Question 1

In most of the 1970s, the Fed's policy created expectations of high inflation.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following shifts aggregate supply to the right?

Accepted Answer

A) a decline in the price of imported natural resources 
B) a technological advance 
C) an older labor force that leaves jobs less frequently 
D) All of the above are correct. 
A) a decline in the price of imported natural resources 
B) a technological advance 
C) an older labor force that leaves jobs less frequently 
D) All of the above are correct.

Question 3

If the central bank decreases the money supply, then in the short run prices

Accepted Answer

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

Question 4

Which of the following leads to a lower level of unemployment in the long run?

Accepted Answer

A) both an increase in the size of the money supply and an increase in the money supply growth rate 
B) an increase in the size of the money supply but not an increase in the money supply growth rate 
C) an increase in the money supply growth rate, but not an increase in the size of the money supply 
D) neither an increase in the size of the money supply nor an increase in the money supply growth rate 
A) both an increase in the size of the money supply and an increase in the money supply growth rate 
B) an increase in the size of the money supply but not an increase in the money supply growth rate 
C) an increase in the money supply growth rate, but not an increase in the size of the money supply 
D) neither an increase in the size of the money supply nor an increase in the money supply growth rate

Question 5

The idea that the long-run Phillips curve is

Accepted Answer

A) vertical stems from the analysis of Samuelson and Solow. 
B) vertical stems from the analysis of Friedman and Phelps. 
C) vertical was disproved by the experiment that monetary and fiscal policymakers inadvertently created in the 1970s. 
D) downward-sloping can be correct if unemployment responds very quickly to unexpected inflation. 
A) vertical stems from the analysis of Samuelson and Solow. 
B) vertical stems from the analysis of Friedman and Phelps. 
C) vertical was disproved by the experiment that monetary and fiscal policymakers inadvertently created in the 1970s. 
D) downward-sloping can be correct if unemployment responds very quickly to unexpected inflation.

Question 6

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) falls, so there are upward pressures on wages and prices. 
B) falls, so there are downward pressures on wages and prices. 
C) rises, so there are upward pressures on wages and prices. 
D) rises, so there are downward pressures on wages and prices. 
A) falls, so there are upward pressures on wages and prices. 
B) falls, so there are downward pressures on wages and prices. 
C) rises, so there are upward pressures on wages and prices. 
D) rises, so there are downward pressures on wages and prices.

Question 8

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 9

If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same, then policymakers

Accepted Answer

A) can not exploit a tradeoff between inflation and unemployment in either the short or long run. 
B) can exploit a tradeoff between inflation and unemployment in the short run but not in the long run. 
C) can exploit a tradeoff between inflation and unemployment in both the short run and the long run. 
D) can exploit a tradeoff between inflation and unemployment in the long run, but not the short run. 
A) can not exploit a tradeoff between inflation and unemployment in either the short or long run. 
B) can exploit a tradeoff between inflation and unemployment in the short run but not in the long run. 
C) can exploit a tradeoff between inflation and unemployment in both the short run and the long run. 
D) can exploit a tradeoff between inflation and unemployment in the long run, but not the short run.

Question 10

If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 6 percent would require sacrificing

Accepted Answer

A) 2 percent of annual output. 
B) 5 percent of annual output. 
C) 6 percent of annual output. 
D) None of the above is correct. 
A) 2 percent of annual output. 
B) 5 percent of annual output. 
C) 6 percent of annual output. 
D) None of the above is correct.

Question 11

Figure 22-3. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 22-3. Assume the figure charts possible outcomes for the year 2018. In 2018, the economy is at point B on the left-hand graph, which corresponds to point B on the right-hand graph. Also, point A on the left-hand graph corresponds to A on the right-hand graph. The price level in the year 2018 is

Accepted Answer

A) 155.56. 
B) 159.00. 
C) 163.50. 
D) 170.04. 
A) 155.56. 
B) 159.00. 
C) 163.50. 
D) 170.04.

Question 12

Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?

Accepted Answer

A) Louise reads in the newspaper that the central bank recently raised the money supply. 
B) Eric gets fewer job offers 
C) Jack makes larger increases in the prices at his health food store. 
D) Maria's nominal wage increase is larger. 
A) Louise reads in the newspaper that the central bank recently raised the money supply. 
B) Eric gets fewer job offers 
C) Jack makes larger increases in the prices at his health food store. 
D) Maria's nominal wage increase is larger.

Question 13

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Accepted Answer

Both reflect the classical dichotomy. Th

Question 14

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run?

Accepted Answer

A) Expected inflation would exceed actual inflation, and unemployment would exceed its natural rate. 
B) Expected inflation would exceed actual inflation, and unemployment would be below its natural rate. 
C) Actual inflation would exceed expected inflation, and unemployment would exceed its natural rate. 
D) Actual inflation would exceed expected inflation, and unemployment would be below its natural rate. 
A) Expected inflation would exceed actual inflation, and unemployment would exceed its natural rate. 
B) Expected inflation would exceed actual inflation, and unemployment would be below its natural rate. 
C) Actual inflation would exceed expected inflation, and unemployment would exceed its natural rate. 
D) Actual inflation would exceed expected inflation, and unemployment would be below its natural rate.

Question 15

Which of the following results in higher inflation and higher unemployment in the short run?

Accepted Answer

A) a more expansionary monetary policy 
B) a more contractionary monetary policy 
C) a decrease in the minimum wage 
D) an adverse supply shock such as an increase in the price of oil 
A) a more expansionary monetary policy 
B) a more contractionary monetary policy 
C) a decrease in the minimum wage 
D) an adverse supply shock such as an increase in the price of oil

Question 16

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

Accepted Answer

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

Question 17

Disinflation is a reduction in

Accepted Answer

A) the price level. 
B) the inflation rate. 
C) the consumer price index. 
D) All of the above are correct. 
A) the price level. 
B) the inflation rate. 
C) the consumer price index. 
D) All of the above are correct.

Question 18

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Accepted Answer

A downward-sloping Phillips curve implie

Question 19

U.S. monetary policy in the early 1980s reduced the inflation rate by more than half.

Accepted Answer

A) True 
 B)False

Question 20

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 Southland has had the same inflation rate for a long time. Which, if either, of the following ideas imply that the unemployment rate in Southland would be above the natural rate.

Accepted Answer

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

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

In most of the 1970s, the Fed's policy created expectations of high inflation.

Which of the following shifts aggregate supply to the right?

If the central bank decreases the money supply, then in the short run prices

Which of the following leads to a lower level of unemployment in the long run?

The idea that the long-run Phillips curve is

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

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

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same, then policymakers

If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 6 percent would require sacrificing

Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run?

Which of the following results in higher inflation and higher unemployment in the short run?

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

Disinflation is a reduction in

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

U.S. monetary policy in the early 1980s reduced the inflation rate by more than half.

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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