Question 1

What did Friedman and Phelps argue about the relationship between inflation and unemployment?

Accepted Answer

A)  The rate of inflation is related to unemployment in the long run.
B)  Policymakers face a short-run Philips curve that is vertical.
C)  The short-run unemployment rate is independent of the inflation rate.
D)  Inflation and unemployment are unrelated in the long-run.E) None of the above
F) A) and D)

Question 2

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on which of the following?

Accepted Answer

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

Question 3

In the long run, the inflation rate depends primarily on money supply growth.

Accepted Answer

A) True 
 B)False

Question 4

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 5

In 1968, economist Milton Friedman published a paper that was critical of the Phillips curve. On what grounds did Friedman criticize the Phillips curve?

Accepted Answer

A)  It seemed to work for wages but not for inflation.
B)  Monetary policy was ineffective in combating inflation.
C)  The Phillips curve did not apply in the long run.
D)  Phillips had made errors in collecting his data.E) A) and B)
F) A) and C)

Question 6

Which of the following is an adverse supply shock?

Accepted Answer

A)  a decrease in the money supply
B)  a tax cut
C)  a worldwide drought
D)  decreased government spendingE) C) and D)
F) B) and D)

Question 7

Where does the short-run Phillips curve intersect the long-run Phillips curve?

Accepted Answer

A)  where expected inflation is greater than actual inflation
B)  where expected inflation equals actual inflation
C)  where the quantity of goods and services demanded equals the quantity supplied
D)  where the quantity of labour demanded equals the quantity suppliedE) A) and B)
F) B) and D)

Question 8

Suppose that the money supply increases. In the short run, this increases prices according to what theory?

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)  only the short-run Phillips curve
D)  only the aggregate demand and aggregate supply modelE) B) and D)
F) None of the above

Question 9

How does an increase in the expected rate of inflation shift the Phillips curves?

Accepted Answer

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

Question 10

Figure 16-3 
-Refer to Figure 16-3. When would the economy move from c and 3 to e and 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 decreasesE) B) and C)
F) A) and B)

Question 11

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

Accepted Answer

A) True 
 B)False

Question 12

Figure 16-2 
-Refer to Figure 16-2. What is curve 2?

Accepted Answer

A)  the long-run Phillips curve
B)  the short-run Phillips curve
C)  the long-run aggregate demand curve
D)  the short-run aggregate demand curveE) B) and C)
F) A) and D)

Question 13

Which of the following best defines disinflation?

Accepted Answer

A)  It is a zero rate of inflation.
B)  It is a constant rate of inflation.
C)  It is a reduction in the rate of inflation.
D)  It is a negative rate of inflation.E) A) and D)
F) All of the above

Question 14

Figure 16-1 
-Refer to Figure 16-1. If the economy starts at c and 1, then in the short run, an increase in taxes moves the economy to where?

Accepted Answer

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

Question 15

Figure 16-2 
-Refer to Figure 16-2. If the economy starts at c and the money supply growth rate increases, where does the economy move to in the short run?

Accepted Answer

A)  b
B)  d
C)  e
D)  either b or eE) B) and D)
F) B) and C)

Question 16

In the long run, how does an increase in the rate of growth of the money supply shift the Phillips curves?

Accepted Answer

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

Question 17

What did proponents of rational expectations argue about the sacrifice ratio and why?

Accepted Answer

A)  The sacrifice ratio would be high because it was rational for people not to immediately change their expectations.
B)  The sacrifice ratio would be high because people might adjust their expectations quickly if they found anti-inflation policy credible.
C)  The sacrifice ratio could be low because it was rational for people not to immediately change their expectations.
D)  The sacrifice ratio could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.E) C) and D)
F) None of the above

Question 18

Figure 16-3 
-Refer to Figure 16-3. Where does a decrease in aggregate demand move the economy from c and 3 to, in the short run and the long run?

Accepted Answer

A)  a and 1 in the short run, b and 2 in the long run
B)  b and 2 in the short run, a and 1 in the long run
C)  d and 4 in the short run, e and 5 in the long run
D)  b and 4 in the short run, e and 1 in the long runE) A) and B)
F) All of the above

Question 19

In the long run, which of the following will shift the long-run Phillips curve to the right?

Accepted Answer

A)  an increase in the minimum wage
B)  an increase in the money supply
C)  a decrease in the money supply
D)  tax cutsE) A) and D)
F) A) and B)

Question 20

Suppose that there is an adverse supply shock. Which of the following curves will shift left?

Accepted Answer

A)  both the aggregate supply curve and the Phillips curve
B)  only the aggregate supply curve
C)  only the Phillips curve
D)  neither the aggregate supply curve nor the Phillips curveE) A) and B)
F) B) and C)

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

Suppose that the money supply increases. In the short run, this increases prices according to what theory?

Correct AnswerverifiedShow Answer

How does an increase in the expected rate of inflation shift the Phillips curves?

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Figure 16-2 -Refer to Figure 16-2. If the economy starts at c and the money supply growth rate increases, where does the economy move to in the short run?

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In the long run, which of the following will shift the long-run Phillips curve to the right?

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Figure 16-2 -Refer to Figure 16-2. What is curve 2?

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What did proponents of rational expectations argue about the sacrifice ratio and why?

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Which of the following best defines disinflation?

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In 1968, economist Milton Friedman published a paper that was critical of the Phillips curve. On what grounds did Friedman criticize the Phillips curve?

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Which of the following is an adverse supply shock?

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Suppose that there is an adverse supply shock. Which of the following curves will shift left?

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In the long run, how does an increase in the rate of growth of the money supply shift the Phillips curves?

Correct AnswerverifiedShow Answer

What did Friedman and Phelps argue about the relationship between inflation and unemployment?

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A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

Correct AnswerverifiedShow Answer

Where does the short-run Phillips curve intersect the long-run Phillips curve?

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In the long run, the inflation rate depends primarily on money supply growth.

Correct AnswerverifiedShow Answer

Figure 16-1 -Refer to Figure 16-1. If the economy starts at c and 1, then in the short run, an increase in taxes moves the economy to where?

Correct AnswerverifiedShow Answer

Figure 16-3 -Refer to Figure 16-3. When would the economy move from c and 3 to e and 5?

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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

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on which of the following?

Correct AnswerverifiedShow Answer

Figure 16-3 -Refer to Figure 16-3. Where does a decrease in aggregate demand move the economy from c and 3 to, in the short run and the long run?

Correct AnswerverifiedShow Answer

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Friedman and Phelps predicted that, over...
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