Question 1

Use the sticky-wage theory of aggregate demand to explain the short-run Phillips curve.

Accepted Answer

According to the sticky-wage theory, nom

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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 4

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 5

As the aggregate demand curve shifts leftward along a given aggregate supply curve,

Accepted Answer

A)  unemployment and inflation are higher. 
B)  unemployment and inflation are lower. 
C)  unemployment is higher and inflation is lower. 
D)  unemployment is lower and inflation is higher. 
A)  unemployment and inflation are higher. 
B)  unemployment and inflation are lower. 
C)  unemployment is higher and inflation is lower. 
D)  unemployment is lower and inflation is higher.

Question 6

In 1980, the U.S. economy had an inflation rate of

Accepted Answer

A)  about 1 percent and an unemployment rate of about 7 percent. 
B)  less than 4 percent and an unemployment rate of less than 6 percent. 
C)  less than 7 percent and an unemployment rate of about 9 percent. 
D)  more than 9 percent and an unemployment rate of about 7 percent. 
A)  about 1 percent and an unemployment rate of about 7 percent. 
B)  less than 4 percent and an unemployment rate of less than 6 percent. 
C)  less than 7 percent and an unemployment rate of about 9 percent. 
D)  more than 9 percent and an unemployment rate of about 7 percent.

Question 7

According to the Phillips curve, unemployment and inflation are negatively related in

Accepted Answer

A)  the short run and in the long run. 
B)  the short run, but not in the long run. 
C)  the long run, but not in the short run. 
D)  neither the long run nor the short run. 
A)  the short run and in the long run. 
B)  the short run, but not in the long run. 
C)  the long run, but not in the short run. 
D)  neither the long run nor the short run.

Question 8

Which of the following is an example of an adverse supply shock?

Accepted Answer

A)  a decrease in the money supply 
B)  a tax cut 
C)  a worldwide drought 
D)  decreased government spending 
A)  a decrease in the money supply 
B)  a tax cut 
C)  a worldwide drought 
D)  decreased government spending

Question 9

If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year, the sacrifice ratio is

Accepted Answer

A)  5/2. 
B)  3/2. 
C)  2/3. 
D)  2/5. 
A)  5/2. 
B)  3/2. 
C)  2/3. 
D)  2/5.

Question 10

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 11

If the Fed reduces inflation 1 percentage point and this makes output fall 2 percentage points and unemployment rise 3 percentage points for six months, the sacrifice ratio is

Accepted Answer

A)  1. 
B)  2. 
C)  3. 
D)  4. 
A)  1. 
B)  2. 
C)  3. 
D)  4.

Question 12

The natural rate of unemployment

Accepted Answer

A)  is constant over time. 
B)  varies over time, but can't be changed by the government. 
C)  is the unemployment rate that the economy tends to move to in the long run. 
D)  depends on the rate at which the Fed increases the money supply. 
A)  is constant over time. 
B)  varies over time, but can't be changed by the government. 
C)  is the unemployment rate that the economy tends to move to in the long run. 
D)  depends on the rate at which the Fed increases the money supply.

Question 13

Figure 35-2
Use the pair of diagrams below to answer the following questions.    
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in government expenditures moves the economy to

Accepted Answer

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

Question 14

Figure 35-2
Use the pair of diagrams below to answer the following questions.    
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to

Accepted Answer

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

Question 15

Suppose the Fed increased the growth rate of the money supply. Which of the following would be higher in the long run?

Accepted Answer

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

Question 16

Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.

Accepted Answer

Consider what happens when the aggregate

Question 17

According to Friedman and Phelps, policymakers face a tradeoff between inflation and unemployment

Accepted Answer

A)  only in the long run. 
B)  only in the short run. 
C)  in neither the long run nor short run. 
D)  in both the short run and long run. 
A)  only in the long run. 
B)  only in the short run. 
C)  in neither the long run nor short run. 
D)  in both the short run and long run.

Question 18

Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Accepted Answer

In the short run, unemployment will rise

Question 19

In the long run a reduction 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 20

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.

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

Use the sticky-wage theory of aggregate demand to explain the short-run Phillips curve.

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

A country is likely to have a higher sacrifice ratio if

In the long run,

As the aggregate demand curve shifts leftward along a given aggregate supply curve,

In 1980, the U.S. economy had an inflation rate of

According to the Phillips curve, unemployment and inflation are negatively related in

Which of the following is an example of an adverse supply shock?

If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year, the sacrifice ratio is

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

If the Fed reduces inflation 1 percentage point and this makes output fall 2 percentage points and unemployment rise 3 percentage points for six months, the sacrifice ratio is

The natural rate of unemployment

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in government expenditures moves the economy to

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to

Suppose the Fed increased the growth rate of the money supply. Which of the following would be higher in the long run?

Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.

According to Friedman and Phelps, policymakers face a tradeoff between inflation and unemployment

Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

In the long run a reduction in the money supply growth rate affects

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

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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