Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 3

Suppose, as in the 1970's in the U.S., that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force. Would this have any effect on the long-run Phillips curve?

Accepted Answer

Since this would raise the nat...

Question 4

Typical estimates of the sacrifice ratio suggest that about 10 percent of annual output has to be given up in order to reduce the inflation rate from

Accepted Answer

A)   8 percent to 4 percent.
B)   8 percent to 5 percent.
C)   7 percent to 5 percent.
D)   7 percent to 6 percent.E) None of the above
F) B) and C)

Question 5

An increase in the inflation rate permanently reduces the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)   increase the money supply growth rate which raises the inflation rate.
B)   increase the money supply growth rate which reduces the inflation rate.
C)   decrease the money supply growth rate which raises the inflation rate.
D)   decrease the money supply growth rate which reduces the inflation rate.E) A) and C)
F) A) and B)

Question 7

In the long run, a decrease in the money supply growth rate

Accepted Answer

A)   shifts the short-run Phillips curve left so inflation returns to its original rate.
B)   shifts the short-run Phillips curve left so unemployment returns to its natural rate.
C)   Both A and B are correct.
D)   None of the above is correct.E) A) and C)
F) None of the above

Question 8

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

Accepted Answer

A)   left. If inflation remains the same, unemployment falls.
B)   left. If inflation remains the same, unemployment rises.
C)   right. If inflation remains the same, unemployment falls.
D)   right. If inflation remains the same, unemployment rises.E) A) and B)
F) All of the above

Question 9

Over the long run the Volcker disinflation

Accepted Answer

A)   shifted the short-run and long-run Phillips curves left.
B)   shifted the short-run, but not the long-run Phillips curve left.
C)   shifted the long-run, but not the short-run Phillips curve left.
D)   None of the above is correct.E) C) and D)
F) All of the above

Question 10

If a central bank attempts to lower the inflation rate but the public doesn't believe the inflation rate will fall as far as the central bank says, then in the short run unemployment

Accepted Answer

A)   rises. As inflation expectations adjust, the short-run Phillips curve shifts right.
B)   rises. As inflation expectations adjust, the short-run Phillips curve shifts left.
C)   falls. As inflation expectations adjust, the short-run Phillips curve shifts right.
D)   falls. As inflation expectations adjust, the short-run Phillips curve shifts left.E) A) and D)
F) None of the above

Question 11

Figure 35-6
Use the graph below to answer the following questions. 
-Refer to Figure 35-6. Curve 2 is the

Accepted Answer

A)   long-run Phillips curve.
B)   short-run Phillips curve.
C)   long-run aggregate demand curve.
D)   short-run aggregate demand curve.E) B) and C)
F) C) and D)

Question 12

Which of the following shifts the long-run Phillips curve left?

Accepted Answer

A)   both an increase in the inflation rate and a decrease in the minimum wage rate
B)   an increase in the inflation rate, but not a decrease in the minimum wage rate
C)   a decrease in the minimum wage rate, but not an increase in the inflation rate
D)   neither a decrease in the minimum wage rate nor an increase in the inflation rateE) C) and D)
F) A) and B)

Question 13

Friedman and Phelps believed that the natural rate of unemployment was constant.

Accepted Answer

A) True 
 B)False

Question 14

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."  
-Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

Accepted Answer

A)   an increase in the money supply.
B)   an adverse supply shock.
C)   a decrease of output from Y1 to Y2.
D)   a slow adjustment of people's expectation of the inflation rate.E) None of the above
F) A) and C)

Question 15

A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 16

A central bank pledges to reduce the inflation rate from 10% to 3%. People reduce their inflation expectations to 5%, but the central bank reduces inflation to 3%. What happens to the unemployment rate?

Accepted Answer

The answer of A central bank pledges to reduce the...

Question 17

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year, the sacrifice ratio is

Accepted Answer

A)   1/5.
B)   2.
C)   5/2.
D)   5.E) None of the above
F) B) and C)

Question 18

More flexible labor markets will shift

Accepted Answer

A)   both the long-run Phillips curve and the long-run aggregate supply curve to the right.
B)   both the long-run Phillips curve and the long-run aggregate supply curve to the left.
C)   the long-run Phillips curve to the right and the long-run aggregate supply curve to the left.
D)   the long-run Phillips curve to the left and the long-run aggregate supply curve to the right.E) A) and B)
F) All of the above

Question 19

An event that directly affects firms' costs of production and thus the prices they charge is called

Accepted Answer

A)   a Phillips contraction.
B)   an inflationary spiral.
C)   a demand shock.
D)   a supply shock.E) All of the above
F) C) and D)

Question 20

Other things the same, if there is an increase in the money supply growth rate that is larger than expected, then in the short run

Accepted Answer

A)   the natural rate of unemployment rises.
B)   the natural rate of unemployment falls.
C)   the unemployment rate will be above its natural rate.
D)   the unemployment rate will be below its natural rate.E) A) and B)
F) All of the above

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

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year, the sacrifice ratio is

Correct AnswerverifiedShow Answer

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

A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.

Correct AnswerverifiedShow Answer

Which of the following shifts the long-run Phillips curve left?

Correct AnswerverifiedShow Answer

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. Curve 2 is the

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An event that directly affects firms' costs of production and thus the prices they charge is called

Correct AnswerverifiedShow Answer

Suppose, as in the 1970's in the U.S., that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force. Would this have any effect on the long-run Phillips curve?

Correct AnswerverifiedSince this would raise the nat...View AnswerShow Answer

If a central bank attempts to lower the inflation rate but the public doesn't believe the inflation rate will fall as far as the central bank says, then in the short run unemployment

Correct AnswerverifiedShow Answer

In the long run, a decrease in the money supply growth rate

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

Correct AnswerverifiedShow Answer

Typical estimates of the sacrifice ratio suggest that about 10 percent of annual output has to be given up in order to reduce the inflation rate from

Correct AnswerverifiedShow Answer

Over the long run the Volcker disinflation

Correct AnswerverifiedShow Answer

More flexible labor markets will shift

Correct AnswerverifiedShow Answer

Other things the same, if there is an increase in the money supply growth rate that is larger than expected, then in the short run

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A central bank pledges to reduce the inflation rate from 10% to 3%. People reduce their inflation expectations to 5%, but the central bank reduces inflation to 3%. What happens to the unemployment rate?

Correct AnswerverifiedShow Answer

An increase in the inflation rate permanently reduces the natural rate of unemployment.

Correct AnswerverifiedShow Answer

Friedman and Phelps believed that the natural rate of unemployment was constant.

Correct AnswerverifiedShow Answer

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Since this would raise the nat...
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