Question 1

Monetary Policy in Flosserland
In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Flosserland. Suppose Flosserland has had the same inflation rate for a long time. Which, if either, of the following ideas imply that the unemployment rate in Flosserland would be above the natural rate.

Accepted Answer

A)   both the Classical dichotomy and the long-run Phillips curve
B)   the Classical dichotomy, but not the long run Phillips curve
C)   the long-run Phillips curve, but not the Classical dichotomy
D)   neither the long-run Phillips curve nor the Classical dichotomyE) A) and C)
F) A) and B)

Question 2

A decrease in expected inflation shifts

Accepted Answer

A)   the long-run Phillips curve left.
B)   the short-run Phillips curve left.
C)   neither the short-run nor long-run Phillips curve left.
D)   both the short-run and long-run Phillips curve left.E) A) and B)
F) All of the above

Question 3

Figure 35-6
Use the graph below to answer the following questions. 
-Refer to Figure 35-6. Curve 2 is the

Accepted Answer

A)   long-run Phillips curve.
B)   short-run Phillips curve.
C)   long-run aggregate demand curve.
D)   short-run aggregate demand curve.E) A) and B)
F) A) and C)

Question 4

A central bank that accommodates an aggregate supply shock

Accepted Answer

A)   increases the money supply, making the inflation rate rise.
B)   increases the money supply, making the inflation rate fall.
C)   decreases the money supply, making the inflation rate rise.
D)   decreases the money supply, making the inflation rate fall.E) A) and D)
F) A) and C)

Question 5

If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year, the sacrifice ratio is

Accepted Answer

A)   5/2.
B)   3/2.
C)   2/3.
D)   2/5.E) A) and D)
F) All of the above

Question 6

Unemployment would decrease and prices would increase if

Accepted Answer

A)   aggregate demand shifted right.
B)   aggregate demand shifted left.
C)   aggregate supply shifted right.
D)   aggregate supply shifted left.E) All of the above
F) None of the above

Question 7

The long-run Phillips curve would shift to the left if

Accepted Answer

A)   the money supply growth rate increased or labor markets become more flexible.
B)   the money supply growth rate increased but not if labor markets become more flexible.
C)   labor markets become more flexible but not if the money supply growth rate increased.
D)   None of the above is correct.E) None of the above
F) A) and D)

Question 8

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Accepted Answer

A)   0.4.
B)   1.5.
C)   2.5.
D)   5.0.E) B) and C)
F) C) and D)

Question 9

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money
Supply, then in the short run the Federal Reserve's action

Accepted Answer

A)   lowers both inflation and unemployment.
B)   lowers inflation but raises unemployment.
C)   raises inflation but lowers unemployment.
D)   raises both inflation and unemployment.E) A) and C)
F) All of the above

Question 10

Samuelson and Solow reasoned that when aggregate demand was low, unemployment was

Accepted Answer

A)   high, so there was upward pressure on wages and prices.
B)   high, so there was downward pressure on wages and prices.
C)   low, so there was upward pressure on wages and prices.
D)   low, so there was downward pressure on wages and prices.E) None of the above
F) A) and B)

Question 11

The sacrifice ratio is the

Accepted Answer

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

Question 12

Figure 35-6
Use the graph below to answer the following questions. 
-Refer to Figure 35-6. Curve 1 is the

Accepted Answer

A)   long-run aggregate supply curve.
B)   short-run aggregate supply curve.
C)   long-run Phillips curve.
D)   short-run Phillips curve.E) A) and D)
F) A) and C)

Question 13

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. What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A)   the wage rate
B)   the inflation rate
C)   employment
D)   outputE) All of the above
F) A) and B)

Question 14

In the long run, if the Fed decreases the growth rate of the money supply,

Accepted Answer

A)   inflation will be lower.
B)   unemployment will be higher.
C)   real GDP will be lower.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 15

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) All of the above
F) A) and B)

Question 16

Moving from the late 1960s to 1970-1973,

Accepted Answer

A)   inflation remained high while the unemployment rate was lower than in the late 1960s.
B)   inflation remained high while the unemployment rate was higher than in the late 1960s.
C)   inflation remained low while the unemployment rate was lower than in the late 1960s.
D)   inflation remained low while the unemployment rate was higher than in the late 1960s.E) A) and B)
F) A) and C)

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year, the sacrifice ratio is

Accepted Answer

A)   1/5.
B)   2.
C)   5/2.
D)   5.E) A) and D)
F) C) and D)

Question 19

The proliferation of Internet usage serves as an example of a favorable supply shock.

Accepted Answer

A) True 
 B)False

Question 20

Figure 35-7
Use the two graphs in the diagram to answer the following questions.
  
-Refer to Figure 35-7. 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) All of the above
F) None of the above

Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

Correct Answer
verified

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

Correct Answer
verified

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. Curve 1 is the

Correct Answer
verified

Unemployment would decrease and prices would increase if

Correct Answer
verified

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Correct Answer
verified

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. Curve 2 is the

Correct Answer
verified

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

Correct Answer
verified

In the long run, if the Fed decreases the growth rate of the money supply,

Correct Answer
verified

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money Supply, then in the short run the Federal Reserve's action

Correct Answer
verified

The proliferation of Internet usage serves as an example of a favorable supply shock.

Correct Answer
verified

Samuelson and Solow reasoned that when aggregate demand was low, unemployment was

Correct Answer
verified

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. What is measured along the horizontal axis of the left-hand graph?

Correct Answer
verified

If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year, the sacrifice ratio is

Correct Answer
verified

The long-run Phillips curve would shift to the left if

Correct Answer
verified

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year, the sacrifice ratio is

Correct Answer
verified

Moving from the late 1960s to 1970-1973,

Correct Answer
verified

The sacrifice ratio is the

Correct Answer
verified

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. The economy would move from 3 to 5

Correct Answer
verified

A central bank that accommodates an aggregate supply shock

Correct Answer
verified

A decrease in expected inflation shifts

Correct Answer
verified

Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. Curve 1 is the

Correct AnswerverifiedShow Answer

Unemployment would decrease and prices would increase if

Correct AnswerverifiedShow Answer

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Correct AnswerverifiedShow Answer

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. Curve 2 is the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long run, if the Fed decreases the growth rate of the money supply,

Correct AnswerverifiedShow Answer

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money Supply, then in the short run the Federal Reserve's action

Correct AnswerverifiedShow Answer

The proliferation of Internet usage serves as an example of a favorable supply shock.

Correct AnswerverifiedShow Answer

Samuelson and Solow reasoned that when aggregate demand was low, unemployment was

Correct AnswerverifiedShow 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. What is measured along the horizontal axis of the left-hand graph?

Correct AnswerverifiedShow Answer

If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year, the sacrifice ratio is

Correct AnswerverifiedShow Answer

The long-run Phillips curve would shift to the left if

Correct AnswerverifiedShow Answer

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year, the sacrifice ratio is

Correct AnswerverifiedShow Answer

Moving from the late 1960s to 1970-1973,

Correct AnswerverifiedShow Answer

The sacrifice ratio is the

Correct AnswerverifiedShow Answer

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. The economy would move from 3 to 5

Correct AnswerverifiedShow Answer

A central bank that accommodates an aggregate supply shock

Correct AnswerverifiedShow Answer

A decrease in expected inflation shifts

Correct AnswerverifiedShow Answer

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