less than expected inflation. 
C) equals expected inflation. 
D) low whether its greater than or less than expected. 
A) is greater than expected inflation. 
B) is less than expected inflation. 
C) equals expected inflation. 
D) low whether its greater than or less than expected.

The experience of the Volcker disinflation of the early 1980s

Which of the following is an example of an adverse supply shock?

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

When aggregate demand shifts left along the short-run aggregate supply curve,

If inflation is greater than expected, then the unemployment rate is

Figure 22-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate. -Refer to Figure 22-1. What is measured along the horizontal axis of the left-hand graph?

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

As aggregate demand shifts right along the aggregate supply curve,

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

An increase in expected inflation shifts

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

If prices and wages adjusted rapidly and producers could quickly distinguish the difference between a change in the price level and a change in the relative price of their products, then an increase in the money supply growth rate would have at most a very short-lived affect on unemployment.

A policy change that reduces the natural rate of unemployment shifts both the long-run aggregate-supply curve and the long-run Phillips curve left.

In 1980, the combination of inflation and unemployment the U.S. was experiencing

In the long run, if the Fed decreases the rate at which it increases the money supply,

If the unemployment rate is below the natural rate, then

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

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

The experience of the Volcker disinflation of the early 1980s

Which of the following is an example of an adverse supply shock?

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

When aggregate demand shifts left along the short-run aggregate supply curve,

If inflation is greater than expected, then the unemployment rate is

Figure 22-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate. -Refer to Figure 22-1. What is measured along the horizontal axis of the left-hand graph?

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

As aggregate demand shifts right along the aggregate supply curve,

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

An increase in expected inflation shifts

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

If prices and wages adjusted rapidly and producers could quickly distinguish the difference between a change in the price level and a change in the relative price of their products, then an increase in the money supply growth rate would have at most a very short-lived affect on unemployment.

A policy change that reduces the natural rate of unemployment shifts both the long-run aggregate-supply curve and the long-run Phillips curve left.

In 1980, the combination of inflation and unemployment the U.S. was experiencing

In the long run, if the Fed decreases the rate at which it increases the money supply,

If the unemployment rate is below the natural rate, then

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

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