Question 1

Some countries have inflation around or in excess of 8 percent.Suppose that the sacrifice ratio is 2.5.What is the cost of reducing inflation from 8 percent to 2 percent? In your answer,define the sacrifice ratio and explain how you found the cost of inflation reduction.

Accepted Answer

The sacrifice ratio gives the annual per...

Question 2

Refer to Monetary Policy in Southland.Suppose that the Southland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% and that it actually reduces inflation to that level.Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%.Then

Accepted Answer

A)   unemployment falls,but it would have fallen more if people had been expecting 12.5% inflation.
B)   unemployment falls,but it would have fallen more if people had been expecting 25% inflation.
C)   unemployment rises,but it would have risen more if people had been expecting 12.5% inflation.
D)   unemployment rises,but it would have risen more if people had been expecting 25% inflation.E) B) and C)
F) A) and C)

Question 3

Suppose that the Prime Minister and Parliament of Veridian are disappointed with the high inflation rates under the current system where the Veridian Ministry of Finance is in charge of the money supply.They make reforms to lower inflation from its current rate of 8%.Suppose further that the public is confident that with the reforms in place that inflation will fall to 2%.Also suppose that those in control of the money supply actually conduct monetary policy so that the actual inflation rate is 4%.Using long-run and short-run Phillips curves and assuming the natural rate of unemployment is 6%,show the initial long run equilibrium of Veridian and label it "A".Assuming that the government had actually set inflation at 2% and that the public believed this,label the long-run equilibrium "B".Now,suppose that inflation expectations fell to 2% and that the government unexpectedly created inflation of 4%.Show the short-run equilibrium and label it "C".If the money supply continues to grow at a rate consistent with 4% inflation,show where the economy ends up and label that point "D".

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Veridian ...

Question 4

One determinant of the long-run average unemployment rate is the

Accepted Answer

A)   market power of unions,while the inflation rate depends primarily upon government spending.
B)   minimum wage,while the inflation rate depends primarily upon the money supply growth rate.
C)   rate of growth of the money supply,while the inflation rate depends primarily upon the market power of unions.
D)   existence of efficiency wages,while the inflation rate depends primarily upon the extent to which firms are competitive.E) None of the above
F) A) and B)

Question 5

In the late 1960s,Milton Friedman and Edmund Phelps argued that

Accepted Answer

A)   the trade-off between inflation and unemployment did not apply in the long run This claim is consistent with monetary neutrality in the long run.
B)   the trade-off between inflation and unemployment did not apply in the long run.This claim is inconsistent with monetary neutrality in the long run.
C)   the trade-off between inflation and unemployment applied in both the short run and the long run.This claim is consistent with monetary neutrality in the long run.
D)   the trade-off between inflation and unemployment applied in both the short run and the long run.This claim is inconsistent with monetary neutrality in the long run.E) A) and D)
F) B) and D)

Question 6

Which of the following is correct?

Accepted Answer

A)   In the short run,policymakers face a tradeoff between inflation and unemployment.
B)   Events that shift the long-run Phillips curve right shift the long-run aggregate supply curve left.
C)   Unemployment can be changed only by the use of government policy.
D)   The decrease in output associated with reducing inflation is less if the policy change is announced ahead of time and is credible.E) A) and C)
F) None of the above

Question 7

Although monetary policy cannot reduce the natural rate of unemployment,other types of government policies can.

Accepted Answer

A) True 
 B)False

Question 8

In the long run people come to expect whatever inflation rate the Fed chooses to produce,so unemployment returns to its natural rate.

Accepted Answer

A) True 
 B)False

Question 9

Friedman and Phelps concluded that

Accepted Answer

A)   in the long run the Phillips curve is downward sloping,which is consistent with classical theory.
B)   in the long run the Philips curve is downward sloping,which is inconsistent with classical theory.
C)   in the long run the Phillips curve is vertical,which is consistent with classical theory.
D)   in the long run the Phillips curve is vertical,which is inconsistent with classical theory.E) A) and B)
F) A) and C)

Question 10

A central bank sets out to reduce unemployment by changing the money supply growth rate.The long-run Phillips curve shows that in comparison to their original rates,this policy will eventually lead to

Accepted Answer

A)   an increase in both the inflation rate and the unemployment rate.
B)   an increase in the inflation rate and a reduction in the unemployment rate.
C)   no change in either the inflation rate or the unemployment rate.
D)   an increase in the inflation rate and no change in the unemployment rate.E) A) and D)
F) None of the above

Question 11

Suppose the Fed increased the growth rate of the money supply.Which of the following would be higher 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) None of the above
F) All of the above

Question 12

According to Friedman and Phelps,the unemployment rate is above the natural rate when actual inflation

Accepted Answer

A)   is greater than expected inflation.
B)   is less than expected inflation.
C)   equals expected inflation.
D)   low whether its greater than or less than expected.E) All of the above
F) C) and D)

Question 13

In 2001,Congress and President Bush instituted tax cuts.According to the short-run Phillips curve,in the short run this change should have

Accepted Answer

A)   reduced inflation and unemployment.
B)   raised inflation and unemployment.
C)   reduce inflation and raised unemployment.
D)   raised inflation and reduced unemployment.E) A) and B)
F) A) and C)

Question 14

If the long-run Phillips curve shifts to the right,then for any given rate of money growth and inflation the economy has

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) None of the above
F) All of the above

Question 15

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is an example of 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) B) and C)
F) C) and D)

Question 17

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

Question 18

A policy change that changes the natural rate of unemployment changes

Accepted Answer

A)   neither the long-run Phillips curve nor the long-run aggregate supply curve.
B)   both the long-run Phillips curve and the long-run aggregate supply curve.
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 curve.E) A) and C)
F) A) and B)

Question 19

Soon after he became the chairman of the Federal Reserve System in 1979,Paul Volcker embarked on a course

Accepted Answer

A)   of accommodative monetary policy.
B)   of disinflation.
C)   that was designed to reduce the unemployment rate.
D)   that produced results that were clearly consistent with those predicted by rational-expectations theorists.E) None of the above
F) A) and C)

Question 20

According to the Phillips curve,policymakers would reduce inflation but raise unemployment if they

Accepted Answer

A)   decreased the money supply.
B)   increased government expenditures.
C)   decreased taxes.
D)   None of the above is correct.E) A) and B)
F) A) and C)

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

Friedman and Phelps concluded that

Correct Answer
verified

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

Correct Answer
verified

Although monetary policy cannot reduce the natural rate of unemployment,other types of government policies can.

Correct Answer
verified

According to the Phillips curve,policymakers would reduce inflation but raise unemployment if they

Correct Answer
verified

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

Correct Answer
verified

One determinant of the long-run average unemployment rate is the

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
Veridian ...
View Answer

A central bank sets out to reduce unemployment by changing the money supply growth rate.The long-run Phillips curve shows that in comparison to their original rates,this policy will eventually lead to

Correct Answer
verified

Which of the following is an example of an adverse supply shock?

Correct Answer
verified

Soon after he became the chairman of the Federal Reserve System in 1979,Paul Volcker embarked on a course

Correct Answer
verified

In the long run people come to expect whatever inflation rate the Fed chooses to produce,so unemployment returns to its natural rate.

Correct Answer
verified

A policy change that changes the natural rate of unemployment changes

Correct Answer
verified

In the late 1960s,Milton Friedman and Edmund Phelps argued that

Correct Answer
verified

According to Friedman and Phelps,the unemployment rate is above the natural rate when actual inflation

Correct Answer
verified

If the long-run Phillips curve shifts to the right,then for any given rate of money growth and inflation the economy has

Correct Answer
verified

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

In 2001,Congress and President Bush instituted tax cuts.According to the short-run Phillips curve,in the short run this change should have

Correct Answer
verified

Some countries have inflation around or in excess of 8 percent.Suppose that the sacrifice ratio is 2.5.What is the cost of reducing inflation from 8 percent to 2 percent? In your answer,define the sacrifice ratio and explain how you found the cost of inflation reduction.

Correct Answer
verified
The sacrifice ratio gives the annual per...
View Answer

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

Friedman and Phelps concluded that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Although monetary policy cannot reduce the natural rate of unemployment,other types of government policies can.

Correct AnswerverifiedShow Answer

According to the Phillips curve,policymakers would reduce inflation but raise unemployment if they

Correct AnswerverifiedShow Answer

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

Correct AnswerverifiedShow Answer

One determinant of the long-run average unemployment rate is the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answerverified Veridian ...View AnswerShow Answer

A central bank sets out to reduce unemployment by changing the money supply growth rate.The long-run Phillips curve shows that in comparison to their original rates,this policy will eventually lead to

Correct AnswerverifiedShow Answer

Which of the following is an example of an adverse supply shock?

Correct AnswerverifiedShow Answer

Soon after he became the chairman of the Federal Reserve System in 1979,Paul Volcker embarked on a course

Correct AnswerverifiedShow Answer

In the long run people come to expect whatever inflation rate the Fed chooses to produce,so unemployment returns to its natural rate.

Correct AnswerverifiedShow Answer

A policy change that changes the natural rate of unemployment changes

Correct AnswerverifiedShow Answer

In the late 1960s,Milton Friedman and Edmund Phelps argued that

Correct AnswerverifiedShow Answer

According to Friedman and Phelps,the unemployment rate is above the natural rate when actual inflation

Correct AnswerverifiedShow Answer

If the long-run Phillips curve shifts to the right,then for any given rate of money growth and inflation the economy has

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

In 2001,Congress and President Bush instituted tax cuts.According to the short-run Phillips curve,in the short run this change should have

Correct AnswerverifiedShow Answer

Some countries have inflation around or in excess of 8 percent.Suppose that the sacrifice ratio is 2.5.What is the cost of reducing inflation from 8 percent to 2 percent? In your answer,define the sacrifice ratio and explain how you found the cost of inflation reduction.

Correct AnswerverifiedThe sacrifice ratio gives the annual per...View AnswerShow Answer

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Veridian ...
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Correct Answer
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The sacrifice ratio gives the annual per...
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