Question 1

Suppose the Federal Reserve pursues contractionary monetary policy. In the long run

Accepted Answer

A) both inflation and the unemployment rate are higher than they were prior to the change in policy. 
B) inflation is higher and the unemployment rate is the same as it was prior to the change in policy. 
C) inflation is lower and the unemployment rate is lower than it was prior to the change in policy. 
D) inflation is lower and unemployment is the same as it was prior to the change in policy. 
A) both inflation and the unemployment rate are higher than they were prior to the change in policy. 
B) inflation is higher and the unemployment rate is the same as it was prior to the change in policy. 
C) inflation is lower and the unemployment rate is lower than it was prior to the change in policy. 
D) inflation is lower and unemployment is the same as it was prior to the change in policy.

Question 2

The proliferation of Internet usage serves as an example of a favorable supply shock.

Accepted Answer

A) True 
 B)False

Question 3

Friedman and Phelps concluded that

Accepted Answer

A) in the long run the Phillips curve is downward sloping, which is consistent with classical theory. 
B) in the long run the Philips curve is downward sloping, which is inconsistent with classical theory. 
C) in the long run the Phillips curve is vertical, which is consistent with classical theory. 
D) in the long run the Phillips curve is vertical, which is inconsistent with classical theory. 
A) in the long run the Phillips curve is downward sloping, which is consistent with classical theory. 
B) in the long run the Philips curve is downward sloping, which is inconsistent with classical theory. 
C) in the long run the Phillips curve is vertical, which is consistent with classical theory. 
D) in the long run the Phillips curve is vertical, which is inconsistent with classical theory.

Question 4

Which of the following would cause the price level to rise and output to fall in the short run?

Accepted Answer

A) an increase in the money supply 
B) a decrease in the money supply 
C) an adverse supply shock 
D) a favorable supply shock 
A) an increase in the money supply 
B) a decrease in the money supply 
C) an adverse supply shock 
D) a favorable supply shock

Question 5

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Accepted Answer

A) the level or growth rate of a nominal variable, but not the level or growth rate of a real variable. 
B) the level of a nominal or real variable, but not the growth rate of a real or nominal variable. 
C) the level or growth rate of a real variable, but not the level or growth rate of a nominal variable. 
D) both levels and growth rates of both real and nominal variables. 
A) the level or growth rate of a nominal variable, but not the level or growth rate of a real variable. 
B) the level of a nominal or real variable, but not the growth rate of a real or nominal variable. 
C) the level or growth rate of a real variable, but not the level or growth rate of a nominal variable. 
D) both levels and growth rates of both real and nominal variables.

Question 6

If inflation expectations rise, the short-run Phillips curve shifts

Accepted Answer

A) right, so that at any inflation rate unemployment is higher in the short run than before. 
B) left, so that at any inflation rate unemployment is higher in the short run than before. 
C) right, so that at any inflation rate unemployment is lower in the short run than before. 
D) left, so that at any inflation rate unemployment is lower in the short run than before. 
A) right, so that at any inflation rate unemployment is higher in the short run than before. 
B) left, so that at any inflation rate unemployment is higher in the short run than before. 
C) right, so that at any inflation rate unemployment is lower in the short run than before. 
D) left, so that at any inflation rate unemployment is lower in the short run than before.

Question 7

A country is likely to have a higher sacrifice ratio if

Accepted Answer

A) contracts are shorter, and people believe the central bank will reduce inflation. 
B) contracts are longer, and people believe the central bank will not reduce inflation 
C) contracts are longer, and people believe the central bank will reduce inflation. 
D) contracts are shorter, and people believe the central bank will not reduce inflation. 
A) contracts are shorter, and people believe the central bank will reduce inflation. 
B) contracts are longer, and people believe the central bank will not reduce inflation 
C) contracts are longer, and people believe the central bank will reduce inflation. 
D) contracts are shorter, and people believe the central bank will not reduce inflation.

Question 8

A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 9

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 housing and financial crises

Accepted Answer

A) raised both the price level and output. 
B) raised the price level and reduced output. 
C) reduced the price level and raised output. 
D) reduced both the price level and output. 
A) raised both the price level and output. 
B) raised the price level and reduced output. 
C) reduced the price level and raised output. 
D) reduced both the price level and output.

Question 10

Which of the following is vertical?

Accepted Answer

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

Question 11

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 publicizes that it intends to reduce the inflation rate to 5%. If Highlanders lower their inflation expectations, which curve shifts to the left?

Accepted Answer

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

Question 12

If the Fed increases the growth rate of the money supply, in the long run which of the following is unchanged?

Accepted Answer

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

Question 13

Suppose that the money supply increases. In the short run this decreases unemployment 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 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 supply model. 
D) the aggregate demand and aggregate supply model, but not the short-run Phillips curve.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Samuelson and Solow argued that when unemployment is high,

Accepted Answer

A) aggregate demand is high, which puts upward pressure on wages and prices. 
B) aggregate demand is high, which puts downward pressure on wages and prices. 
C) aggregate demand is low, which puts upward pressure on wages and prices. 
D) aggregate demand is low, which puts downward pressure on wages and prices. 
A) aggregate demand is high, which puts upward pressure on wages and prices. 
B) aggregate demand is high, which puts downward pressure on wages and prices. 
C) aggregate demand is low, which puts upward pressure on wages and prices. 
D) aggregate demand is low, which puts downward pressure on wages and prices.

Question 16

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. The short-run effects of the housing and financial crisis are shown by

Accepted Answer

A) moving to the right along the short-run Phillips curve. 
B) moving to the left along the short-run Phillips curve. 
C) shifting the short-run Phillips curve right. 
D) shifting the short-run Phillips curve left. 
A) moving to the right along the short-run Phillips curve. 
B) moving to the left along the short-run Phillips curve. 
C) shifting the short-run Phillips curve right. 
D) shifting the short-run Phillips curve left.

Question 17

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

Accepted Answer

A) decreased the money supply. 
B) increased government expenditures. 
C) decreased taxes. 
D) None of the above is correct. 
A) decreased the money supply. 
B) increased government expenditures. 
C) decreased taxes. 
D) None of the above is correct.

Question 18

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. Given the effects of the financial and housing crisis on the price level and output and the effects of increased world commodity prices on the price level and output, the aggregate demand and aggregate supply model tells us that

Accepted Answer

A) output rises and the price level falls. 
B) output may rise, fall or stay the same and the price level rises. 
C) output falls and the price level may rise, fall or stay the same. 
D) None of the above is correct. 
A) output rises and the price level falls. 
B) output may rise, fall or stay the same and the price level rises. 
C) output falls and the price level may rise, fall or stay the same. 
D) None of the above is correct.

Question 19

According to the short-run Phillips curve, inflation

Accepted Answer

A) and unemployment would fall if the policymakers decreased the money supply. 
B) would fall and unemployment would rise if policymakers decreased the money supply. 
C) and unemployment would fall if the policymakers increased the money supply. 
D) would fall and unemployment would rise if policymakers increased the money supply. 
A) and unemployment would fall if the policymakers decreased the money supply. 
B) would fall and unemployment would rise if policymakers decreased the money supply. 
C) and unemployment would fall if the policymakers increased the money supply. 
D) would fall and unemployment would rise if policymakers increased the money supply.

Question 20

Suppose the Federal Reserve makes monetary policy more expansionary. In the long run

Accepted Answer

A) both inflation and the unemployment rate are higher than they were prior to the change in policy. 
B) inflation is higher and the unemployment rate is the same as it was prior to the change in policy. 
C) inflation is lower and the unemployment rate is lower than it was prior to the change in policy. 
D) inflation is lower and unemployment is the same as it was prior to the change in policy. 
A) both inflation and the unemployment rate are higher than they were prior to the change in policy. 
B) inflation is higher and the unemployment rate is the same as it was prior to the change in policy. 
C) inflation is lower and the unemployment rate is lower than it was prior to the change in policy. 
D) inflation is lower and unemployment is the same as it was prior to the change in policy.

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

Suppose the Federal Reserve pursues contractionary monetary policy. In the long run

The proliferation of Internet usage serves as an example of a favorable supply shock.

Friedman and Phelps concluded that

Which of the following would cause the price level to rise and output to fall in the short run?

Milton Friedman argued that the Fed's control over the money supply could be used to peg

If inflation expectations rise, the short-run Phillips curve shifts

A country is likely to have a higher sacrifice ratio if

A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.

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 housing and financial crises

Which of the following is vertical?

If the Fed increases the growth rate of the money supply, in the long run which of the following is unchanged?

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

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

Samuelson and Solow argued that when unemployment is high,

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. The short-run effects of the housing and financial crisis are shown by

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

According to the short-run Phillips curve, inflation

Suppose the Federal Reserve makes monetary policy more expansionary. In the long run

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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