Question 1

Which of the following best defines the sacrifice ratio?

Accepted Answer

A)   the sum of the inflation and unemployment rates
B)   the inflation rate divided by the change in output
C)   the number of percentage points annual output falls for each percentage point reduction in inflation
D)   the number of percentage points unemployment rises for each percentage point reduction in inflationE) A) and B)
F) A) and C)

Question 2

Which statement characterizes 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) A) and C)
F) B) and C)

Question 3

Which of the following was the primary cause of the large increase in oil prices in the 1970s?

Accepted Answer

A)   an increase in demand for oil
B)   the introduction of the National Energy Program
C)   a decrease in the supply of oil by OPEC
D)   an increase in the supply of oil by OPECE) B) and C)
F) None of the above

Question 4

If the government raises government expenditures,what happens to prices and unemployment in the short run?

Accepted Answer

A)   Prices rise and unemployment falls.
B)   Prices fall and unemployment rises.
C)   Prices and unemployment rise.
D)   Prices and unemployment fall.E) None of the above
F) All of the above

Question 5

Suppose the Bank of Canada decreased the growth rate of the money supply.What would permanently decrease?

Accepted Answer

A)   the unemployment level
B)   the unemployment rate
C)   the inflation rate
D)   the price levelE) B) and D)
F) None of the above

Question 6

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

Question 7

Figure 16-1 
-Refer to the Figure 16-1.If the economy starts at c and 1,then in the short run,where does a decrease in government expenditures move the economy?

Accepted Answer

A)   d and 2
B)   d and 3
C)   e and 3
D)   e and 2E) All of the above
F) B) and D)

Question 8

In the long run,the natural rate of unemployment depends primarily on the growth rate of the money supply.

Accepted Answer

A) True 
 B)False

Question 9

In the nineteenth century,some countries were on gold standards so that on average the money supply growth rate was close to zero and expected inflation was more or less constant.For these countries during this time period,we find that increases in inflation were generally associated with falling unemployment.Are these findings consistent with Friedman and Phelps's theories,and why?

Accepted Answer

A)   Yes,because they argued that when inflation was higher than expected,unemployment would fall.
B)   Yes,because they argued that when prices rose unemployment would fall,whether actual inflation was higher than expected or not.
C)   No,because they argued that inflation and unemployment are negatively correlated.
D)   No,because they argued that inflation and unemployment were unrelated.E) A) and C)
F) B) and D)

Question 10

How will a favourable supply shock shift the short-run Phillips curve and how does it change inflation?

Accepted Answer

A)   It will shift the short-run Phillips curve right and raise inflation.
B)   It will shift the short-run Phillips curve right and lower inflation.
C)   It will shift the short-run Phillips curve left and raise inflation.
D)   It will shift the short-run Phillips curve left and lower inflation.E) A) and B)
F) A) and D)

Question 11

Some countries have had high inflation rates for a long time and other countries have had low inflation rates for a long time.Yet in some of the high-inflation countries,the unemployment rate is not much different or even higher than in the low-inflation countries.Explain how these observations can be consistent with the Phillips curve.

Accepted Answer

It is reasonable to guess that in countr...

Question 12

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 13

What would cause the price level to rise and output to fall 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 favourable supply shockE) None of the above
F) A) and B)

Question 14

Figure 16-4 
-Refer to the Figure 16-4.Along SRPC2,what is the expected rate of inflation?

Accepted Answer

A)   0 percent
B)   1 percent
C)   2 percent
D)   3 percentE) A) and C)
F) All of the above

Question 15

In the long run,what does the inflation rate primarily depend on?

Accepted Answer

A)   the ability of unions to raise wages
B)   government spending
C)   the money supply growth rate
D)   tax ratesE) B) and C)
F) B) and D)

Question 16

Which statement best describes the sacrifice ratio for Canada?

Accepted Answer

A)   It falls over a range of 1 to 3.
B)   It falls over a range of 2 to 5.
C)   It falls over a range of 3 to 6.
D)   It falls over a range of 5 to 7.E) All of the above
F) A) and D)

Question 17

What did Phillips discover?

Accepted Answer

A)   a positive relation between unemployment and inflation in the United Kingdom
B)   a positive relation between unemployment and inflation in Canada
C)   a negative relation between unemployment and inflation in Canada
D)   a negative relation between unemployment and inflation in the United KingdomE) All of the above
F) A) and C)

Question 18

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

Question 19

In the Friedman-Phelps analysis,when inflation is less than expected,unemployment is greater than the natural rate.

Accepted Answer

A) True 
 B)False

Question 20

Explain the causes and consequences of the early 1970s recession in Canada.How did the authorities respond,and what were the long-term effects of this response? What do we learn from this case study?

Accepted Answer

A complete answer to the first question ...

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

Which statement characterizes the long-run Phillips curve?

Correct Answer
verified

Correct Answer
verified
It is reasonable to guess that in countr...
View Answer

What would cause the price level to rise and output to fall in the short run?

Correct Answer
verified

Correct Answer
verified

How will a favourable supply shock shift the short-run Phillips curve and how does it change inflation?

Correct Answer
verified

Which statement best describes the sacrifice ratio for Canada?

Correct Answer
verified

In the long run,what does the inflation rate primarily depend on?

Correct Answer
verified

In the Friedman-Phelps analysis,when inflation is less than expected,unemployment is greater than the natural rate.

Correct Answer
verified

Explain the causes and consequences of the early 1970s recession in Canada.How did the authorities respond,and what were the long-term effects of this response? What do we learn from this case study?

Correct Answer
verified
A complete answer to the first question ...
View Answer

Figure 16-4 -Refer to the Figure 16-4.Along SRPC2,what is the expected rate of inflation?

Correct Answer
verified

Suppose the Bank of Canada decreased the growth rate of the money supply.What would permanently decrease?

Correct Answer
verified

Which of the following was the primary cause of the large increase in oil prices in the 1970s?

Correct Answer
verified

What did Phillips discover?

Correct Answer
verified

In the long run,the natural rate of unemployment depends primarily on the growth rate of the money supply.

Correct Answer
verified

Which of the following best defines the sacrifice ratio?

Correct Answer
verified

If the government raises government expenditures,what happens to prices and unemployment in the short run?

Correct Answer
verified

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

Correct Answer
verified
Both reflect the classical dichotomy.The...
View Answer

Figure 16-1 -Refer to the Figure 16-1.If the economy starts at c and 1,then in the short run,where does a decrease in government expenditures move the economy?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Which statement characterizes the long-run Phillips curve?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIt is reasonable to guess that in countr...View AnswerShow Answer

What would cause the price level to rise and output to fall in the short run?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

How will a favourable supply shock shift the short-run Phillips curve and how does it change inflation?

Correct AnswerverifiedShow Answer

Which statement best describes the sacrifice ratio for Canada?

Correct AnswerverifiedShow Answer

In the long run,what does the inflation rate primarily depend on?

Correct AnswerverifiedShow Answer

In the Friedman-Phelps analysis,when inflation is less than expected,unemployment is greater than the natural rate.

Correct AnswerverifiedShow Answer

Explain the causes and consequences of the early 1970s recession in Canada.How did the authorities respond,and what were the long-term effects of this response? What do we learn from this case study?

Correct AnswerverifiedA complete answer to the first question ...View AnswerShow Answer

Figure 16-4 -Refer to the Figure 16-4.Along SRPC2,what is the expected rate of inflation?

Correct AnswerverifiedShow Answer

Suppose the Bank of Canada decreased the growth rate of the money supply.What would permanently decrease?

Correct AnswerverifiedShow Answer

Which of the following was the primary cause of the large increase in oil prices in the 1970s?

Correct AnswerverifiedShow Answer

What did Phillips discover?

Correct AnswerverifiedShow Answer

In the long run,the natural rate of unemployment depends primarily on the growth rate of the money supply.

Correct AnswerverifiedShow Answer

Which of the following best defines the sacrifice ratio?

Correct AnswerverifiedShow Answer

If the government raises government expenditures,what happens to prices and unemployment in the short run?

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

Figure 16-1 -Refer to the Figure 16-1.If the economy starts at c and 1,then in the short run,where does a decrease in government expenditures move the economy?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
It is reasonable to guess that in countr...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A complete answer to the first question ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Both reflect the classical dichotomy.The...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified