Question 1

Suppose the Federal Reserve makes monetary policy more expansionary. In the long run

Accepted Answer

A)  both inflation and the unemployment rate are higher than they were prior to the change in policy. 
B)  inflation is higher and the unemployment rate is the same as it was prior to the change in policy. 
C)  inflation is lower and the unemployment rate is lower than it was prior to the change in policy. 
D)  inflation is lower and unemployment is the same as it was prior to the change in policy. 
A)  both inflation and the unemployment rate are higher than they were prior to the change in policy. 
B)  inflation is higher and the unemployment rate is the same as it was prior to the change in policy. 
C)  inflation is lower and the unemployment rate is lower than it was prior to the change in policy. 
D)  inflation is lower and unemployment is the same as it was prior to the change in policy.

Question 2

Suppose the economy is in long-run equilibrium at an inflation rate of 1% Then inflation expectations rise to 2% and inflation rises to 3%. The increase in expected inflation shifts the short-run Phillips curve

Accepted Answer

A)  right. Overall, unemployment moves above its natural rate. 
B)  right. Overall, unemployment moves below its natural rate. 
C)  left. Overall, unemployment moves above its natural rate. 
D)  left. Overall, unemployment moves below its natural rate. 
A)  right. Overall, unemployment moves above its natural rate. 
B)  right. Overall, unemployment moves below its natural rate. 
C)  left. Overall, unemployment moves above its natural rate. 
D)  left. Overall, unemployment moves below its natural rate.

Question 3

A central bank that accommodates an aggregate supply shock

Accepted Answer

A)  increases the money supply, making the inflation rate rise. 
B)  increases the money supply, making the inflation rate fall. 
C)  decreases the money supply, making the inflation rate rise. 
D)  decreases the money supply, making the inflation rate fall. 
A)  increases the money supply, making the inflation rate rise. 
B)  increases the money supply, making the inflation rate fall. 
C)  decreases the money supply, making the inflation rate rise. 
D)  decreases the money supply, making the inflation rate fall.

Question 4

Friedman and Phelps argued that it was dangerous to think of the short-run Phillips curve as a menu of options for policymakers to choose from. Explain the logic of their argument.

Accepted Answer

Eventually the economy moves back to the

Question 5

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 6

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

Accepted Answer

A)  right, so that at any inflation rate output is higher in the short run than before. 
B)  left, so that at any inflation rate output is higher in the short run than before. 
C)  right, so that at any inflation rate output is lower in the short run than before. 
D)  left, so that at any inflation rate output is lower in the short run than before. 
A)  right, so that at any inflation rate output is higher in the short run than before. 
B)  left, so that at any inflation rate output is higher in the short run than before. 
C)  right, so that at any inflation rate output is lower in the short run than before. 
D)  left, so that at any inflation rate output is lower in the short run than before.

Question 7

In the late 1960s, Milton Friedman and Edmund Phelps argued that

Accepted Answer

A)  the trade-off between inflation and unemployment did not apply in the long run This claim is consistent with monetary neutrality in the long run. 
B)  the trade-off between inflation and unemployment did not apply in the long run. This claim is inconsistent with monetary neutrality in the long run. 
C)  the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is consistent with monetary neutrality in the long run. 
D)  the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is inconsistent with monetary neutrality in the long run. 
A)  the trade-off between inflation and unemployment did not apply in the long run This claim is consistent with monetary neutrality in the long run. 
B)  the trade-off between inflation and unemployment did not apply in the long run. This claim is inconsistent with monetary neutrality in the long run. 
C)  the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is consistent with monetary neutrality in the long run. 
D)  the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is inconsistent with monetary neutrality in the long run.

Question 8

According to the Philips curve diagram, if a central bank takes action to reduce the inflation rate, unemployment is

Accepted Answer

A)  higher in the short-run and the long-run. 
B)  higher in the short-run only. 
C)  lower in the short-run and the long-run. 
D)  lower in the short-run only. 
A)  higher in the short-run and the long-run. 
B)  higher in the short-run only. 
C)  lower in the short-run and the long-run. 
D)  lower in the short-run only.

Question 9

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 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)  117.25. 
B)  114.95. 
C)  113.12. 
D)  111.10. 
A)  117.25. 
B)  114.95. 
C)  113.12. 
D)  111.10.

Question 10

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Accepted Answer

A)  the level or growth rate of a nominal variable, but not the level or growth rate of a real variable. 
B)  the level of a nominal or real variable, but not the growth rate of a real or nominal variable. 
C)  the level or growth rate of a real variable, but not the level or growth rate of a nominal variable. 
D)  both levels and growth rates of both real and nominal variables. 
A)  the level or growth rate of a nominal variable, but not the level or growth rate of a real variable. 
B)  the level of a nominal or real variable, but not the growth rate of a real or nominal variable. 
C)  the level or growth rate of a real variable, but not the level or growth rate of a nominal variable. 
D)  both levels and growth rates of both real and nominal variables.

Question 11

According to the long-run Phillips curve, in the long run monetary policy influences

Accepted Answer

A)  inflation but not the unemployment rate; this is consistent with classical theory. 
B)  inflation but not the unemployment rate; this is inconsistent with classical theory. 
C)  the unemployment rate but not inflation; this is consistent with classical theory. 
D)  the unemployment rate but not inflation; this is inconsistent with classical theory. 
A)  inflation but not the unemployment rate; this is consistent with classical theory. 
B)  inflation but not the unemployment rate; this is inconsistent with classical theory. 
C)  the unemployment rate but not inflation; this is consistent with classical theory. 
D)  the unemployment rate but not inflation; this is inconsistent with classical theory.

Question 12

Considering a plot of the inflation rate and the unemployment rate, one might conjecture that the short run Phillips curve was further to the right in the first part of the 2000's than it was in the last part of the 1990s and 2000.

Accepted Answer

A)  If so, this might have been the result of a negative supply shock or an increase in expected inflation. 
B)  If so, this might been the result of a negative supply shock, or a decrease in expected inflation. 
C)  If so, this might have been the result of a positive supply shock, or an increase in expected inflation. 
D)  If so, this might have been the result of a positive supply shock, or a decrease in expected inflation. 
A)  If so, this might have been the result of a negative supply shock or an increase in expected inflation. 
B)  If so, this might been the result of a negative supply shock, or a decrease in expected inflation. 
C)  If so, this might have been the result of a positive supply shock, or an increase in expected inflation. 
D)  If so, this might have been the result of a positive supply shock, or a decrease in expected inflation.

Question 13

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 14

A favorable supply shock shifts the short-run Phillips curve

Accepted Answer

A)  right and inflation rises. 
B)  right and inflation falls. 
C)  left and inflation rises. 
D)  left and inflation falls. 
A)  right and inflation rises. 
B)  right and inflation falls. 
C)  left and inflation rises. 
D)  left and inflation falls.

Question 15

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 taxes moves the economy to

Accepted Answer

A)  D and 2. 
B)  D and 3. 
C)  back to C and 1. 
D)  None of the above is correct. 
A)  D and 2. 
B)  D and 3. 
C)  back to C and 1. 
D)  None of the above is correct.

Question 16

Consider two countries: Eastland and Westland. Eastland's long­run Phillips curve sits further to the right than does Westland's long­run Phillips curve. Eastland and Westland are identical in all other ways. In particular, they have the same money supply growth rates. In the long run, compared to Westland, which of the following will we observe in Eastland?

Accepted Answer

A)  higher unemployment and higher inflation. 
B)  higher unemployment and the same rate of inflation. 
C)  lower unemployment and higher inflation. 
D)  None of the above is correct. 
A)  higher unemployment and higher inflation. 
B)  higher unemployment and the same rate of inflation. 
C)  lower unemployment and higher inflation. 
D)  None of the above is correct.

Question 17

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. Assuming the price level in the previous year was 100, point F on the right-hand graph corresponds to

Accepted Answer

A)  point A on the left-hand graph. 
B)  point B on the left-hand graph. 
C)  point C on the left-hand graph. 
D)  point D on the left-hand graph. 
A)  point A on the left-hand graph. 
B)  point B on the left-hand graph. 
C)  point C on the left-hand graph. 
D)  point D on the left-hand graph.

Question 18

Other things the same, if the central bank decreases the rate at which it increases the money supply, then in the long run

Accepted Answer

A)  the short-run Phillips curve shifts right. 
B)  the short-run Phillips curve shifts left. 
C)  the long-run Phillips curve shifts right. 
D)  the long-run Phillips curve shifts left. 
A)  the short-run Phillips curve shifts right. 
B)  the short-run Phillips curve shifts left. 
C)  the long-run Phillips curve shifts right. 
D)  the long-run Phillips curve shifts left.

Question 19

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

Accepted Answer

A)  a sacrifice of 5 percent of annual output. 
B)  a sacrifice of 5 percent of government spending. 
C)  an increase in the unemployment rate of 5 percentage points. 
D)  a 5 percent increase in the government budget deficit. 
A)  a sacrifice of 5 percent of annual output. 
B)  a sacrifice of 5 percent of government spending. 
C)  an increase in the unemployment rate of 5 percentage points. 
D)  a 5 percent increase in the government budget deficit.

Question 20

Write the equation representing the short-run Phillips curve.

Accepted Answer

Unemployment rate =

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

Suppose the Federal Reserve makes monetary policy more expansionary. In the long run

Suppose the economy is in long-run equilibrium at an inflation rate of 1% Then inflation expectations rise to 2% and inflation rises to 3%. The increase in expected inflation shifts the short-run Phillips curve

A central bank that accommodates an aggregate supply shock

Friedman and Phelps argued that it was dangerous to think of the short-run Phillips curve as a menu of options for policymakers to choose from. Explain the logic of their argument.

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?

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

In the late 1960s, Milton Friedman and Edmund Phelps argued that

According to the Philips curve diagram, if a central bank takes action to reduce the inflation rate, unemployment is

Milton Friedman argued that the Fed's control over the money supply could be used to peg

According to the long-run Phillips curve, in the long run monetary policy influences

Considering a plot of the inflation rate and the unemployment rate, one might conjecture that the short run Phillips curve was further to the right in the first part of the 2000's than it was in the last part of the 1990s and 2000.

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

A favorable supply shock shifts the short-run Phillips curve

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 taxes moves the economy to

Other things the same, if the central bank decreases the rate at which it increases the money supply, then in the long run

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

Write the equation representing the short-run Phillips curve.

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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