Question 1

Which of the following is correct according to the long-run Phillips curve?

Accepted Answer

A) No government policy, including changes in monetary growth, can change the natural rate of unemployment. 
B) Changes in the money supply growth rate is the only government policy that can change the natural rate of unemployment. 
C) Monetary policy cannot change the natural rate of unemployment, but other government policies can. 
D) Monetary policy and other government policies can both change the natural rate of unemployment. 
A) No government policy, including changes in monetary growth, can change the natural rate of unemployment. 
B) Changes in the money supply growth rate is the only government policy that can change the natural rate of unemployment. 
C) Monetary policy cannot change the natural rate of unemployment, but other government policies can. 
D) Monetary policy and other government policies can both change the natural rate of unemployment.

Question 2

Figure 22-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, a decrease in taxes moves the economy to

Accepted Answer

A) D and 2. 
B) D and 3. 
C) back to C and 1. 
D) None of the above is correct. 
A) D and 2. 
B) D and 3. 
C) back to C and 1. 
D) None of the above is correct.

Question 3

A favorable supply shock will cause

Accepted Answer

A) unemployment to rise and the short-run Phillips curve to shift right. 
B) unemployment to rise and the short-run Phillips curve to shift left. 
C) unemployment to fall and the short-run Phillips curve to shift right. 
D) unemployment to fall and the short-run Phillips curve to shift left. 
A) unemployment to rise and the short-run Phillips curve to shift right. 
B) unemployment to rise and the short-run Phillips curve to shift left. 
C) unemployment to fall and the short-run Phillips curve to shift right. 
D) unemployment to fall and the short-run Phillips curve to shift left.

Question 4

Contractionary monetary policy

Accepted Answer

A) leads to disinflation and makes the short-run Phillips curve shift right. 
B) leads to disinflation and makes the short-run Phillips curve shift left. 
C) does not lead to disinflation but makes the short-run Phillips curve shift right. 
D) does not lead to disinflation but makes the short-run Phillips curve shift left. 
A) leads to disinflation and makes the short-run Phillips curve shift right. 
B) leads to disinflation and makes the short-run Phillips curve shift left. 
C) does not lead to disinflation but makes the short-run Phillips curve shift right. 
D) does not lead to disinflation but makes the short-run Phillips curve shift left.

Question 5

When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that

Accepted Answer

A) if they contract aggregate demand, the unemployment rate will increase further. 
B) if they expand aggregate demand, the inflation rate will increase further. 
C) they face a less favorable trade-off between inflation and unemployment than they did before the shock. 
D) All of the above are correct. 
A) if they contract aggregate demand, the unemployment rate will increase further. 
B) if they expand aggregate demand, the inflation rate will increase further. 
C) they face a less favorable trade-off between inflation and unemployment than they did before the shock. 
D) All of the above are correct.

Question 6

Other things the same, if the Fed increases the rate at which it increases the money supply then the short-run Phillips curve shifts right in the long run.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following would tend to shorten recessions associated with anti-inflation policies by central banks?

Accepted Answer

A) People adjust their expectations of inflation rapidly. 
B) People believe policy announcements made by central bank officials. 
C) The short-run Phillips shifts rapidly. 
D) All of the above are correct. 
A) People adjust their expectations of inflation rapidly. 
B) People believe policy announcements made by central bank officials. 
C) The short-run Phillips shifts rapidly. 
D) All of the above are correct.

Question 8

An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.

Accepted Answer

A) True 
 B)False

Question 9

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. The shift of the aggregate-supply curve from AS1 to AS2

Accepted Answer

A) results in a more favorable trade-off between inflation and unemployment. 
B) results in a more favorable trade-off between inflation and the growth rate of real GDP. 
C) represents an adverse shock to aggregate supply. 
D) represents a favorable shock to aggregate supply. 
A) results in a more favorable trade-off between inflation and unemployment. 
B) results in a more favorable trade-off between inflation and the growth rate of real GDP. 
C) represents an adverse shock to aggregate supply. 
D) represents a favorable shock to aggregate supply.

Question 10

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 11

A favorable supply shock

Accepted Answer

A) raises unemployment and the inflation rate. 
B) raises unemployment and reduces the inflation rate. 
C) reduces unemployment and raises the inflation rate. 
D) reduces unemployment and the inflation rate. 
A) raises unemployment and the inflation rate. 
B) raises unemployment and reduces the inflation rate. 
C) reduces unemployment and raises the inflation rate. 
D) reduces unemployment and the inflation rate.

Question 12

Figure 22-5
Use the graph below to answer the following questions.  
-Refer to Figure 22-5. Curve 2 is the

Accepted Answer

A) long-run Phillips curve. 
B) short-run Phillips curve. 
C) long-run aggregate demand curve. 
D) short-run aggregate demand curve. 
A) long-run Phillips curve. 
B) short-run Phillips curve. 
C) long-run aggregate demand curve. 
D) short-run aggregate demand curve.

Question 13

An adverse supply shock shifts the short-run Phillips curve right. If people raise their inflation expectations, the short-run Phillips curve shifts farther right.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following depends primarily on the growth rate of the money supply?

Accepted Answer

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

Question 15

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

Accepted Answer

A) downward pressures on prices and wages. 
B) downward pressures on prices and upward pressures on wages. 
C) upward pressures on prices and downward pressures on wages. 
D) upward pressures on prices and wages. 
A) downward pressures on prices and wages. 
B) downward pressures on prices and upward pressures on wages. 
C) upward pressures on prices and downward pressures on wages. 
D) upward pressures on prices and wages.

Question 16

In the long run, a decrease in the money supply growth rate

Accepted Answer

A) reduces expected inflation so the long-run Phillips curve shifts left. 
B) reduces expected inflation so the short-run Phillips curve shifts left. 
C) Both A and B are correct. 
D) None of the above is correct. 
A) reduces expected inflation so the long-run Phillips curve shifts left. 
B) reduces expected inflation so the short-run Phillips curve shifts left. 
C) Both A and B are correct. 
D) None of the above is correct.

Question 17

A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician's argument is

Accepted Answer

A) consistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would not increase inflation. 
B) consistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would increase inflation. 
C) inconsistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would not increase inflation. 
D) inconsistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would increase inflation. 
A) consistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would not increase inflation. 
B) consistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would increase inflation. 
C) inconsistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would not increase inflation. 
D) inconsistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would increase inflation.

Question 18

If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the

Accepted Answer

A) right. It remains to the right regardless of monetary policy. 
B) right. It remains to the right if the central bank pursues expansionary monetary policy. 
C) left. It remains to the left regardless of monetary policy. 
D) left. It remains to the left if the central bank pursues expansionary monetary policy. 
A) right. It remains to the right regardless of monetary policy. 
B) right. It remains to the right if the central bank pursues expansionary monetary policy. 
C) left. It remains to the left regardless of monetary policy. 
D) left. It remains to the left if the central bank pursues expansionary monetary policy.

Question 19

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

Accepted Answer

A) increases inflation and shifts the short-run Phillips curve right. 
B) increases inflation and shifts the short-run Phillips curve left. 
C) decreases inflation and shifts the short-run Philips curve right. 
D) decreases inflation and shifts the short-run Phillips curve left. 
A) increases inflation and shifts the short-run Phillips curve right. 
B) increases inflation and shifts the short-run Phillips curve left. 
C) decreases inflation and shifts the short-run Philips curve right. 
D) decreases inflation and shifts the short-run Phillips curve left.

Question 20

In the long run, if the Fed 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) All of the above are correct. 
A) inflation will be higher. 
B) unemployment will be lower. 
C) real GDP will be higher. 
D) All of the above are correct.

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

Which of the following is correct according to the long-run Phillips curve?

Figure 22-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, a decrease in taxes moves the economy to

A favorable supply shock will cause

Contractionary monetary policy

When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that

Other things the same, if the Fed increases the rate at which it increases the money supply then the short-run Phillips curve shifts right in the long run.

Which of the following would tend to shorten recessions associated with anti-inflation policies by central banks?

An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.

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. The shift of the aggregate-supply curve from AS1 to AS2

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

A favorable supply shock

Figure 22-5 Use the graph below to answer the following questions. -Refer to Figure 22-5. Curve 2 is the

An adverse supply shock shifts the short-run Phillips curve right. If people raise their inflation expectations, the short-run Phillips curve shifts farther right.

Which of the following depends primarily on the growth rate of the money supply?

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

In the long run, a decrease in the money supply growth rate

A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician's argument is

If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the

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

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

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

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. The shift of the aggregate-supply curve from AS₁ to AS₂