Question 1

In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Accepted Answer

A)  The change in inflation, but not the change in unemployment is consistent with what a given short-run Phillips curve implies. 
B)  The change in unemployment, but not the change in inflation is consistent with what a given short-run Phillips curve implies. 
C)  Both the change in inflation and the change in unemployment are consistent with what a given short-run Phillips curve implies. 
D)  Neither the change in inflation nor the change in unemployment are consistent with what a given short-run Phillips curve implies. 
A)  The change in inflation, but not the change in unemployment is consistent with what a given short-run Phillips curve implies. 
B)  The change in unemployment, but not the change in inflation is consistent with what a given short-run Phillips curve implies. 
C)  Both the change in inflation and the change in unemployment are consistent with what a given short-run Phillips curve implies. 
D)  Neither the change in inflation nor the change in unemployment are consistent with what a given short-run Phillips curve implies.

Question 2

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve.   Which of the following statements is correct?

Accepted Answer

A)  These points are consistent with the theoretical long-run Phillips curve, but not with the short-run Phillips curve. 
B)  These points are consistent with the theoretical short-run Phillips curve, but not with the long-run Phillips curve. 
C)  These points are consistent with both the theoretical short-run and long-run Phillips curves. 
D)  These points are not consistent with either the theoretical short-run or long-run Phillips curves. 
A)  These points are consistent with the theoretical long-run Phillips curve, but not with the short-run Phillips curve. 
B)  These points are consistent with the theoretical short-run Phillips curve, but not with the long-run Phillips curve. 
C)  These points are consistent with both the theoretical short-run and long-run Phillips curves. 
D)  These points are not consistent with either the theoretical short-run or long-run Phillips curves.

Question 3

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 4

Some economists argue suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real fiscal reforms, people will expect the government will eventually need to expand the money supply to pay for its expenditures. Thus, the promise to fight inflation will not be credible. Explain why credibility is important to a reduction in the inflation rate.

Accepted Answer

If people believe that the government re

Question 5

If an increase in inflation permanently reduced unemployment then,

Accepted Answer

A)  money would not be neutral and the long-run Phillips curve would slope upward. 
B)  money would not be neutral and the long-run Phillips curve would slope downward. 
C)  money would be neutral and the long-run Phillips curve would slope upward. 
D)  money would be neutral and the long-run Phillips curve would slope downward. 
A)  money would not be neutral and the long-run Phillips curve would slope upward. 
B)  money would not be neutral and the long-run Phillips curve would slope downward. 
C)  money would be neutral and the long-run Phillips curve would slope upward. 
D)  money would be neutral and the long-run Phillips curve would slope downward.

Question 6

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 7

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

Accepted Answer

A)  existed in the long run and the short run. 
B)  existed in the long run but not the short run. 
C)  existed in the short run but not the long run. 
D)  did not exist. 
A)  existed in the long run and the short run. 
B)  existed in the long run but not the short run. 
C)  existed in the short run but not the long run. 
D)  did not exist.

Question 8

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 9

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 10

In the long run,

Accepted Answer

A)  the natural rate of unemployment depends primarily on the level of aggregate demand. 
B)  inflation depends primarily upon the money supply growth rate. 
C)  there is a tradeoff between the inflation rate and the natural rate of unemployment. 
D)  All of the above are correct. 
A)  the natural rate of unemployment depends primarily on the level of aggregate demand. 
B)  inflation depends primarily upon the money supply growth rate. 
C)  there is a tradeoff between the inflation rate and the natural rate of unemployment. 
D)  All of the above are correct.

Question 11

In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that

Accepted Answer

A)  it seemed to work for wages but not for inflation. 
B)  monetary policy was ineffective in combating inflation. 
C)  the Phillips curve did not apply in the long run. 
D)  Phillips had made errors in collecting his data. 
A)  it seemed to work for wages but not for inflation. 
B)  monetary policy was ineffective in combating inflation. 
C)  the Phillips curve did not apply in the long run. 
D)  Phillips had made errors in collecting his data.

Question 12

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 13

Figure 17-7
Use this graph to answer the questions below.
  
-Refer to figure 17-7. Suppose the economy starts at 5% unemployment and 3% inflation and expected inflation remains at 3%. Which one of the following points could the economy move to in the short run if the Federal Reserve pursues a more expansionary monetary policy?

Accepted Answer

A)  7% unemployment and 1% inflation 
B)  7% unemployment and 3% inflation 
C)  3% unemployment and 5% inflation 
D)  3% unemployment and 7% inflation 
A)  7% unemployment and 1% inflation 
B)  7% unemployment and 3% inflation 
C)  3% unemployment and 5% inflation 
D)  3% unemployment and 7% inflation

Question 14

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.

Question 15

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Accepted Answer

Friedman and Phelps predicted that, over

Question 16

Figure 17-3. 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 17-3. What is measured along the vertical axis of the right-hand graph?

Accepted Answer

A)  the interest rate 
B)  the inflation rate 
C)  the government's budget deficit as a percent of GDP 
D)  the growth rate of the nominal money supply 
A)  the interest rate 
B)  the inflation rate 
C)  the government's budget deficit as a percent of GDP 
D)  the growth rate of the nominal money supply

Question 17

Figure 17-2
Use the pair of diagrams below to answer the following questions.
  
-Refer to Figure 17-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to

Accepted Answer

A)  B and 2. 
B)  D and 3. 
C)  E and 2. 
D)  None of the above is correct. 
A)  B and 2. 
B)  D and 3. 
C)  E and 2. 
D)  None of the above is correct.

Question 18

According to classical macroeconomic theory, in the long run

Accepted Answer

A)  monetary growth affects both real and nominal variables. 
B)  the only real variable affected by monetary growth is the unemployment rate. 
C)  a number of factors that affect unemployment are influenced by monetary growth. 
D)  monetary growth affects nominal but not real variables. 
A)  monetary growth affects both real and nominal variables. 
B)  the only real variable affected by monetary growth is the unemployment rate. 
C)  a number of factors that affect unemployment are influenced by monetary growth. 
D)  monetary growth affects nominal but not real variables.

Question 19

Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later the inflation rate is lower, but there had been a serious recession. We could conclude with certainty that

Accepted Answer

A)  the rational expectations hypothesis is false. 
B)  the rational expectations hypothesis is true. 
C)  the policymakers lacked credibility. 
D)  None of the above is certain. 
A)  the rational expectations hypothesis is false. 
B)  the rational expectations hypothesis is true. 
C)  the policymakers lacked credibility. 
D)  None of the above is certain.

Question 20

Figure 17-1. 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 17-1. What is measured along the vertical axis of the right-hand graph?

Accepted Answer

A)  the interest rate 
B)  the inflation rate 
C)  the wage rate 
D)  the growth rate of the nominal money supply 
A)  the interest rate 
B)  the inflation rate 
C)  the wage rate 
D)  the growth rate of the nominal money supply

In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve. Which of the following statements is correct?

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

If an increase in inflation permanently reduced unemployment then,

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

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

As aggregate demand shifts right along the aggregate supply curve,

According to the short-run Phillips curve, inflation

In the long run,

In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that

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

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

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Figure 17-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 17-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to

According to classical macroeconomic theory, in the long run

Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later the inflation rate is lower, but there had been a serious recession. We could conclude with certainty that

Figure 17-1. 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 17-1. What is measured along the vertical axis of the right-hand graph?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

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 17: The Short-Run Trade-Off Between Inflation and Unemployment

In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve. Which of the following statements is correct?

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

If an increase in inflation permanently reduced unemployment then,

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

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

As aggregate demand shifts right along the aggregate supply curve,

According to the short-run Phillips curve, inflation

In the long run,

In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that

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

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

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Figure 17-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 17-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to

According to classical macroeconomic theory, in the long run

Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later the inflation rate is lower, but there had been a serious recession. We could conclude with certainty that

Figure 17-1. 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 17-1. What is measured along the vertical axis of the right-hand graph?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

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