Question 1

An increase in expected inflation shifts

Accepted Answer

A)   the long-run Phillips curve right.
B)   the short-run Phillips curve right.
C)   neither the short-run nor long-run Phillips curve right.
D)   both the short-run and long-run Phillips curve right.E) A) and B)
F) A) and D)

Question 2

In the late 1970s, proponents of rational expectations argued that

Accepted Answer

A)   the Fed should not attempt to aggressively fight inflation.
B)   the sacrifice ratio was smaller than previously thought.
C)   the short run was relatively long.
D)   None of the above is correct.E) C) and D)
F) None of the above

Question 3

Which of the following is correct if there is a favorable supply shock?

Accepted Answer

A)   the short-run aggregate supply curve and the short-run Phillips curve both shift right.
B)   the short-run aggregate supply curve and the short-run Phillips curve both shift left.
C)   the short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left.
D)   the short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right.E) B) and C)
F) A) and D)

Question 4

The economist A.W. Phillips published a famous article in 1958 in which he showed a

Accepted Answer

A)   negative correlation between the rate of unemployment and the rate of inflation.
B)   positive correlation between the rate of unemployment and the rate of inflation.
C)   negative correlation between the rate of unemployment and the rate of interest.
D)   positive correlation between the rate of unemployment and the rate of interestE) All of the above
F) A) and B)

Question 5

If there is a favorable supply shock which direction does the short-run Phillips curve shift? What initially happens to unemployment and inflation as a result of this shock?

Accepted Answer

The short-run Philli...

Question 6

According to the short-run Phillips curve, inflation

Accepted Answer

A)   and unemployment would fall if the policymakers decreased the money supply.
B)   would fall and unemployment would rise if policymakers decreased the money supply.
C)   and unemployment would fall if the policymakers increased the money supply.
D)   would fall and unemployment would rise if policymakers increased the money supply.E) B) and D)
F) B) and C)

Question 7

The short-run Phillips curve shows the combinations of

Accepted Answer

A)   unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.
B)   unemployment and inflation that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve.
C)   real GDP and the price level that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve.
D)   None of the above is correct.E) None of the above
F) A) and D)

Question 8

Natural rate of unemployment - a × (Αctual inflation - Expected inflation)  =

Accepted Answer

A)   Quantity of goods and services demanded.
B)   Quantity of goods and services supplied.
C)   Unemployment rate.
D)   Previous year's inflation rate.E) A) and B)
F) A) and C)

Question 9

If the Federal Reserve decreases the rate at which it increases the money supply, then unemployment is higher in

Accepted Answer

A)   the long run and the short run.
B)   the long run but not the short run.
C)   the short run but not the long run.
D)   neither the short run nor the long run.E) All of the above
F) A) and C)

Question 10

A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?

Accepted Answer

The answer of A central bank pledges to reduce the...

Question 11

On a given short-run Phillips curve which of the following is not held constant?

Accepted Answer

A)   the level of GDP
B)   the position of the aggregate-supply curve
C)   expected inflation
D)   the expected growth rate of the money supplyE) None of the above
F) C) and D)

Question 12

If a central bank reduced inflation by 2 percentage points and that made output fall by 3 percentage points for 2 years and the unemployment rate rise from 3 percent to 5 percent for 2 years, the sacrifice ratio is

Accepted Answer

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

Question 13

If taxes rise, then aggregate demand shifts

Accepted Answer

A)   right, making unemployment higher than otherwise.
B)   right, making unemployment lower than otherwise.
C)   left, making unemployment higher than otherwise.
D)   left, making unemployment lower than otherwise.E) C) and D)
F) A) and C)

Question 14

The theory by which people optimally use all available information when forecasting the future is known as

Accepted Answer

A)   rational expectations.
B)   perfect expectations.
C)   credible expectations.
D)   predictive expectations.E) None of the above
F) A) and B)

Question 15

Suppose a central bank takes actions that will lead to a higher inflation rate. The public, however, is slow to adjust its expectation of inflation. Then, in the short run, unemployment

Accepted Answer

A)   rises. As inflation expectations adjust, the short-run Phillips curve shifts right.
B)   rises. As inflation expectations adjust, the short-run Phillips curve shifts left.
C)   falls. As inflation expectations adjust, the short-run Phillips curve shifts right.
D)   falls. As inflation expectations adjust, the short-run Phillips curve shifts left.E) A) and B)
F) B) and D)

Question 16

Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by

Accepted Answer

A)   moving to the left along the short-run Phillips curve.
B)   moving to the right along the short-run Phillips curve.
C)   shifting the short-run Phillips curve to the right.
D)   shifting the short-run Phillips curve to the left.E) B) and C)
F) All of the above

Question 17

In the long run, which of the following depends primarily on the growth rate of the money supply?

Accepted Answer

A)   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 rate of unemployment nor the inflation rateE) All of the above
F) A) and D)

Question 18

If the central bank keeps the money supply growth rate constant, but people raise their inflation expectations by 1 percentage point, then the short-run Phillips curve shifts

Accepted Answer

A)   right and the unemployment rate rises.
B)   right and the unemployment rate falls.
C)   left and the unemployment rate rises.
D)   left and the unemployment rate falls.E) None of the above
F) A) and B)

Question 19

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run?

Accepted Answer

A)   Expected inflation would exceed actual inflation, and unemployment would exceed its natural rate.
B)   Expected inflation would exceed actual inflation, and unemployment would be below its natural rate.
C)   Actual inflation would exceed expected inflation, and unemployment would exceed its natural rate.
D)   Actual inflation would exceed expected inflation, and unemployment would be below its natural rate.E) B) and C)
F) A) and B)

Question 20

What is meant by the natural rate of unemployment?

Accepted Answer

It is the rate of un...

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

The short-run Phillips curve shows the combinations of

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In the late 1970s, proponents of rational expectations argued that

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If taxes rise, then aggregate demand shifts

Correct AnswerverifiedShow Answer

If the central bank keeps the money supply growth rate constant, but people raise their inflation expectations by 1 percentage point, then the short-run Phillips curve shifts

Correct AnswerverifiedShow Answer

Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by

Correct AnswerverifiedShow Answer

If the Federal Reserve decreases the rate at which it increases the money supply, then unemployment is higher in

Correct AnswerverifiedShow Answer

If a central bank reduced inflation by 2 percentage points and that made output fall by 3 percentage points for 2 years and the unemployment rate rise from 3 percent to 5 percent for 2 years, the sacrifice ratio is

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In the long run, which of the following depends primarily on the growth rate of the money supply?

Correct AnswerverifiedShow Answer

The economist A.W. Phillips published a famous article in 1958 in which he showed a

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Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run?

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If there is a favorable supply shock which direction does the short-run Phillips curve shift? What initially happens to unemployment and inflation as a result of this shock?

Correct AnswerverifiedThe short-run Philli...View AnswerShow Answer

A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?

Correct AnswerverifiedShow Answer

According to the short-run Phillips curve, inflation

Correct AnswerverifiedShow Answer

On a given short-run Phillips curve which of the following is not held constant?

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Suppose a central bank takes actions that will lead to a higher inflation rate. The public, however, is slow to adjust its expectation of inflation. Then, in the short run, unemployment

Correct AnswerverifiedShow Answer

The theory by which people optimally use all available information when forecasting the future is known as

Correct AnswerverifiedShow Answer

What is meant by the natural rate of unemployment?

Correct AnswerverifiedIt is the rate of un...View AnswerShow Answer

Natural rate of unemployment - a × (Αctual inflation - Expected inflation) =

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An increase in expected inflation shifts

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Which of the following is correct if there is a favorable supply shock?

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The short-run Philli...
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It is the rate of un...
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