Question 1

Friedman argued that the Fed could use monetary policy to peg

Accepted Answer

A)   nominal exchange rates.
B)   the level of real GDP.
C)   the rate of unemployment.
D)   None of the above is correct.E) A) and C)
F) A) and B)

Question 2

A policy that raised the natural rate of unemployment would shift

Accepted Answer

A)   both the short-run and the long-run Phillips curves to the right.
B)   the short-run Phillips curve right but leave the long-run Phillips curve unchanged.
C)   the long-run Phillips curve right but leave the short-run Phillips curve unchanged.
D)   neither the long-run Phillips curve nor the short-run Phillips curve right.E) B) and D)
F) C) and D)

Question 3

Just as the aggregate-demand curve slopes downward only in the short run, the trade-off between inflation and unemployment holds only in the long run.

Accepted Answer

A) True 
 B)False

Question 4

The Phillips curve and the short-run aggregate supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Accepted Answer

The Phillips curve shows the relation be...

Question 5

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.E) C) and D)
F) B) and D)

Question 6

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

Accepted Answer

A)   aggregate demand right.
B)   aggregate demand left.
C)   aggregate supply right.
D)   aggregate supply left.E) A) and B)
F) B) and C)

Question 7

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.E) None of the above
F) A) and B)

Question 8

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.E) A) and D)
F) B) and D)

Question 9

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

Accepted Answer

A)   It would shift the long-run Phillips curve right.
B)   It would shift the long-run Phillips curve left.
C)   There would be an upward movement along a given long-run Phillips curve.
D)   There would be a downward movement along a given long-run Philips curve.E) C) and D)
F) A) and B)

Question 10

Data for the United States traced out an almost perfect Phillips curve for much of the

Accepted Answer

A)   1960s.
B)   1970s.
C)   1980s.
D)   1990s.E) A) and D)
F) B) and C)

Question 11

A favorable supply shock will cause the price level

Accepted Answer

A)   and output to rise.
B)   and output to fall.
C)   to rise and output to fall.
D)   to fall and output to rise.E) A) and D)
F) A) and C)

Question 12

Which of the following would cause the price level to fall and output to rise in the short run?

Accepted Answer

A)   an increase in the money supply
B)   a decrease in the money supply
C)   an adverse supply shock
D)   a favorable supply shockE) None of the above
F) B) and C)

Question 13

If expected inflation decreases does the short-run Phillips curve shift? If so, what direction does it shift? Does the long-run Phillips curve shift? If so, what direction does it shift?

Accepted Answer

If expected inflation decrease...

Question 14

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 15

If the Fed raised the money supply growth by more than expected then the unemployment rate would_______in the short run. Explain the process by which the economy moves to the long run if the Fed maintains the higher money supply growth rate.

Accepted Answer

fall. Eventually inflation exp...

Question 16

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.E) B) and D)
F) A) and D)

Question 17

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

Accepted Answer

A) True 
 B)False

Question 18

What would a central bank need to do to reverse the effects of a favorable supply shock on inflation? What would its reaction do to the unemployment rate in the short run?

Accepted Answer

It would increase the money su...

Question 19

One determinant of the natural rate of unemployment is the

Accepted Answer

A)   rate of growth of the money supply.
B)   minimum wage rate.
C)   expected inflation rate.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 20

If the natural rate of unemployment falls,

Accepted Answer

A)   both the short-run and long-run Phillips curves shift left.
B)   the short-run Phillips curve shifts left, the long-run Phillips curve is unchanged.
C)   the short-run Phillips curve is unchanged, the long-run Phillips curve shifts right.
D)   the short-run and the long-run Phillips curves shift right.E) A) and C)
F) None of the above

Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

Just as the aggregate-demand curve slopes downward only in the short run, the trade-off between inflation and unemployment holds only in the long run.

Correct AnswerverifiedShow Answer

What would a central bank need to do to reverse the effects of a favorable supply shock on inflation? What would its reaction do to the unemployment rate in the short run?

Correct AnswerverifiedIt would increase the money su...View AnswerShow Answer

Data for the United States traced out an almost perfect Phillips curve for much of the

Correct AnswerverifiedShow Answer

If the Fed raised the money supply growth by more than expected then the unemployment rate would_______in the short run. Explain the process by which the economy moves to the long run if the Fed maintains the higher money supply growth rate.

Correct Answerverifiedfall. Eventually inflation exp...View AnswerShow Answer

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If expected inflation decreases does the short-run Phillips curve shift? If so, what direction does it shift? Does the long-run Phillips curve shift? If so, what direction does it shift?

Correct AnswerverifiedIf expected inflation decrease...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

If the natural rate of unemployment falls,

Correct AnswerverifiedShow Answer

Which of the following would cause the price level to fall and output to rise in the short run?

Correct AnswerverifiedShow Answer

Friedman argued that the Fed could use monetary policy to peg

Correct AnswerverifiedShow Answer

One determinant of the natural rate of unemployment is the

Correct AnswerverifiedShow Answer

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

Correct AnswerverifiedShow Answer

The Phillips curve and the short-run aggregate supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Correct AnswerverifiedThe Phillips curve shows the relation be...View AnswerShow Answer

A favorable supply shock will cause the price level

Correct AnswerverifiedShow Answer

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A policy that raised the natural rate of unemployment would shift

Correct AnswerverifiedShow Answer

Any policy change that reduced the natural rate of unemployment would

Correct AnswerverifiedShow Answer

If a central bank decreases the money supply, then

Correct AnswerverifiedShow Answer

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It would increase the money su...
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fall. Eventually inflation exp...
View Answer

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If expected inflation decrease...
View Answer

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The Phillips curve shows the relation be...
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