Question 1

What would cause the price level to rise and output to fall 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 favourable supply shockE) B) and C)
F) A) and C)

Question 2

Figure 16-1
 
-Refer to the Figure 16-1. If the economy starts at c and 1, then in the short run, where does a decrease in government expenditures move the economy?

Accepted Answer

A)   d and 2
B)   d and 3
C)   e and 3
D)   e and 2E) A) and B)
F) A) and C)

Question 3

According to Samuelson and Solow, when aggregate demand is high, how are unemployment, wages, and prices affected?

Accepted Answer

A)   Unemployment is low, so there is upward pressure on wages and prices.
B)   Unemployment is low, so there is downward pressure on wages and prices.
C)   Unemployment is high, so there is upward pressure on wages and prices.
D)   Unemployment is high, so there is downward pressure on wages and prices.E) A) and C)
F) All of the above

Question 4

Figure 16-2
 
-Refer to the Figure 16-2. Suppose the economy is initially at pointc. If the money supply growth rate decreases, where does the economy move to in the short-run?

Accepted Answer

A)   b
B)   d
C)   e
D)   aE) B) and C)
F) B) and D)

Question 5

Suppose a policy increases the natural rate of unemployment. What is the effect of such a policy change?

Accepted Answer

A)   an upward movement along the long-run Phillips curve
B)   a downward movement along the long-run Phillips curve
C)   a rightward shift of the long-run Phillips curve
D)   a leftward shift of the long-run Phillips curveE) A) and D)
F) A) and C)

Question 6

If there is an adverse supply shock, what will most likely happen?

Accepted Answer

A)   The aggregate supply curve and the short-run Phillips curve will both shift right.
B)   The aggregate supply curve and the short-run Phillips curve will both shift left.
C)   The aggregate supply curve will shift right, and the short-run Phillips curve will shift left.
D)   The aggregate supply curve will shift left, and the short-run Phillips curve will shift right.E) A) and D)
F) None of the above

Question 7

In the long run, if the Bank of Canada decreases the rate at which it increases the money supply, what will happen to inflation and unemployment?

Accepted Answer

A)   Inflation and unemployment will be higher.
B)   Inflation will be higher and unemployment will be lower.
C)   Inflation will be lower and unemployment will be higher.
D)   Inflation will be lower and unemployment will stay the same.E) A) and D)
F) B) and D)

Question 8

If macroeconomic policy expands aggregate demand, unemployment will fall and inflation will rise in the short run.

Accepted Answer

A) True 
 B)False

Question 9

Figure 16-3
 
-Refer to the Figure 16-3. Starting from c and 3, in the long run, where does a decrease in money supply growth move the economy to?

Accepted Answer

A)   a and 1
B)   e and 5
C)   d and 4
D)   e and 5.E) A) and B)
F) A) and C)

Question 10

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve (that is, to increase inflation and reduce unemployment)? Were they right or wrong?

Accepted Answer

Friedman and Phelps predicted that, over...

Question 11

Faced with an adverse supply shock, what can policymakers increase, and how will prices and output be affected?

Accepted Answer

A)   They can increase aggregate demand, which increases prices and output.
B)   They can increase aggregate demand, which decreases prices and increases output.
C)   They can increase aggregate supply, which increases prices and output.
D)   They can increase aggregate supply, which decreases prices and increases output.E) C) and D)
F) A) and B)

Question 12

In the long run, what are the effects of a decrease in the rate of growth of the money supply on the Phillips curves?

Accepted Answer

A)   It shifts both the long-run and the short-run Phillips curves right.
B)   It leaves the long-run Phillips curve unchanged and the short-run Phillips curve right.
C)   It shifts the long-run Phillips curve right and the short-run Phillips curve left.
D)   It leaves the long-run Phillips curve unchanged and shifts the short-run Phillips curve left.E) A) and D)
F) B) and D)

Question 13

A policy change that reduced the natural rate of unemployment would shift both the long-run aggregate-supply curve and the long-run Phillips curve left.

Accepted Answer

A) True 
 B)False

Question 14

Figure 16-2
 
-Refer to the Figure 16-2. Suppose the economy is initially at point c. If the money supply increases, where does the economy move to in the short-run?

Accepted Answer

A)   b
B)   D
C)   E
D)   aE) B) and C)
F) All of the above

Question 15

Which of the following was the primary cause of the large increase in oil prices in the 1970s?

Accepted Answer

A)   an increase in demand for oil
B)   the introduction of the National Energy Program
C)   a decrease in the supply of oil by OPEC
D)   an increase in the supply of oil by OPECE) A) and C)
F) A) and D)

Question 16

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Accepted Answer

A) True 
 B)False

Question 17

What is the long-run effect of an increase in expected inflation predicted by the Phillips curve model?

Accepted Answer

A)   higher inflation, but no change in unemployment
B)   higher inflation and higher output
C)   lower inflation and lower unemployment
D)   no change in inflation, but lower unemploymentE) B) and D)
F) A) and C)

Question 18

Figure 16-4
 
-Refer to the Figure 16-4. If the economy is at point a and the Bank of Canada pursues an expansionary monetary policy, then the economy will move to which point in the short and long run?

Accepted Answer

A)   point a in the short run and point b in the long run
B)   point b in the short run and point a in the long run
C)   point b in the short run and point c in the long run
D)   point m in the short run and point h in the long runE) All of the above
F) A) and B)

Question 19

How much was the unemployment rate in Canada in 1983?

Accepted Answer

A)   about 4 percent
B)   about 6 percent
C)   about 8 percent
D)   more than 10 percentE) A) and D)
F) All of the above

Question 20

If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 5 percent would require sacrificing what percent of annual output?

Accepted Answer

A)   2 percent of annual output
B)   5 percent of annual output
C)   6 percent of annual output
D)   15 percent of annual outputE) B) and C)
F) A) and B)

Exam 16: The Short-Run Tradeoff Between Inflation and Unemployment

If macroeconomic policy expands aggregate demand, unemployment will fall and inflation will rise in the short run.

Correct AnswerverifiedShow Answer

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve (that is, to increase inflation and reduce unemployment)? Were they right or wrong?

Correct AnswerverifiedFriedman and Phelps predicted that, over...View AnswerShow Answer

In the long run, if the Bank of Canada decreases the rate at which it increases the money supply, what will happen to inflation and unemployment?

Correct AnswerverifiedShow Answer

Figure 16-2 -Refer to the Figure 16-2. Suppose the economy is initially at pointc. If the money supply growth rate decreases, where does the economy move to in the short-run?

Correct AnswerverifiedShow Answer

Figure 16-3 -Refer to the Figure 16-3. Starting from c and 3, in the long run, where does a decrease in money supply growth move the economy to?

Correct AnswerverifiedShow Answer

In the long run, what are the effects of a decrease in the rate of growth of the money supply on the Phillips curves?

Correct AnswerverifiedShow Answer

Figure 16-1 -Refer to the Figure 16-1. If the economy starts at c and 1, then in the short run, where does a decrease in government expenditures move the economy?

Correct AnswerverifiedShow Answer

Suppose a policy increases the natural rate of unemployment. What is the effect of such a policy change?

Correct AnswerverifiedShow Answer

Faced with an adverse supply shock, what can policymakers increase, and how will prices and output be affected?

Correct AnswerverifiedShow Answer

Figure 16-2 -Refer to the Figure 16-2. Suppose the economy is initially at point c. If the money supply increases, where does the economy move to in the short-run?

Correct AnswerverifiedShow Answer

What would cause the price level to rise and output to fall in the short run?

Correct AnswerverifiedShow Answer

If there is an adverse supply shock, what will most likely happen?

Correct AnswerverifiedShow Answer

What is the long-run effect of an increase in expected inflation predicted by the Phillips curve model?

Correct AnswerverifiedShow Answer

Which of the following was the primary cause of the large increase in oil prices in the 1970s?

Correct AnswerverifiedShow Answer

Figure 16-4 -Refer to the Figure 16-4. If the economy is at point a and the Bank of Canada pursues an expansionary monetary policy, then the economy will move to which point in the short and long run?

Correct AnswerverifiedShow Answer

According to Samuelson and Solow, when aggregate demand is high, how are unemployment, wages, and prices affected?

Correct AnswerverifiedShow Answer

A policy change that reduced the natural rate of unemployment would shift both the long-run aggregate-supply curve and the long-run Phillips curve left.

Correct AnswerverifiedShow Answer

How much was the unemployment rate in Canada in 1983?

Correct AnswerverifiedShow Answer

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Correct AnswerverifiedShow Answer

If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 5 percent would require sacrificing what percent of annual output?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
Friedman and Phelps predicted that, over...
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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified