Question 1

If the Federal Reserve accommodates an adverse supply shock,

Accepted Answer

A)  inflation expectations may rise which shifts the short-run Phillips curve shifts right.
B)  inflation expectations may rise which shifts the short-run Phillips curve shifts left.
C)  inflation expectations may fall which shifts the short-run Phillips curve shifts right.
D)  inflation expectations may fall which shifts the short-run Phillips curve shifts leftE) B) and D)
F) A) and D)

Question 2

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

Accepted Answer

A)  inflation but not the unemployment rate; this is consistent with classical theory.
B)  inflation but not the unemployment rate; this is inconsistent with classical theory.
C)  the unemployment rate but not inflation; this is consistent with classical theory.
D)  the unemployment rate but not inflation; this is inconsistent with classical theory.E) All of the above
F) A) and C)

Question 3

In the long run, which of the following depends primarily on the growth rate of the money supply?

Accepted Answer

A)  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 rate of unemployment nor the inflation rateE) All of the above
F) A) and D)

Question 4

By about 1973, U.S. policymakers had learned that

Accepted Answer

A)  Friedman and Phelps's analysis of inflation and unemployment had been correct.
B)  the short-run Phillips curve shifts when expectations of inflation change.
C)  there is no long-run trade-off between inflation and unemployment.
D)  All of the above are correct.E) A) and B)
F) None of the above

Question 5

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 6

In most of the 1970s, the Fed's policy created expectations of high inflation.

Accepted Answer

A) True 
 B)False

Question 7

Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.

Accepted Answer

Consider what happens when the aggregate...

Question 8

​If expected inflation increases, the short-run Phillips curve will shift to the left so that inflation will be higher at any given unemployment rate.

Accepted Answer

A) True 
 B)False

Question 9

As the aggregate demand curve shifts rightward along a given aggregate supply curve,

Accepted Answer

A)  unemployment and inflation are higher.
B)  unemployment and inflation are lower.
C)  unemployment is higher and inflation is lower.
D)  unemployment is lower and inflation is higher.E) A) and B)
F) B) and D)

Question 10

Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 2%.

Accepted Answer

The econom...

Question 11

Figure 35-8
Use this graph to answer the questions below. 
-Refer to figure 35-8. Suppose the economy starts at 5% unemployment and 3% inflation. If the Federal Reserve pursues an expansionary monetary policy, in the short run the economy moves to

Accepted Answer

A)  3% unemployment and 5% inflation. In the long run the economy moves to 5% unemployment and 5% inflation.
B)  3% unemployment and 5% inflation. In the long run the economy moves to 3% unemployment and 5% inflation.
C)  7% unemployment and 3% inflation. In the long run the economy moves to 5% unemployment and 5% inflation.
D)  7% unemployment and 3% inflation. In the long run the economy moves to 5% unemployment and 3% inflation.E) B) and D)
F) A) and B)

Question 12

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

Accepted Answer

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

Question 13

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

Accepted Answer

A)  right, so that at any inflation rate output is higher in the short run than before.
B)  left, so that at any inflation rate output is higher in the short run than before.
C)  right, so that at any inflation rate output is lower in the short run than before.
D)  left, so that at any inflation rate output is lower in the short run than before.E) B) and C)
F) A) and B)

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." 1 to AS2 A) results in a more favorable trade-off between inflation and unemployment. B) results in a more favorable trade-off between inflation and the growth rate of real GDP. C) represents an adverse shock to aggregate supply. D) represents a favorable shock to aggregate supply." class="answers-bank-image d-inline" rel="preload" > 1 to AS2 A) results in a more favorable trade-off between inflation and unemployment. B) results in a more favorable trade-off between inflation and the growth rate of real GDP. C) represents an adverse shock to aggregate supply. D) represents a favorable shock to aggregate supply." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2

Accepted Answer

A)  results in a more favorable trade-off between inflation and unemployment.
B)  results in a more favorable trade-off between inflation and the growth rate of real GDP.
C)  represents an adverse shock to aggregate supply.
D)  represents a favorable shock to aggregate supply.E) C) and D)
F) None of the above

Question 15

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 B)
F) A) and C)

Question 16

Samuelson and Solow argued that a combination of low unemployment and low inflation

Accepted Answer

A)  was impossible given the historical data as summarized by the Phillips curve.
B)  could be achieved with an "appropriate" fiscal policy.
C)  could be achieved with an "appropriate" monetary policy.
D)  could be achieved with an "appropriate" mix of monetary and fiscal policies.E) B) and C)
F) A) and D)

Question 17

Which of the following results in higher inflation and higher unemployment in the short run?

Accepted Answer

A)  a more expansionary monetary policy
B)  a more contractionary monetary policy
C)  a decrease in the minimum wage
D)  an adverse supply shock such as an increase in the price of oilE) A) and D)
F) A) and C)

Question 18

An adverse supply shock shifts the short-run Phillips curve to the

Accepted Answer

A)  right. This means the unemployment rate is higher at each inflation rate.
B)  right. This means the unemployment rate is lower at each inflation rate.
C)  left. This means the unemployment rate is higher at each inflation rate.
D)  left. This means the unemployment rate is lower at each inflation rate.E) All of the above
F) C) and D)

Question 19

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in the money supply moves the economy to

Accepted Answer

A)  E and 1.
B)  D and 2.
C)  D and 3.
D)  None of the above is correct.E) C) and D)
F) A) and D)

Question 20

If monetary policy moves unemployment below its natural rate, both expected and actual inflation will rise.

Accepted Answer

A) True 
 B)False

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

In most of the 1970s, the Fed's policy created expectations of high inflation.

Correct AnswerverifiedShow Answer

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

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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

By about 1973, U.S. policymakers had learned that

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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

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An adverse supply shock shifts the short-run Phillips curve to the

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In the long run, which of the following depends primarily on the growth rate of the money supply?

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​If expected inflation increases, the short-run Phillips curve will shift to the left so that inflation will be higher at any given unemployment rate.

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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

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Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.

Correct AnswerverifiedConsider what happens when the aggregate...View AnswerShow Answer

If monetary policy moves unemployment below its natural rate, both expected and actual inflation will rise.

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Figure 35-8 Use this graph to answer the questions below. -Refer to figure 35-8. Suppose the economy starts at 5% unemployment and 3% inflation. If the Federal Reserve pursues an expansionary monetary policy, in the short run the economy moves to

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Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in the money supply moves the economy to

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Which of the following results in higher inflation and higher unemployment in the short run?

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Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 2%.

Correct AnswerverifiedThe econom...View AnswerShow Answer

Samuelson and Solow argued that a combination of low unemployment and low inflation

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As the aggregate demand curve shifts rightward along a given aggregate supply curve,

Correct AnswerverifiedShow Answer

If the Federal Reserve accommodates an adverse supply shock,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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It would increase the money su...
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If expected inflation increases, the short-run Phillips curve will shift to the left so that inflation will be higher at any given unemployment rate.

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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

Correct Answer
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Correct Answer
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Consider what happens when the aggregate...
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The econom...
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Correct Answer
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