Question 1

How does the short-run Phillips curve model reflect an increase in the natural rate of unemployment?

Accepted Answer

A) as a leftward shift in the short-run Phillips curve 
B) as a rightward shift in the short-run Phillips curve 
C) as a downward movement along the short-run Phillips curve 
D) as an upward movement along the short-run Phillips curve

Question 2

Suppose the central bank wants to permanently reduce the inflation rate.What are the possible ways of doing so,and what are the consequences?

Accepted Answer

The answer of Suppose the central bank wants to permanently...

Question 3

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?

Accepted Answer

The answer of Suppose that the economy is at an...

Question 4

The analysis of Friedman and Phelps argues that any change in inflation that is expected has no impact on the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 5

Figure 16-4
 
-Refer to the Figure 16-4.If the economy is at point h and the Bank of Canada pursues a contractionary monetary policy,then the economy will move to which of the following points in the short and long run?

Accepted Answer

A) point d in the short run and point c in the long run 
B) point b in the short run and point c in the long run 
C) point c in the long-run and point a in the long run 
D) point m in the short run and point c in the long run

Question 6

Which of the following best defines disinflation?

Accepted Answer

A) It is a zero rate of inflation. 
B) It is a constant rate of inflation. 
C) It is a reduction in the rate of inflation. 
D) It is a negative rate of inflation.

Question 7

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Accepted Answer

The answer of Why does a downward-sloping Phillips curve imply...

Question 8

According to the Friedman-Phelps analysis,in the long run,actual inflation equals expected inflation,and unemployment is at its natural rate.

Accepted Answer

A) True 
 B)False

Question 9

Among other things,which of the following determines the long-run average unemployment rate and inflation,respectively?

Accepted Answer

A) the market power of unions; government spending 
B) the minimum wage; the money supply growth rate 
C) the rate of growth of the money supply; the market power of unions 
D) efficiency wages; the extent to which firms are competitive

Question 10

In the long run,which of the following will happen if the Bank of Canada increases the rate at which it increases the money supply?

Accepted Answer

A) Inflation will be higher. 
B) Unemployment will be lower. 
C) Real GDP will be higher. 
D) Unemployment will be higher.

Question 11

How much was the unemployment rate in Canada in 1983?

Accepted Answer

A) about 5 percent 
B) about 7 percent 
C) about 10 percent 
D) about 12 percent

Question 12

The long-run response to a decrease in the growth rate of the money supply is shown by shifting which of the Phillips curves and in what direction?

Accepted Answer

A) by shifting the short-run and long-run Phillips curves left 
B) by shifting the short-run and long-run Phillips curves right 
C) by shifting only the short-run Phillips curve left 
D) by shifting only the short-run Phillips curve right

Question 13

Figure 16-4
 
-Refer to the Figure 16-4.If the economy is at point c and the Bank of Canada pursues an expansionary monetary policy,then the economy will move to which of the following points in the short run?

Accepted Answer

A) point b 
B) point c 
C) point d 
D) point h

Question 14

If inflation expectations rise,how do the short-run Phillips curve and unemployment change?

Accepted Answer

A) The short-run Phillips curve shifts right, so that at any inflation rate unemployment is higher. 
B) The short-run Phillips curve shifts left, so that at any inflation rate unemployment is higher. 
C) The short-run Phillips curve shifts right, so that at any inflation rate unemployment is lower. 
D) The short-run Phillips curve shifts left, so that at any inflation rate unemployment is lower.

Question 15

Which of the following refers to the theory that people optimally use all available information when forecasting the future?

Accepted Answer

A) rational expectations theory 
B) perfect expectations theory 
C) momentum expectations theory 
D) accommodating expectations theory

Question 16

What happened to aggregate supply and the Phillips curve in the mid- and late 1990s?

Accepted Answer

A) Aggregate supply and the Phillips curve shifted right. 
B) Aggregate supply and the Phillips curve shifted left. 
C) Aggregate supply shifted right and the Phillips curve shifted left. 
D) Aggregate supply shifted left and the Phillips curve shifted right.

Question 17

How does an increase in the expected rate of inflation shift the Phillips curves?

Accepted Answer

A) It shifts only the short-run Phillips curve to the right. 
B) It shifts only the short-run Phillips curve to the left. 
C) It shifts both the short-run and long-run Phillips curves to the right. 
D) It shifts both the short-run and long-run Phillips curves to the left.

Question 18

Figure 16-4
 
-Refer to the Figure 16-4.Along SRPC1,what is the expected rate of inflation?

Accepted Answer

A) 0 percent 
B) 2 percent 
C) 5 percent 
D) 8 percent

Question 19

Figure 16-4
 
-Refer to the Figure 16-4e.If the economy is at point h and the Bank of Canada pursues a contractionary monetary policy,then the economy will move to which of the following points in the short run?

Accepted Answer

A) point a 
B) point b 
C) point c 
D) point m

Question 20

Milton Friedman argued that a central bank's control over the money supply could be used to peg which of the following?

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

Exam 16: The Short-Run Tradeoff between Inflation and Unemployment