Question 1

In 1980, the U.S. misery index was

Accepted Answer

A)   much higher than average.
B)   slightly higher than average.
C)   about average.
D)   below average.E) A) and B)
F) None of the above

Question 2

If the Fed reduces inflation 1 percentage point and this makes output fall 2 percentage points and unemployment rise 3 percentage points for six months, the sacrifice ratio is

Accepted Answer

A)   1.
B)   2.
C)   3.
D)   4.E) A) and D)
F) None of the above

Question 3

Which of the following is correct according to the long-run Phillips curve?

Accepted Answer

A)   No government policy, including changes in the money supply growth rate, can change the natural rate of unemployment.
B)   Changes in the money supply growth rate are the only means by which government policy can change the natural rate of unemployment.
C)   Monetary policy cannot change the natural rate of unemployment, but other government policies can.
D)   Monetary policy and other government policies can shift the long-run Phillips curve.E) A) and B)
F) All of the above

Question 4

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. Th...

Question 5

Which of the following is downward-sloping?

Accepted Answer

A)   both the long-run Phillips curve and the short-run Phillips curve
B)   neither the long-run Phillips curve nor the short-run Phillips curve
C)   the long-run Phillips curve, but not the short-run Phillips curve
D)   the short-run Phillips curve, but not the long-run Phillips curveE) A) and C)
F) C) and D)

Question 6

If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the

Accepted Answer

A)   right. It remains to the right regardless of monetary policy.
B)   right. It remains to the right if the central bank pursues expansionary monetary policy.
C)   left. It remains to the left regardless of monetary policy.
D)   left. It remains to the left if the central bank pursues expansionary monetary policy.E) A) and D)
F) B) and D)

Question 7

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 C)
F) A) and B)

Question 8

Which of the following both make the sacrifice ratio higher than otherwise?

Accepted Answer

A)   the Phillips curve is steep, inflation expectations adjust quickly.
B)   the Phillips curve is steep, inflation expectations adjust slowly.
C)   the Phillips curve is flat, inflation expectations adjust quickly
D)   the Phillips curve is flat, inflation expectations adjust slowly.E) A) and B)
F) None of the above

Question 9

Which of the following depends primarily on the growth rate of the money supply?

Accepted Answer

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

Question 10

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

Accepted Answer

A) True 
 B)False

Question 11

Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have

Accepted Answer

A)   lower unemployment and higher inflation
B)   higher unemployment and higher inflation
C)   lower unemployment and lower inflation
D)   None of the above is necessarily correct.E) A) and B)
F) A) and C)

Question 12

In 1979, Fed Chair Paul Volcker

Accepted Answer

A)   instituted an accommodative monetary policy to address adverse supply shocks.
B)   believed that inflation had not yet reached unacceptable levels.
C)   believed decreasing inflation would temporarily decrease output growth.
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 13

A central bank disinflates. Output is 4% less for one year, 3% less the next year, and 2% less the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Accepted Answer

The answer of A central bank disinflates. Output is 4%...

Question 14

Disinflation is like

Accepted Answer

A)   slowing a car down, whereas deflation is like putting the car into reverse gear.
B)   maintaining a car's speed, whereas deflation is like slowing the car down.
C)   putting a car into reverse gear, whereas deflation is like slowing the car down.
D)   maintaining a car's speed, whereas deflation is like putting the car into reverse gear.E) A) and B)
F) B) and C)

Question 15

A central bank announces it will decrease the inflation rate by 10 percentage points. People are skeptical of the announcement, but do expect the central bank will reduce inflation by 5 percentage points and so expected inflation falls by 5 percentage points. If the central bank decreases inflation by only 3 percentage points then the unemployment rate will fall.

Accepted Answer

A) True 
 B)False

Question 16

Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS)  curve and two aggregate-demand AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."  
-Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

Accepted Answer

A)   an increase in the money supply.
B)   an adverse supply shock.
C)   a decrease of output from Y1 to Y2.
D)   a slow adjustment of people's expectation of the inflation rate.E) A) and B)
F) B) and D)

Question 17

There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

Accepted Answer

A)   raise the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve right.
B)   raise the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve left.
C)   reduce the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve right.
D)   reduce the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve left.E) None of the above
F) A) and B)

Question 18

If the Federal Reserve accommodates an adverse supply shock,

Accepted Answer

A)   inflation expectations may rise which shifts the short-run Phillips curve shifts right.
B)   inflation expectations may rise which shifts the short-run Phillips curve shifts left.
C)   inflation expectations may fall which shifts the short-run Phillips curve shifts right.
D)   inflation expectations may fall which shifts the short-run Phillips curve shifts leftE) A) and C)
F) B) and C)

Question 19

From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have

Accepted Answer

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

Question 20

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 Mokania. The Bank of Mokania publicizes its intent to reduce the inflation rate to 5%. If it is successful in doing so but people had expected inflation to fall only to 10%, then

Accepted Answer

A)   unemployment rises but it would have risen by more if people had expected inflation to be 6%.
B)   unemployment rises but it would have risen by less if people had expected inflation to be 6%.
C)   unemployment falls but it would have fallen by more if people had expected inflation to be 6%.
D)   unemployment falls but it would have fallen by less if people had expected inflation to be 6%.E) None of the above
F) All of the above

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

In 1979, Fed Chair Paul Volcker

Correct Answer
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There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

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. Th...
View Answer

Correct Answer
verified

Correct Answer
verified

Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have

Correct Answer
verified

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

Correct Answer
verified

If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the

Correct Answer
verified

Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

Correct Answer
verified

If the Fed reduces inflation 1 percentage point and this makes output fall 2 percentage points and unemployment rise 3 percentage points for six months, the sacrifice ratio is

Correct Answer
verified

Disinflation is like

Correct Answer
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Which of the following both make the sacrifice ratio higher than otherwise?

Correct Answer
verified

Which of the following is downward-sloping?

Correct Answer
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If the Federal Reserve accommodates an adverse supply shock,

Correct Answer
verified

A central bank disinflates. Output is 4% less for one year, 3% less the next year, and 2% less the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Correct Answer
verified

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

Correct Answer
verified

In 1980, the U.S. misery index was

Correct Answer
verified

Which of the following is correct according to the long-run Phillips curve?

Correct Answer
verified

From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have

Correct Answer
verified

Which of the following depends primarily on the growth rate of the money supply?

Correct Answer
verified

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

In 1979, Fed Chair Paul Volcker

Correct AnswerverifiedShow Answer

There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

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. Th...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have

Correct AnswerverifiedShow Answer

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

Correct AnswerverifiedShow Answer

If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the

Correct AnswerverifiedShow Answer

Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

Correct AnswerverifiedShow Answer

If the Fed reduces inflation 1 percentage point and this makes output fall 2 percentage points and unemployment rise 3 percentage points for six months, the sacrifice ratio is

Correct AnswerverifiedShow Answer

Disinflation is like

Correct AnswerverifiedShow Answer

Which of the following both make the sacrifice ratio higher than otherwise?

Correct AnswerverifiedShow Answer

Which of the following is downward-sloping?

Correct AnswerverifiedShow Answer

If the Federal Reserve accommodates an adverse supply shock,

Correct AnswerverifiedShow Answer

A central bank disinflates. Output is 4% less for one year, 3% less the next year, and 2% less the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In 1980, the U.S. misery index was

Correct AnswerverifiedShow Answer

Which of the following is correct according to the long-run Phillips curve?

Correct AnswerverifiedShow Answer

From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have

Correct AnswerverifiedShow Answer

Which of the following depends primarily on the growth rate of the money supply?

Correct AnswerverifiedShow Answer

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Both reflect the classical dichotomy. Th...
View Answer

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