Question 1

If the central bank increases the money supply, in the short run, output

Accepted Answer

A)   rises so unemployment rises.
B)   rises so unemployment falls.
C)   falls so unemployment rises.
D)   falls so unemployment falls.E) A) and B)
F) C) and D) B

Question 2

Suppose the Fed decreased the growth rate of the money supply. Which of the following would be lower in the long run?

Accepted Answer

A)   both the natural rate of unemployment and the inflation rate
B)   the natural rate of unemployment, but not the inflation rate
C)   the inflation rate, but not the natural rate of unemployment
D)   neither the natural unemployment rate nor the inflation rateE) None of the above
F) B) and D)

Question 3

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Accepted Answer

A) True 
 B)False

Question 4

A decrease in expected inflation shifts

Accepted Answer

A)   the long-run Phillips curve left.
B)   the short-run Phillips curve left.
C)   neither the short-run nor long-run Phillips curve left.
D)   both the short-run and long-run Phillips curve left.E) B) and C)
F) A) and D)

Question 5

If a central bank increases the money supply growth rate, then in the short run

Accepted Answer

A)   unemployment rises. In the long run the short-run Phillips curve shifts right.
B)   unemployment rises. In the long run the short-run Phillips curve shifts left.
C)   unemployment falls. In the long run the short-run Phillips curve shifts right.
D)   unemployment falls. In the long run the short-run Phillips curve shifts left.E) None of the above
F) B) and D)

Question 6

In the long run, which of the following would shift the long-run Phillips curve to the right?

Accepted Answer

A)   an increase in the minimum wage
B)   an increase in government spending
C)   an increase in the money supply
D)   a decrease in the money supplyE) None of the above
F) A) and D)

Question 7

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

Accepted Answer

A)   both the inflation rate and the unemployment rate.
B)   the inflation rate but not the unemployment rate.
C)   the unemployment rate but not the inflation rate.
D)   neither the unemployment rate nor the inflation rate.E) B) and C)
F) All of the above

Question 8

A favorable supply shock will cause

Accepted Answer

A)   unemployment to rise and the short-run Phillips curve to shift right.
B)   unemployment to rise and the short-run Phillips curve to shift left.
C)   unemployment to fall and the short-run Phillips curve to shift right.
D)   unemployment to fall and the short-run Phillips curve to shift left.E) A) and C)
F) A) and B)

Question 9

If there is an increase in the price of oil, then

Accepted Answer

A)   unemployment rises. If the central bank tries to counter this increase, inflation rises.
B)   unemployment rises. If the central bank tries to counter this increase, inflation falls.
C)   unemployment falls. If the central bank tries to counter this decrease, inflation falls.
D)   unemployment falls. If the central bank tries to counter this decrease, inflation rises.E) All of the above
F) C) and D)

Question 10

The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate above its natural rate.

Accepted Answer

A) True 
 B)False

Question 11

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) All of the above
F) B) and C) D

Question 12

Suppose that the money supply decreases. In the short run, this increases prices according to

Accepted Answer

A)   both the short-run Phillips curve and the aggregate demand and aggregate supply model.
B)   neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
C)   the short-run Phillips curve, but not according to the aggregate demand and aggregate supply model.
D)   the aggregate demand and aggregate supply model but not according to the short-run Phillips curve.E) C) and D)
F) A) and B)

Question 13

If there were a favorable supply shock and the central bank wanted to offset the change in the unemployment rate, what would it do?

Accepted Answer

It would r...

Question 14

If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would

Accepted Answer

A)   cost 1 percent of annual output.
B)   cost 4 percent of annual output.
C)   imply that unemployment would rise by 1%.
D)   imply that unemployment would rise by 4%.E) B) and C)
F) A) and D)

Question 15

Which of the following statements is correct?

Accepted Answer

A)   In the short run, unemployment and inflation are positively related. In the long run they are largely unrelated problems.
B)   Inflation and unemployment are positively related in the short run and in the long run.
C)   In the short run, unemployment and inflation are negatively related. In the long run they are largely unrelated problems.
D)   Inflation and unemployment are negatively related in the short run and in the long run.E) A) and B)
F) A) and C)

Question 16

If policymakers decrease aggregate demand, then in the long run

Accepted Answer

A)   prices will be lower and unemployment will be higher.
B)   prices will be lower and unemployment will be unchanged.
C)   prices and unemployment will be unchanged.
D)   None of the above is correct.E) All of the above
F) A) and B)

Question 17

The long-run Phillips curve would shift to the right if

Accepted Answer

A)   the money supply growth rate decreased or if labor markets become more flexible.
B)   the money supply growth rate decreased, but not if labor markets become more flexible.
C)   labor markets become more flexible, but not if the money supply growth rate decreased.
D)   None of the above is correct.E) All of the above
F) A) and D)

Question 18

Samuelson and Solow argued that

Accepted Answer

A)   high unemployment puts upward pressures on wages and prices.
B)   given the historical evidence, a combination of low inflation and low unemployment was not possible.
C)   Both A and B are correct.
D)   None of the above are correct.E) B) and D)
F) B) and C)

Question 19

If there is an adverse supply shock, then

Accepted Answer

A)   unemployment rises and the short-run Phillips curve shifts right.
B)   unemployment rises and the short-run Phillips curve shifts left.
C)   unemployment falls and the short-run Phillips curve shifts right.
D)   unemployment falls and the short-run Phillips curve shifts left.E) A) and B)
F) B) and C)

Question 20

According to the Phillips curve, policymakers can reduce inflation by

Accepted Answer

A)   contracting aggregate demand. This contraction results in a temporarily higher unemployment rate.
B)   contracting aggregate demand. This contraction results in a temporarily lower unemployment rate.
C)   expanding aggregate demand. This expansion results in a temporarily lower unemployment rate.
D)   expanding aggregate demand. This expansion results in a temporarily higher unemployment rate.E) All of the above
F) A) and C) A

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

If the central bank increases the money supply, in the short run, output

Correct AnswerverifiedB

Suppose the Fed decreased the growth rate of the money supply. Which of the following would be lower in the long run?

Correct AnswerverifiedShow Answer

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Correct AnswerverifiedShow Answer

A decrease in expected inflation shifts

Correct AnswerverifiedShow Answer

If a central bank increases the money supply growth rate, then in the short run

Correct AnswerverifiedShow Answer

In the long run, which of the following would shift the long-run Phillips curve to the right?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A favorable supply shock will cause

Correct AnswerverifiedShow Answer

If there is an increase in the price of oil, then

Correct AnswerverifiedShow Answer

The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate above its natural rate.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedD

Suppose that the money supply decreases. In the short run, this increases prices according to

Correct AnswerverifiedShow Answer

If there were a favorable supply shock and the central bank wanted to offset the change in the unemployment rate, what would it do?

Correct AnswerverifiedIt would r...View AnswerShow Answer

If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If policymakers decrease aggregate demand, then in the long run

Correct AnswerverifiedShow Answer

The long-run Phillips curve would shift to the right if

Correct AnswerverifiedShow Answer

Samuelson and Solow argued that

Correct AnswerverifiedShow Answer

If there is an adverse supply shock, then

Correct AnswerverifiedShow Answer

According to the Phillips curve, policymakers can reduce inflation by

Correct AnswerverifiedA

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B

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D

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It would r...
View Answer

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A