Question 1

Any policy change that reduced the natural rate of unemployment would

Accepted Answer

A)  shift the long-run Phillips curve to the left. 
B)  shift the long-run aggregate-supply curve to the right. 
C)  improve the functioning of the labor market. 
D)  All of the above are correct. 
A)  shift the long-run Phillips curve to the left. 
B)  shift the long-run aggregate-supply curve to the right. 
C)  improve the functioning of the labor market. 
D)  All of the above are correct.

Question 2

The natural rate of unemployment is the same as the socially optimal rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 3

Unemployment would decrease and prices would increase if

Accepted Answer

A)  aggregate demand shifted right. 
B)  aggregate demand shifted left. 
C)  aggregate supply shifted right. 
D)  aggregate supply shifted left. 
A)  aggregate demand shifted right. 
B)  aggregate demand shifted left. 
C)  aggregate supply shifted right. 
D)  aggregate supply shifted left.

Question 4

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

Accepted Answer

A) True 
 B)False

Question 5

If consumption expenditures fall, then in the short run

Accepted Answer

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

Question 6

In the 1970s, the Fed accommodated a(n)

Accepted Answer

A)  adverse supply shock and so contributed to higher inflation. 
B)  adverse supply shock and so contributed to lower inflation. 
C)  favorable supply shock and so contributed to higher inflation. 
D)  favorable supply shock and so contributed to lower inflation. 
A)  adverse supply shock and so contributed to higher inflation. 
B)  adverse supply shock and so contributed to lower inflation. 
C)  favorable supply shock and so contributed to higher inflation. 
D)  favorable supply shock and so contributed to lower inflation.

Question 7

In 1979, Fed Chair Paul Volcker

Accepted Answer

A)  instituted an accommodative monetary policy to address adverse supply shocks. 
B)  believed that inflation had not yet reached unacceptable levels. 
C)  believed decreasing inflation would temporarily decrease output growth. 
D)  All of the above are correct. 
A)  instituted an accommodative monetary policy to address adverse supply shocks. 
B)  believed that inflation had not yet reached unacceptable levels. 
C)  believed decreasing inflation would temporarily decrease output growth. 
D)  All of the above are correct.

Question 8

If expected inflation falls but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

Accepted Answer

Unemployment falls. The decrea

Question 9

A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician's argument is

Accepted Answer

A)  consistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would not increase inflation. 
B)  consistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would increase inflation. 
C)  inconsistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would not increase inflation. 
D)  inconsistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would increase inflation. 
A)  consistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would not increase inflation. 
B)  consistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would increase inflation. 
C)  inconsistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would not increase inflation. 
D)  inconsistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would increase inflation.

Question 10

Which of the following would shift the long-run Phillips curve to the right?

Accepted Answer

A)  expansionary fiscal policy 
B)  an increase in the inflation rate 
C)  increases in unemployment compensation 
D)  None of the above is correct. 
A)  expansionary fiscal policy 
B)  an increase in the inflation rate 
C)  increases in unemployment compensation 
D)  None of the above is correct.

Question 11

How are the effects of the financial crisis shown using the Phillips curve diagram?

Accepted Answer

As a move down along

Question 12

Figure 35-6
Use the graph below to answer the following questions.  
-Refer to Figure 35-6. Curve 1 is the

Accepted Answer

A)  long-run aggregate supply curve. 
B)  short-run aggregate supply curve. 
C)  long-run Phillips curve. 
D)  short-run Phillips curve. 
A)  long-run aggregate supply curve. 
B)  short-run aggregate supply curve. 
C)  long-run Phillips curve. 
D)  short-run Phillips curve.

Question 13

Figure 35-6
Use the graph below to answer the following questions.  
-Refer to Figure 35-6. If the economy starts at C and the money supply growth rate increases, then in the short run the economy moves to

Accepted Answer

A)  B. 
B)  D. 
C)  F. 
D)  None of the above is consistent with an increase in the money supply growth rate. 
A)  B. 
B)  D. 
C)  F. 
D)  None of the above is consistent with an increase in the money supply growth rate.

Question 14

In 1979, when the Fed was deciding how aggressively to fight inflation, the typical estimate of the sacrifice ratio was

Accepted Answer

A)  1. 
B)  5. 
C)  7. 
D)  10. 
A)  1. 
B)  5. 
C)  7. 
D)  10.

Question 15

Friedman and Phelps argued

Accepted Answer

A)  that in the long run, monetary growth did not influence those factors that determine the economy's unemployment rate. 
B)  that the Phillips curve could be exploited in the long run by using monetary, but not fiscal policy. 
C)  that the short-run Phillips curve was very steep, but not vertical. 
D)  that there was neither a short-run nor long-run tradeoff between inflation and unemployment. 
A)  that in the long run, monetary growth did not influence those factors that determine the economy's unemployment rate. 
B)  that the Phillips curve could be exploited in the long run by using monetary, but not fiscal policy. 
C)  that the short-run Phillips curve was very steep, but not vertical. 
D)  that there was neither a short-run nor long-run tradeoff between inflation and unemployment.

Question 16

How are the effects of a favorable supply shock shown in the Phillips curve diagram? If the Fed wants to return unemployment to its natural rate after the shock, what should it do?

Accepted Answer

The short-run Phillips curve s

Question 17

Some countries have inflation around or in excess of 8 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent? In your answer, define the sacrifice ratio and explain how you found the cost of inflation reduction.

Accepted Answer

The sacrifice ratio gives the annual per

Question 18

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 19

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 20

An adverse supply shock causes output to

Accepted Answer

A)  rise. To counter this a central bank would increase the money supply. 
B)  rise. To counter this a central bank would decrease the money supply. 
C)  fall. To counter this a central bank would increase the money supply. 
D)  fall. To counter this a central bank would decrease the money supply. 
A)  rise. To counter this a central bank would increase the money supply. 
B)  rise. To counter this a central bank would decrease the money supply. 
C)  fall. To counter this a central bank would increase the money supply. 
D)  fall. To counter this a central bank would decrease the money supply.

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

Any policy change that reduced the natural rate of unemployment would

The natural rate of unemployment is the same as the socially optimal rate of unemployment.

Unemployment would decrease and prices would increase if

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

If consumption expenditures fall, then in the short run

In the 1970s, the Fed accommodated a(n)

In 1979, Fed Chair Paul Volcker

If expected inflation falls but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician's argument is

Which of the following would shift the long-run Phillips curve to the right?

How are the effects of the financial crisis shown using the Phillips curve diagram?

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. Curve 1 is the

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. If the economy starts at C and the money supply growth rate increases, then in the short run the economy moves to

In 1979, when the Fed was deciding how aggressively to fight inflation, the typical estimate of the sacrifice ratio was

Friedman and Phelps argued

How are the effects of a favorable supply shock shown in the Phillips curve diagram? If the Fed wants to return unemployment to its natural rate after the shock, what should it do?

Some countries have inflation around or in excess of 8 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent? In your answer, define the sacrifice ratio and explain how you found the cost of inflation reduction.

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

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

An adverse supply shock causes output to

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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