Question 1

Figure 22-6
Use the two graphs in the diagram to answer the following questions. 
-Refer to Figure 22-6. The economy would move from 3 to 5

Accepted Answer

A)  in the short run if money supply growth increased unexpectedly.
B)  in the short run if money supply growth decreased unexpectedly.
C)  in the long run if money supply growth increases.
D)  in the long run if money supply growth decreases.E) A) and D)
F) C) and D)

Question 2

Which of the following is correct if there is an adverse supply shock?

Accepted Answer

A)  The short-run aggregate supply curve and the short-run Phillips curve both shift right.
B)  The short-run aggregate supply curve and the short-run Phillips curve both shift left.
C)  The short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left.
D)  The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right.E) B) and C)
F) A) and D)

Question 3

The Phillips curve and the short-run aggregate supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Accepted Answer

The Phillips curve shows the relation be...

Question 4

An economy has a current inflation rate of 12%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, how much annual output must be sacrificed in the transition?

Accepted Answer

A)  16%
B)  8%
C)  4%
D)  None of the above is correct.E) B) and D)
F) B) and C)

Question 5

The equation, Unemployment rate = Natural rate of unemployment - a * ctual inflation - Expected inflation) ,

Accepted Answer

A)  is the equation of the short-run Phillips curve.
B)  implies the short-run Phillips curve shifts every time there is a change in actual inflation.
C)  reflects the reasoning of Samuelson and Solow.
D)  All of the above are correct.E) All of the above
F) C) and D)

Question 6

In the late 1970s, proponents of rational expectations argued that

Accepted Answer

A)  the Fed should not attempt to aggressively fight inflation.
B)  the sacrifice ratio was smaller than previously thought.
C)  the short run was relatively long.
D)  None of the above is correct.E) A) and C)
F) B) and D)

Question 7

An adverse supply shock will cause output

Accepted Answer

A)  and prices to rise.
B)  and prices to fall.
C)  to rise and prices to fall.
D)  to fall and prices to rise.E) A) and B)
F) None of the above

Question 8

Suppose that the money supply decreases. In the short run, this increases prices according to

Accepted Answer

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

Question 9

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

Accepted Answer

A)  both the long-run Phillips curve and the aggregate supply and aggregate demand model.
B)  the aggregate demand and aggregate supply model, but not the long-run Phillips curve.
C)  the long-run Phillips curve, but not the aggregate demand and aggregate supply model.
D)  neither the long-run Phillips curve nor the aggregate supply and aggregate demand model.E) C) and D)
F) All of the above

Question 10

If the central bank raises the rate at which it increases the money supply, then in the short run unemployment is

Accepted Answer

A)  above its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of unemployment.
B)  above its natural rate. The long-run Phillips curve shifts left as the economy moves back to its natural rate of unemployment.
C)  below its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of unemployment.
D)  below its natural rate. The long-run Phillips curve shifts left as the economy moves back to its natural rate of unemployment.E) A) and C)
F) A) and B)

Question 11

If the central bank increases the money supply, in the short run, output

Accepted Answer

A)  rises so unemployment rises.
B)  rises so unemployment falls.
C)  falls so unemployment rises.
D)  falls so unemployment falls.E) All of the above
F) C) and D)

Question 12

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 the socially optimal rate of unemployment.
B)  long run, and the natural rate is the socially optimal rate of unemployment.
C)  short run, and the natural rate is not necessarily the socially optimal rate of unemployment.
D)  long run, and the natural rate is not necessarily the socially optimal rate of unemployment.E) A) and B)
F) C) and D)

Question 13

If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would

Accepted Answer

A)  cost 1 percent of annual output.
B)  cost 4 percent of annual output.
C)  imply that unemployment would rise by 1%.
D)  imply that unemployment would rise by 4%.E) All of the above
F) A) and D)

Question 14

A favorable supply shock will cause the price level

Accepted Answer

A)  and output to rise.
B)  and output to fall.
C)  to rise and output to fall.
D)  to fall and output to rise.E) A) and B)
F) All of the above

Question 15

Any policy change that reduced the natural rate of unemployment

Accepted Answer

A)  would shift the long-run Phillips curve to the right.
B)  would shift the long-run aggregate-supply curve to the right.
C)  would be a policy change that impeded the functioning of the labor market.
D)  All of the above are correct.E) B) and C)
F) All of the above

Question 16

A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate towards its previous level it would

Accepted Answer

A)  increase the rate at which the money supply increases. This will also move inflation closer to its previous rate..
B)  increase the rate at which the money supply increases. However, this will make inflation higher than its previous rate
C)  decrease the rate at which the money supply increases. This will also move inflation closer to its original rate
D)  decrease the rate at which the money supply increases. However, this will make higher than its previous rate.E) C) and D)
F) A) and B)

Question 17

Which of the following claims concerning the importance of effects that explain the slope of the U.S. ag-gregate-demand curve is correct?

Accepted Answer

A)  	The exchange-rate effect is relatively small because exports and imports are a small part of real GDP.
B)  	The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes.
C)  	The wealth effect is relatively large because money holdings are a significant portion of most households' wealth.
D)  None of the above is correct.E) None of the above
F) All of the above

Question 18

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

Question 19

Which of the following is upward-sloping?

Accepted Answer

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

Question 20

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

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

Which of the following claims concerning the importance of effects that explain the slope of the U.S. ag-gregate-demand curve is correct?

Correct AnswerverifiedShow Answer

The Phillips curve and the short-run aggregate supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Correct AnswerverifiedThe Phillips curve shows the relation be...View AnswerShow Answer

A favorable supply shock will cause the price level

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Figure 22-6 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 22-6. The economy would move from 3 to 5

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If the central bank raises the rate at which it increases the money supply, then in the short run unemployment is

Correct AnswerverifiedShow Answer

Suppose that the money supply decreases. In the short run, this increases prices according to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the central bank increases the money supply, in the short run, output

Correct AnswerverifiedShow Answer

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

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If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would

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Which of the following is correct if there is an adverse supply shock?

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In the late 1970s, proponents of rational expectations argued that

Correct AnswerverifiedShow Answer

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

Correct AnswerverifiedShow Answer

The equation, Unemployment rate = Natural rate of unemployment - a * ctual inflation - Expected inflation) ,

Correct AnswerverifiedShow Answer

A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate towards its previous level it would

Correct AnswerverifiedShow Answer

An adverse supply shock will cause output

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Any policy change that reduced the natural rate of unemployment

Correct AnswerverifiedShow Answer

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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An economy has a current inflation rate of 12%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, how much annual output must be sacrificed in the transition?

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Which of the following is upward-sloping?

Correct AnswerverifiedShow Answer

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The Phillips curve shows the relation be...
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