Question 1

What does an unexpected decrease in the growth rate of the money supply do to inflation and unemployment in the short-run? What does it do to inflation and unemployment in the long run?

Accepted Answer

A decrease in the growth rate of the mon...

Question 2

Friedman argued that the Fed could use monetary policy to peg

Accepted Answer

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

Question 3

Which of the following depends primarily on the growth rate of the money supply?

Accepted Answer

A)  inflation and the natural rate of unemployment
B)  inflation but not the natural rate of unemployment
C)  the natural rate of unemployment but not inflation
D)  neither inflation nor the natural rate of unemploymentE) B) and C)
F) A) and D)

Question 4

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

Accepted Answer

Unemployme...

Question 5

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 6

If there is a decline in business confidence and the Fed desires to return unemployment towards its natural rate, what should it do? If business confidence eventually returns to normal but the Fed does not reverse its policy, what eventually happens to the inflation rate?

Accepted Answer

Increase the money s...

Question 7

The Fed increases the money supply growth rate. Assuming inflation expectations remain constant, use a Phillips curve diagram to show the short-run effects of the Fed's policy.

Accepted Answer

The economy moves al...

Question 8

Suppose that businesses become less optimistic about the future. Assuming no change in inflation expectations, how would the effects of this shock be shown on the Phillips curve diagram and what would happen to inflation and unemployment?

Accepted Answer

The decrease in spending is sh...

Question 9

For a given level of inflation expectations, if the central bank increases the money supply growth rate, then in the short run

Accepted Answer

A)  the economy moves down along the short-run Phillips curve.
B)  the economy moves up along the short-run Phillips curve.
C)  the Phillips curve shifts right.
D)  the Phillips curve shifts left.E) B) and C)
F) B) and D)

Question 10

After an oil price shock, which of the following would move unemployment back towards its natural rate?

Accepted Answer

A)  the Fed sells bonds
B)  the government raises taxes
C)  the government increases expenditures
D)  All of the above are correct.E) B) and C)
F) A) and D)

Question 11

Proponents of rational expectations argued that the sacrifice ratio

Accepted Answer

A)  could be high because it was rational for people not to immediately change their expectations.
B)  could be high because people might adjust their expectations quickly if they found anti-inflation policy credible.
C)  could be low because it was rational for people not to immediately change their expectations.
D)  could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.E) A) and B)
F) B) and C)

Question 12

A favorable supply shock will shift short-run aggregate supply

Accepted Answer

A)  left, making output rise.
B)  left, making output fall.
C)  right, making output rise.
D)  right, making output fall.E) B) and D)
F) A) and B)

Question 13

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Accepted Answer

A)  short run, and the natural rate is constant over time.
B)  long run, and the natural rate is constant over time.
C)  short run, and the natural rate changes over time.
D)  long run, and the natural rate changes over time.E) A) and B)
F) A) and D)

Question 14

Some countries have inflation around or in excess of 8 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent? In your answer, define the sacrifice ratio and explain how you found the cost of inflation reduction.

Accepted Answer

The sacrifice ratio gives the annual per...

Question 15

A central bank disinflates. Output is 4% less for one year, 3% less the next year, and 2% less the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Accepted Answer

The answer of A central bank disinflates. Output is 4%...

Question 16

Refer to Monetary Policy in Mokania. The Bank of Mokania publicizes its intent to reduce the inflation rate to 5%. If it is successful in doing so but people had expected inflation to fall only to 10%, then

Accepted Answer

A)  unemployment rises but it would have risen by more if people had expected inflation to be 6%.
B)  unemployment rises but it would have risen by less if people had expected inflation to be 6%.
C)  unemployment falls but it would have fallen by more if people had expected inflation to be 6%.
D)  unemployment falls but it would have fallen by less if people had expected inflation to be 6%.E) All of the above
F) A) and B)

Question 17

The natural rate of unemployment

Accepted Answer

A)  is constant over time.
B)  varies over time, but can't be changed by the government.
C)  is the socially desirable rate of unemployment.
D)  does not depend on the rate at which the Fed increases the money supply.E) None of the above
F) C) and D)

Question 18

If the long-run Phillips curve shifts to the right, then for any given rate of money growth and inflation the economy has

Accepted Answer

A)  higher unemployment and lower output.
B)  higher unemployment and higher output.
C)  lower unemployment and lower output.
D)  lower unemployment and higher output.E) B) and D)
F) C) and D)

Question 19

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

Accepted Answer

A)  existed in the long run and the short run.
B)  existed in the long run but not the short run.
C)  existed in the short run but not the long run.
D)  did not exist.E) A) and B)
F) A) and C)

Question 20

On a given short-run Phillips curve which of the following is held constant?

Accepted Answer

A)  the level of GDP
B)  the unemployment rate
C)  expected inflation
D)  employmentE) None of the above
F) B) and C)

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

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

Correct AnswerverifiedUnemployme...View AnswerShow Answer

Some countries have inflation around or in excess of 8 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent? In your answer, define the sacrifice ratio and explain how you found the cost of inflation reduction.

Correct AnswerverifiedThe sacrifice ratio gives the annual per...View AnswerShow Answer

The Fed increases the money supply growth rate. Assuming inflation expectations remain constant, use a Phillips curve diagram to show the short-run effects of the Fed's policy.

Correct AnswerverifiedThe economy moves al...View AnswerShow Answer

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Correct AnswerverifiedShow Answer

Suppose that businesses become less optimistic about the future. Assuming no change in inflation expectations, how would the effects of this shock be shown on the Phillips curve diagram and what would happen to inflation and unemployment?

Correct AnswerverifiedThe decrease in spending is sh...View AnswerShow Answer

Friedman argued that the Fed could use monetary policy to peg

Correct AnswerverifiedShow Answer

On a given short-run Phillips curve which of the following is held constant?

Correct AnswerverifiedShow Answer

Refer to Monetary Policy in Mokania. The Bank of Mokania publicizes its intent to reduce the inflation rate to 5%. If it is successful in doing so but people had expected inflation to fall only to 10%, then

Correct AnswerverifiedShow Answer

After an oil price shock, which of the following would move unemployment back towards its natural rate?

Correct AnswerverifiedShow Answer

The natural rate of unemployment

Correct AnswerverifiedShow Answer

Proponents of rational expectations argued that the sacrifice ratio

Correct AnswerverifiedShow Answer

If there is a decline in business confidence and the Fed desires to return unemployment towards its natural rate, what should it do? If business confidence eventually returns to normal but the Fed does not reverse its policy, what eventually happens to the inflation rate?

Correct AnswerverifiedIncrease the money s...View AnswerShow Answer

A favorable supply shock will shift short-run aggregate supply

Correct AnswerverifiedShow Answer

If the long-run Phillips curve shifts to the right, then for any given rate of money growth and inflation the economy has

Correct AnswerverifiedShow Answer

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

Correct AnswerverifiedShow Answer

Friedman argued that the Fed could use monetary policy to peg

Correct AnswerverifiedShow Answer

What does an unexpected decrease in the growth rate of the money supply do to inflation and unemployment in the short-run? What does it do to inflation and unemployment in the long run?

Correct AnswerverifiedA decrease in the growth rate of the mon...View AnswerShow Answer

For a given level of inflation expectations, if the central bank increases the money supply growth rate, then in the short run

Correct AnswerverifiedShow Answer

Which of the following depends primarily on the growth rate of the money supply?

Correct AnswerverifiedShow Answer

A central bank disinflates. Output is 4% less for one year, 3% less the next year, and 2% less the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Correct AnswerverifiedShow Answer

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Unemployme...
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The sacrifice ratio gives the annual per...
View Answer

Correct Answer
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The economy moves al...
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Correct Answer
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Correct Answer
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The decrease in spending is sh...
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Correct Answer
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Correct Answer
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Correct Answer
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Increase the money s...
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A decrease in the growth rate of the mon...
View Answer

Correct Answer
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Correct Answer
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