Question 1

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Accepted Answer

In the long run the natural rate of unem...

Question 2

In the long run,a decrease in the money supply growth rate

Accepted Answer

A)   shifts both the long-run and the short-run Phillips curves right.
B)   shifts the long-run Phillips curve left and the short-run Phillips curve right.
C)   shifts the long-run Phillips curve right and the short-run Phillips curve left.
D)   None of the above is correct.E) A) and B)
F) A) and D)

Question 3

Other things the same,an increase in aggregate demand reduces unemployment and raises inflation in the short run.

Accepted Answer

A) True 
 B)False

Question 4

Contractionary monetary policy

Accepted Answer

A)   leads to disinflation and makes the short-run Phillips curve shift right.
B)   leads to disinflation and makes the short-run Phillips curve shift left.
C)   does not lead to disinflation but makes the short-run Phillips curve shift right.
D)   does not lead to disinflation but makes the short-run Phillips curve shift left.E) A) and B)
F) B) and D)

Question 5

During the mid and last part of the 1990's both inflation and unemployment were low.In general this could have been the result of

Accepted Answer

A)   adverse supply shocks that shifted the short-run Phillips curve left.
B)   adverse supply shocks that shifted the short-run Phillips curve right.
C)   favorable supply shocks that shifted the short-run Phillips curve left.
D)   favorable supply shocks that shifted the short-run Phillips curve right.E) A) and B)
F) A) and C)

Question 6

If the central bank decreases the money supply,then in the short run prices

Accepted Answer

A)   rise and unemployment falls.
B)   fall and unemployment rises.
C)   and unemployment rise.
D)   and unemployment fall.E) A) and B)
F) B) and D)

Question 7

If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same,then policymakers

Accepted Answer

A)   can not exploit a tradeoff between inflation and unemployment in either the short or long run.
B)   can exploit a tradeoff between inflation and unemployment in the short run but not in the long run.
C)   can exploit a tradeoff between inflation and unemployment in both the short run and the long run.
D)   can exploit a tradeoff between inflation and unemployment in the long run,but not the short run.E) A) and C)
F) A) and B)

Question 8

An adverse supply shock causes the price level to

Accepted Answer

A)   rise.To counter this a central bank would increase the money supply.
B)   rise.To counter this a central bank would decrease the money supply.
C)   fall.To counter this a central bank would increase the money supply.
D)   fall.To counter this a central bank would decrease the money supply.E) A) and D)
F) None of the above

Question 9

When they are confronted with an adverse shock to aggregate supply,policymakers face a difficult choice in that

Accepted Answer

A)   if they contract aggregate demand,the unemployment rate will increase further.
B)   if they expand aggregate demand,the inflation rate will increase further.
C)   they face a less favorable trade-off between inflation and unemployment than they did before the shock.
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 10

According to the Phillips curve,policymakers could reduce both inflation and unemployment by

Accepted Answer

A)   increasing the money supply.
B)   increasing government expenditures.
C)   raising taxes.
D)   None of the above is correct.E) None of the above
F) All of the above

Question 11

Figure 35-1.The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves.On the right-hand diagram,U represents the unemployment rate.  
-Refer to Figure 35-1.The curve that is depicted on the right-hand graph offers policymakers a "menu" of combinations

Accepted Answer

A)   that applies both in the short run and in the long run.
B)   that is relevant to choices involving fiscal policy,but not to choices involving monetary policy.
C)   of inflation and unemployment.
D)   All of the above are correct.E) A) and C)
F) A) and B)

Question 12

A policy intended to reduce unemployment by taking advantage of a tradeoff between inflation and unemployment leads to

Accepted Answer

A)   both higher inflation and higher unemployment in the long run.
B)   higher inflation and no change in unemployment in the long run.
C)   the same inflation rate and lower unemployment in the long run.
D)   higher inflation and lower unemployment in the long runE) B) and C)
F) None of the above

Question 13

The sacrifice ratio of the Volcker disinflation was larger than previous estimates had predicted.

Accepted Answer

A) True 
 B)False

Question 14

Friedman and Phelps argued that

Accepted Answer

A)   if peoples' inflation expectations were fixed,then an increase in the money supply growth rate could not change output in the short or long run.
B)   if peoples' inflation expectations were fixed,then a decrease in the money supply growth rate could raise output and unemployment in the short run.
C)   any change in unemployment created by making aggregate demand increase more rapidly is temporary because people eventually revise their inflation expectations.
D)   None of the above is correct.E) B) and D)
F) None of the above

Question 15

If the Federal Reserve decreases the rate at which it increases the money supply,then unemployment is lower in

Accepted Answer

A)   the long run and the short run.
B)   the long run but not the short run.
C)   the short run but not the long run.
D)   neither the short run nor the long run.E) A) and D)
F) None of the above

Question 16

The misery index is supposed to measure the

Accepted Answer

A)   social cost of unemployment.
B)   health of the economy.
C)   lost output associated with a particular unemployment rate.
D)   short-run tradeoff between inflation and unemployment.E) B) and D)
F) All of the above

Question 17

The short-run relationship between inflation and unemployment is often called

Accepted Answer

A)   the Classical Dichotomy.
B)   Money Neutrality.
C)   the Phillips curve.
D)   None of the above is correct.E) None of the above
F) All of the above

Question 18

Which of the following is correct if there is a favorable 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) A) and B)
F) All of the above

Question 19

In the long run,a decrease in the money supply growth rate

Accepted Answer

A)   increases inflation and shifts the short-run Phillips curve right.
B)   increases inflation and shifts the short-run Phillips curve left.
C)   decreases inflation and shifts the short-run Philips curve right.
D)   decreases inflation and shifts the short-run Phillips curve left.E) A) and B)
F) All of the above

Question 20

Which of the following would cause the price level to fall and output to rise 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 favorable supply shockE) B) and C)
F) B) and D)

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

Other things the same,an increase in aggregate demand reduces unemployment and raises inflation in the short run.

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An adverse supply shock causes the price level to

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The short-run relationship between inflation and unemployment is often called

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In the long run,a decrease in the money supply growth rate

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In the long run,a decrease in the money supply growth rate

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In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Correct AnswerverifiedIn the long run the natural rate of unem...View AnswerShow Answer

Figure 35-1.The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves.On the right-hand diagram,U represents the unemployment rate. -Refer to Figure 35-1.The curve that is depicted on the right-hand graph offers policymakers a "menu" of combinations

Correct AnswerverifiedShow Answer

Which of the following is correct if there is a favorable supply shock?

Correct AnswerverifiedShow Answer

The sacrifice ratio of the Volcker disinflation was larger than previous estimates had predicted.

Correct AnswerverifiedShow Answer

When they are confronted with an adverse shock to aggregate supply,policymakers face a difficult choice in that

Correct AnswerverifiedShow Answer

During the mid and last part of the 1990's both inflation and unemployment were low.In general this could have been the result of

Correct AnswerverifiedShow Answer

If the Federal Reserve decreases the rate at which it increases the money supply,then unemployment is lower in

Correct AnswerverifiedShow Answer

Contractionary monetary policy

Correct AnswerverifiedShow Answer

According to the Phillips curve,policymakers could reduce both inflation and unemployment by

Correct AnswerverifiedShow Answer

Friedman and Phelps argued that

Correct AnswerverifiedShow Answer

If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same,then policymakers

Correct AnswerverifiedShow Answer

A policy intended to reduce unemployment by taking advantage of a tradeoff between inflation and unemployment leads to

Correct AnswerverifiedShow Answer

Which of the following would cause the price level to fall and output to rise in the short run?

Correct AnswerverifiedShow Answer

The misery index is supposed to measure the

Correct AnswerverifiedShow Answer

If the central bank decreases the money supply,then in the short run prices

Correct AnswerverifiedShow Answer

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In the long run the natural rate of unem...
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