Question 1

If expected inflation rises but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

Accepted Answer

Unemployment rises. The increa...

Question 2

The Volcker disinflation

Accepted Answer

A)   had virtually no impact on output, just as the classical dichotomy suggested.
B)   was associated with rising output, perhaps due to expansionary fiscal policy.
C)   caused output to fall, but by less than the typical estimate of the sacrifice ratio suggested.
D)   None of the above is correct.E) B) and D)
F) B) and C)

Question 3

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short- run consequence of this contraction?

Accepted Answer

A)   The inflation rate decreases.
B)   The level of output decreases.
C)   The unemployment rate increases.
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 4

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

Accepted Answer

A)   increase the money supply growth rate which raises the inflation rate.
B)   increase the money supply growth rate which reduces the inflation rate.
C)   decrease the money supply growth rate which raises the inflation rate.
D)   decrease the money supply growth rate which reduces the inflation rate.E) A) and B)
F) A) and C)

Question 5

In the long run,

Accepted Answer

A)   the natural rate of unemployment depends primarily on the level of aggregate demand.
B)   inflation depends primarily upon the money supply growth rate.
C)   there is a tradeoff between the inflation rate and the natural rate of unemployment.
D)   All of the above are correct.E) None of the above
F) C) and D)

Question 6

To say that the natural rate of unemployment changes over time is to say that

Accepted Answer

A)   the short-run Phillips curve shifts over time.
B)   the long-run Phillips curve shifts over time.
C)   the aggregate demand curve shifts over time.
D)   the Federal Reserve influences the natural rate of unemployment over time.E) All of the above
F) B) and D)

Question 7

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not 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 B)
F) B) and D)

Question 9

A favorable supply shock causes output 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 B)
F) B) and D)

Question 10

In most of the 1970s, the Fed's policy created expectations of high inflation.

Accepted Answer

A) True 
 B)False

Question 11

Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 4%.

Accepted Answer

The econom...

Question 12

Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the Phillips curve is

Accepted Answer

A)   downward-sloping, which implies that monetary and fiscal policies can influence the level of unemployment in the long run.
B)   downward-sloping, which implies that monetary and fiscal policies cannot influence the rate of inflation in the long run.
C)   vertical, which implies that monetary and fiscal policies cannot influence the level of unemployment in the long run.
D)   vertical, which implies that monetary and fiscal policies cannot influence the rate of inflation in the long run.E) B) and C)
F) A) and B)

Question 13

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

Question 14

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

Accepted Answer

A)   time
B)   the unemployment rate
C)   real GDP
D)   the growth rate of real GDPE) All of the above
F) A) and D)

Question 15

Friedman argued that the Fed could use monetary policy to peg

Accepted Answer

A)   the level of real GDP.
B)   the growth rate of real GDP.
C)   the rate of unemployment.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 16

The economy will move to a point on the short-run Phillips curve where unemployment is higher if

Accepted Answer

A)   the inflation rate decreases.
B)   the government increases its expenditures.
C)   the Fed increases the money supply.
D)   None of the above is correct.E) All of the above
F) A) and B)

Question 17

Suppose that businesses become less optimistic about the future. Assuming no change in inflation expectations, how would the effects of this shock be shown on the Phillips curve diagram and what would happen to inflation and unemployment?

Accepted Answer

The decrease in spending is sh...

Question 18

An adverse supply shock shifts the short-run Phillips curve to the

Accepted Answer

A)   right. This means the unemployment rate is higher at each inflation rate.
B)   right. This means the unemployment rate is lower at each inflation rate.
C)   left. This means the unemployment rate is higher at each inflation rate.
D)   left. This means the unemployment rate is lower at each inflation rate.E) All of the above
F) A) and D)

Question 19

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) C) and D)
F) B) and C)

Question 20

Suppose the price level is 110.00 at the end of 2020, 121.00 at the end of 2021, and 128.26 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

Accepted Answer

Yes. The rate of inflation for 2021 was ...

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

A favorable supply shock causes output to

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

Correct AnswerverifiedShow Answer

The economy will move to a point on the short-run Phillips curve where unemployment is higher if

Correct AnswerverifiedShow Answer

The Volcker disinflation

Correct AnswerverifiedShow Answer

An adverse supply shock shifts the short-run Phillips curve to the

Correct AnswerverifiedShow Answer

To say that the natural rate of unemployment changes over time is to say that

Correct AnswerverifiedShow Answer

In the long run,

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Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 4%.

Correct AnswerverifiedThe econom...View AnswerShow Answer

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

Correct AnswerverifiedShow Answer

Suppose the price level is 110.00 at the end of 2020, 121.00 at the end of 2021, and 128.26 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

Correct AnswerverifiedYes. The rate of inflation for 2021 was ...View AnswerShow 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

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short- run consequence of this contraction?

Correct AnswerverifiedShow Answer

In most of the 1970s, the Fed's policy created expectations of high inflation.

Correct AnswerverifiedShow Answer

Friedman argued that the Fed could use monetary policy to peg

Correct AnswerverifiedShow Answer

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Correct AnswerverifiedShow Answer

Suppose that businesses become less optimistic about the future. Assuming no change in inflation expectations, how would the effects of this shock be shown on the Phillips curve diagram and what would happen to inflation and unemployment?

Correct AnswerverifiedThe decrease in spending is sh...View AnswerShow Answer

If expected inflation rises but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

Correct AnswerverifiedUnemployment rises. The increa...View AnswerShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the Phillips curve is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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The econom...
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Yes. The rate of inflation for 2021 was ...
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Correct Answer
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The decrease in spending is sh...
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Unemployment rises. The increa...
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Correct Answer
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