Question 1

The long-run response to an increase in the growth rate of the money supply is shown by shifting

Accepted Answer

A)  the short-run and long-run Phillips curves left.
B)  the short-run and long-run Phillips curves right.
C)  only the short-run Phillips curve left.
D)  only the short-run Phillips curve right.E) All of the above
F) A) and C)

Question 2

Suppose that a central bank increases the money supply.According to the logic of the Phillips curve this should make

Accepted Answer

A)  prices, output, and employment rise.
B)  prices and output rise, employment fall.
C)  prices rise and output and employment fall.
D)  prices fall, output, and employment rise.E) B) and C)
F) B) and D)

Question 3

Which of the following is correct concerning the long-run Phillips curve?

Accepted Answer

A)  Its position is determined primarily by monetary factors.
B)  If it shifts right, long-run aggregate supply shifts right.
C)  It cannot be changed by any government policy.
D)  Its position depends on the natural rate of unemployment.E) B) and C)
F) B) and D)

Question 4

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 5

Disinflation would cause

Accepted Answer

A)  the short-run and the long run Phillips curve to shift right.
B)  the short-run and the long run Phillips curve to shift left.
C)  the short-run Phillips curve but not the long run Phillips curve to shift right.
D)  the short-run Phillips curve but not the long run Phillips curve to shift left.E) B) and C)
F) B) and D)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Accepted Answer

Both reflect the classical dichotomy.The...

Question 8

In the long run,the inflation rate depends primarily on

Accepted Answer

A)  the ability of unions to raise wages.
B)  government spending.
C)  the money supply growth rate.
D)  the monopoly power of firms.E) None of the above
F) C) and D)

Question 9

The analysis of Friedman and Phelps can be summarized in the following equation where a is positive number:

Accepted Answer

A)  Unemployment Rate = Natural Rate of Unemployment - a(Actual Inflation - Expected Inflation) .
B)  Unemployment Rate = Natural Rate of Unemployment - a(Expected Inflation - Actual Inflation) .
C)  Unemployment Rate = Expected Rate of Inflation - a(Actual Inflation - Expected Inflation) .
D)  Unemployment Rate = Actual Rate of Inflation - a(Actual Unemployment - Expected Unemployment) .E) C) and D)
F) B) and D)

Question 10

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

Accepted Answer

A) True 
 B)False

Question 11

Faced with an adverse supply shock,policymakers can increase

Accepted Answer

A)  aggregate demand, which increases prices and output.
B)  aggregate demand, which decreases prices and increases output.
C)  aggregate supply, which increases prices and output.
D)  aggregate supply, which decreases prices and increases output.E) None of the above
F) A) and B)

Question 12

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) C) and D)
F) A) and D)

Question 13

If inflation expectations decline,than the short-run Phillips curve shifts

Accepted Answer

A)  left, meaning that at any given inflation rate unemployment will be lower in the short run than before.
B)  right, meaning that at any given inflation rate unemployment will be lower in the short run than before.
C)  right, meaning that at any given inflation rate unemployment will be higher in the short run than before.
D)  left, meaning that at any given inflation rate unemployment will be higher in the short run than before.E) A) and C)
F) A) and D)

Question 14

Use the graph below to answer the following questions.
Figure 35-2
 
-Refer to Figure 35-2.The money supply growth rate is greatest at

Accepted Answer

A)  a.
B)  b.
C)  c.
D)  e.E) All of the above
F) None of the above

Question 15

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Accepted Answer

A)  the level or growth rate of a nominal variable, but not the level or growth rate of a real variable.
B)  the level of a nominal or real variable, but not the growth rate of a real or nominal variable.
C)  the level or growth rate of a real variable, but not the level or growth rate of a nominal variable.
D)  both levels and growth rates of both real and nominal variables.E) All of the above
F) A) and C)

Question 16

Suppose that money supply growth increases.In the long run,this increases employment according to

Accepted Answer

A)  both the long-run Phillips curve and the aggregate demand and aggregate supply model
B)  neither the long-run Phillips curve nor the aggregate demand and aggregate supply model
C)  the long-run Phillips curve, but not the long-run aggregate supply curve
D)  the long-run aggregate supply curve, but not the long-run Phillips curveE) A) and D)
F) A) and B)

Question 17

In responding to the Phillips curve hypothesis,Friedman argued that the Fed can peg the

Accepted Answer

A)  unemployment rate.
B)  inflation rate.
C)  growth rate of real national income.
D)  All of the above are correct.E) B) and C)
F) B) and D)

Question 18

If the long-run Phillips curve shifts to the left,for any given rate of money growth and inflation the economy will have

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) A) and B)
F) None of the above

Question 19

In 1979 when the Fed was deciding how aggressively to fight inflation,the typical estimate of the sacrifice ratio was

Accepted Answer

A)  1.
B)  5.
C)  7.
D)  10.E) None of the above
F) B) and C)

Question 20

Unemployment would decrease and prices increase if

Accepted Answer

A)  aggregate demand shifted right.
B)  aggregate demand shifted left.
C)  aggregate supply shifted right.
D)  aggregate supply shifted left.E) All of the above
F) None of the above

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

In 1979 when the Fed was deciding how aggressively to fight inflation,the typical estimate of the sacrifice ratio was

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In the long run,the inflation rate depends primarily on

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

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Milton Friedman argued that the Fed's control over the money supply could be used to peg

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If the long-run Phillips curve shifts to the left,for any given rate of money growth and inflation the economy will have

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Faced with an adverse supply shock,policymakers can increase

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Use the graph below to answer the following questions. Figure 35-2 -Refer to Figure 35-2.The money supply growth rate is greatest at

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An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

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Suppose that money supply growth increases.In the long run,this increases employment according to

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Suppose that a central bank increases the money supply.According to the logic of the Phillips curve this should make

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

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The analysis of Friedman and Phelps can be summarized in the following equation where a is positive number:

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An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

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The long-run response to an increase in the growth rate of the money supply is shown by shifting

Correct AnswerverifiedShow Answer

If inflation expectations decline,than the short-run Phillips curve shifts

Correct AnswerverifiedShow Answer

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Correct AnswerverifiedBoth reflect the classical dichotomy.The...View AnswerShow Answer

Which of the following is correct concerning the long-run Phillips curve?

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Unemployment would decrease and prices increase if

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Disinflation would cause

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In responding to the Phillips curve hypothesis,Friedman argued that the Fed can peg the

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Both reflect the classical dichotomy.The...
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