Question 1

Figure 35-7
Use the two graphs in the diagram to answer the following questions.
  
-Refer to Figure 35-7. Starting from C and 3, in the short run an unexpected increase in money supply growth moves the economy to

Accepted Answer

A)   A and 1.
B)   B and 2.
C)   back to C and 3.
D)   D and 4.E) B) and C)
F) A) and D)

Question 2

For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips curve which of the following could explain this? Country A has

Accepted Answer

A)   maintained a higher money supply growth rate.
B)   maintained a lower money supply growth rate.
C)   a higher minimum wage than country B.
D)   a lower minimum wage than country B.E) A) and B)
F) A) and C)

Question 3

Figure 35-3. The left-hand graph shows a short-run aggregate-supply SRAS)  curve and two aggregate-demand AD)  curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-3. What is measured along the vertical axis of the right-hand graph?

Accepted Answer

A)   the interest rate
B)   the inflation rate
C)   the government's budget deficit as a percent of GDP
D)   the growth rate of the nominal money supplyE) B) and C)
F) A) and D)

Question 4

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Accepted Answer

Both reflect the classical dichotomy. Th...

Question 5

For a given short-run Phillips curve, if expected inflation is 10% but actual inflation is 8%, is the unemployment rate above or below its natural rate?

Accepted Answer

The unempl...

Question 6

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Accepted Answer

It would shift right...

Question 7

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.E) A) and D)
F) A) and C)

Question 8

If the Fed wants to reverse the effects of a favorable supply shock on the inflation rate, it should

Accepted Answer

A)   increase the money supply growth rate which also moves unemployment closer to its natural rate.
B)   increase the money supply growth rate, but this moves unemployment further from its natural rate.
C)   decrease the money supply growth rate which also moves unemployment closer to its natural rate.
D)   decrease the money supply growth rate, but this moves unemployment further from its natural rate.E) All of the above
F) A) and B)

Question 9

Samuelson and Solow reasoned that when aggregate demand was low, unemployment was

Accepted Answer

A)   high, so there was upward pressure on wages and prices.
B)   high, so there was downward pressure on wages and prices.
C)   low, so there was upward pressure on wages and prices.
D)   low, so there was downward pressure on wages and prices.E) A) and C)
F) C) and D)

Question 10

Which of the following is correct if there is an adverse supply shock?

Accepted Answer

A)   The short-run aggregate supply curve and the short-run Phillips curve both shift right.
B)   The short-run aggregate supply curve and the short-run Phillips curve both shift left.
C)   The short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left.
D)   The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right.E) B) and D)
F) C) and D)

Question 11

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

Question 12

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.E) A) and C)
F) A) and B)

Question 13

The short-run Phillips curve shows the combinations of

Accepted Answer

A)   unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.
B)   unemployment and inflation that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve.
C)   real GDP and the price level that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve.
D)   None of the above is correct.E) All of the above
F) B) and C)

Question 14

Refer to Monetary Policy in Flosserland. Suppose that the Flosserland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% but it actually raises inflation to 30%. Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%. Then

Accepted Answer

A)   unemployment falls, but it would have fallen less if people had been expecting 12.5% inflation.
B)   unemployment falls, but it would have fallen less if people had been expecting 25% inflation.
C)   unemployment rises, but it would have risen less if people had been expecting 12.5% inflation.
D)   unemployment rises, but it would have risen less if people had been expecting 25% inflation.E) A) and B)
F) None of the above

Question 15

If inflation is less than expected, then the unemployment rate is

Accepted Answer

A)   greater than the natural rate. In the long run the short-run Phillips curve will shift right.
B)   greater than the natural rate. In the long run the short-run Phillips curve will shift left.
C)   less than the natural rate. In the long run the short-run Phillips curve will shift right.
D)   less than the natural rate. In the long run the short-run Phillips curve will shift left.E) B) and C)
F) A) and D)

Question 16

If asset prices fall and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

Accepted Answer

Inflation falls and unemployment rises. ...

Question 17

Although monetary policy cannot reduce the natural rate of unemployment, other types of government policies can.

Accepted Answer

A) True 
 B)False

Question 18

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) A) and D)

Question 19

Figure 35-7
Use the two graphs in the diagram to answer the following questions.
  
-Refer to Figure 35-7. Starting from C and 3, in the long run, a decrease in money supply growth moves the economy to

Accepted Answer

A)   A and 1.
B)   back to C and 3.
C)   D and 4.
D)   F and 5.E) A) and D)
F) C) and D)

Question 20

Samuelson and Solow argued that when unemployment is high, there is

Accepted Answer

A)   upward pressure on wages and prices.
B)   upward pressure on wages and downward pressure on prices.
C)   upward pressure on prices and downward pressure on wages.
D)   downward pressure on wages and prices.E) A) and B)
F) A) and C)

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

If asset prices fall and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

Correct Answer
verified
Inflation falls and unemployment rises. ...
View Answer

For a given short-run Phillips curve, if expected inflation is 10% but actual inflation is 8%, is the unemployment rate above or below its natural rate?

Correct Answer
verified
The unempl...
View Answer

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

Correct Answer
verified

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

Correct Answer
verified

In 1979, Fed Chair Paul Volcker

Correct Answer
verified

If the Fed wants to reverse the effects of a favorable supply shock on the inflation rate, it should

Correct Answer
verified

Samuelson and Solow argued that when unemployment is high, there is

Correct Answer
verified

Samuelson and Solow reasoned that when aggregate demand was low, unemployment was

Correct Answer
verified

If inflation is less than expected, then the unemployment rate is

Correct Answer
verified

The short-run Phillips curve shows the combinations of

Correct Answer
verified

Which of the following is correct if there is an adverse supply shock?

Correct Answer
verified

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. Starting from C and 3, in the long run, a decrease in money supply growth moves the economy to

Correct Answer
verified

Correct Answer
verified

For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips curve which of the following could explain this? Country A has

Correct Answer
verified

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Correct Answer
verified
Both reflect the classical dichotomy. Th...
View Answer

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

Correct Answer
verified

Correct Answer
verified

Although monetary policy cannot reduce the natural rate of unemployment, other types of government policies can.

Correct Answer
verified

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. Starting from C and 3, in the short run an unexpected increase in money supply growth moves the economy to

Correct Answer
verified

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Correct Answer
verified
It would shift right...
View Answer

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

If asset prices fall and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

Correct AnswerverifiedInflation falls and unemployment rises. ...View AnswerShow Answer

For a given short-run Phillips curve, if expected inflation is 10% but actual inflation is 8%, is the unemployment rate above or below its natural rate?

Correct AnswerverifiedThe unempl...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In 1979, Fed Chair Paul Volcker

Correct AnswerverifiedShow Answer

If the Fed wants to reverse the effects of a favorable supply shock on the inflation rate, it should

Correct AnswerverifiedShow Answer

Samuelson and Solow argued that when unemployment is high, there is

Correct AnswerverifiedShow Answer

Samuelson and Solow reasoned that when aggregate demand was low, unemployment was

Correct AnswerverifiedShow Answer

If inflation is less than expected, then the unemployment rate is

Correct AnswerverifiedShow Answer

The short-run Phillips curve shows the combinations of

Correct AnswerverifiedShow Answer

Which of the following is correct if there is an adverse supply shock?

Correct AnswerverifiedShow Answer

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. Starting from C and 3, in the long run, a decrease in money supply growth moves the economy to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips curve which of the following could explain this? Country A has

Correct AnswerverifiedShow Answer

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Correct AnswerverifiedBoth reflect the classical dichotomy. Th...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Although monetary policy cannot reduce the natural rate of unemployment, other types of government policies can.

Correct AnswerverifiedShow Answer

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. Starting from C and 3, in the short run an unexpected increase in money supply growth moves the economy to

Correct AnswerverifiedShow Answer

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Correct AnswerverifiedIt would shift right...View AnswerShow Answer

Correct Answer
verified
Inflation falls and unemployment rises. ...
View Answer

Correct Answer
verified
The unempl...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Both reflect the classical dichotomy. Th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
It would shift right...
View Answer