Question 1

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

Question 2

What does an unexpected decrease in the growth rate of the money supply do to inflation and unemployment in the short-run? What does it do to inflation and unemployment in the long run?

Accepted Answer

A decrease in the growth rate of the mon

Question 3

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 4

Suppose the central bank increases the growth rate of the money supply. In the long run, which of the following is unaffected by this change in policy?

Accepted Answer

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

Question 5

Ultimately, the change in unemployment associated with a change in inflation is due to

Accepted Answer

A)  the shape of the long-run aggregate supply curve. 
B)  unanticipated inflation, not inflation per se. 
C)  anticipated inflation, not inflation per se. 
D)  a change in the natural rate of unemployment. 
A)  the shape of the long-run aggregate supply curve. 
B)  unanticipated inflation, not inflation per se. 
C)  anticipated inflation, not inflation per se. 
D)  a change in the natural rate of unemployment.

Question 6

On a given short-run Phillips curve which of the following is held constant?

Accepted Answer

A)  the level of GDP 
B)  the unemployment rate 
C)  expected inflation 
D)  employment 
A)  the level of GDP 
B)  the unemployment rate 
C)  expected inflation 
D)  employment

Question 7

If the natural rate of unemployment falls,

Accepted Answer

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

Question 8

Figure 35-4. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, the price level is measured on the vertical axis; on the right-hand diagram, the inflation rate is measured on the vertical axis.    
-Refer to Figure 35-4. Assume the figure depicts possible outcomes for the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was

Accepted Answer

A)  106. 
B)  108. 
C)  110. 
D)  112. 
A)  106. 
B)  108. 
C)  110. 
D)  112.

Question 9

Disinflation is a

Accepted Answer

A)  reduction in the price level, whereas deflation is a reduction in the rate of inflation. 
B)  reduction in the rate of inflation, whereas deflation is a reduction in the price level. 
C)  slow reduction in the price level, whereas deflation is a rapid reduction in the price level. 
D)  rapid reduction in the price level, whereas deflation is a slow reduction in the price level. 
A)  reduction in the price level, whereas deflation is a reduction in the rate of inflation. 
B)  reduction in the rate of inflation, whereas deflation is a reduction in the price level. 
C)  slow reduction in the price level, whereas deflation is a rapid reduction in the price level. 
D)  rapid reduction in the price level, whereas deflation is a slow reduction in the price level.

Question 10

If a central bank decreases the money supply, then

Accepted Answer

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

Question 11

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

Accepted Answer

A)  shifts both the long-run and the short-run Phillips curves right. 
B)  shifts the long-run Phillips curve left and the short-run Phillips curve right. 
C)  shifts the long-run Phillips curve right and the short-run Phillips curve left. 
D)  None of the above is correct. 
A)  shifts both the long-run and the short-run Phillips curves right. 
B)  shifts the long-run Phillips curve left and the short-run Phillips curve right. 
C)  shifts the long-run Phillips curve right and the short-run Phillips curve left. 
D)  None of the above is correct.

Question 12

An economy has a current inflation rate of 7%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, then how much annual output must be sacrificed in the transition?

Accepted Answer

A)  10% 
B)  8% 
C)  6% 
D)  None of the above is correct. 
A)  10% 
B)  8% 
C)  6% 
D)  None of the above is correct.

Question 13

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 14

Figure 35-1. 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 35-1. 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 15

If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

Accepted Answer

A)  2 percent of annual output. 
B)  6 percent of annual output. 
C)  8 percent of annual output. 
D)  11 percent of annual output. 
A)  2 percent of annual output. 
B)  6 percent of annual output. 
C)  8 percent of annual output. 
D)  11 percent of annual output.

Question 16

In the late 1960s, economist Edmund Phelps published a paper that

Accepted Answer

A)  argued that there was no long-run tradeoff between inflation and unemployment. 
B)  disproved Friedman's claim that monetary policy was effective in controlling inflation. 
C)  showed the optimal point on the Phillips curve was at an unemployment rate of 5 percent and an inflation rate of 2 percent. 
D)  argued that the Phillips curve was stable and that it would not shift. 
A)  argued that there was no long-run tradeoff between inflation and unemployment. 
B)  disproved Friedman's claim that monetary policy was effective in controlling inflation. 
C)  showed the optimal point on the Phillips curve was at an unemployment rate of 5 percent and an inflation rate of 2 percent. 
D)  argued that the Phillips curve was stable and that it would not shift.

Question 17

Which of the following is correct if there is an adverse supply shock?

Accepted Answer

A)  The short-run aggregate supply curve and the short-run Phillips curve both shift right. 
B)  The short-run aggregate supply curve and the short-run Phillips curve both shift left. 
C)  The short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left. 
D)  The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right. 
A)  The short-run aggregate supply curve and the short-run Phillips curve both shift right. 
B)  The short-run aggregate supply curve and the short-run Phillips curve both shift left. 
C)  The short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left. 
D)  The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right.

Question 18

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 19

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky-wage theory to explain your answer.

Accepted Answer

If unemployment is above its natural rat

Question 20

A common explanation for the behavior of the short-run U.S. Phillips curve in 2009 and 2010 is that, over the previous 20 or so years, the Federal Reserve had

Accepted Answer

A)  established a lot of credibility in its commitment to keep inflation at about 2 percent. 
B)  established a lot of credibility in its commitment to keep inflation at about 5 percent. 
C)  failed to establish significant credibility in its announced intent to keep inflation at about 2 percent. 
D)  failed to establish significant credibility in its announced intent to keep inflation at about 5 percent. 
A)  established a lot of credibility in its commitment to keep inflation at about 2 percent. 
B)  established a lot of credibility in its commitment to keep inflation at about 5 percent. 
C)  failed to establish significant credibility in its announced intent to keep inflation at about 2 percent. 
D)  failed to establish significant credibility in its announced intent to keep inflation at about 5 percent.

Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

Suppose that the money supply increases. In the short run, this increases prices according to

What does an unexpected decrease in the growth rate of the money supply do to inflation and unemployment in the short-run? What does it do to inflation and unemployment in the long run?

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

Suppose the central bank increases the growth rate of the money supply. In the long run, which of the following is unaffected by this change in policy?

Ultimately, the change in unemployment associated with a change in inflation is due to

On a given short-run Phillips curve which of the following is held constant?

If the natural rate of unemployment falls,

Disinflation is a

If a central bank decreases the money supply, then

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

An economy has a current inflation rate of 7%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, then how much annual output must be sacrificed in the transition?

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

Figure 35-1. 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 35-1. What is measured along the horizontal axis of the left-hand graph?

If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

In the late 1960s, economist Edmund Phelps published a paper that

Which of the following is correct if there is an adverse supply shock?

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

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky-wage theory to explain your answer.

A common explanation for the behavior of the short-run U.S. Phillips curve in 2009 and 2010 is that, over the previous 20 or so years, the Federal Reserve had

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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 Macroeconomics: Basic Concepts

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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