Question 1

Suppose the central bank wants to permanently reduce the inflation rate. What are the possible ways of doing so, and what are the consequences?

Accepted Answer

In the 1970s, Canadian authorities tried...

Question 2

Which statement best describes how the natural rate of unemployment changes?

Accepted Answer

A)   It cannot change; it is constant over time.
B)   It does not change by any actions of the government.
C)   It changes if the maximum legal number of work hours a week changes.
D)   It changes if the rate at which the Bank of Canada increases the money supply changes.E) All of the above
F) A) and D)

Question 3

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 D)
F) A) and C)

Question 4

Suppose the natural rate of unemployment is 6 percent, the expected inflation is 2 percent, and the constant "a" in the short-run Phillips curve equation is 0.8. Describe the process of adjustment when the expected inflation rate changes from 2 percent to 3 percent.

Accepted Answer

First, the actual inflation rate increas...

Question 5

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 6

Suppose a policy increases the natural rate of unemployment. What is the effect of such a policy change?

Accepted Answer

A)   an upward movement along the long-run Phillips curve
B)   a downward movement along the long-run Phillips curve
C)   a rightward shift of the long-run Phillips curve
D)   a leftward shift of the long-run Phillips curveE) A) and B)
F) B) and C)

Question 7

Figure 17-1 
-Refer to Figure 17-1. If the economy starts at c and 1, then in the short run, an increase in taxes moves the economy to where?

Accepted Answer

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

Question 8

What will a favourable supply shock cause the price level and output to do?

Accepted Answer

A)   It will cause the price level and output to rise.
B)   It will cause the price level and output to fall.
C)   It will cause the price level to rise and output to fall.
D)   It will cause the price level to fall and output to rise.E) A) and B)
F) A) and C)

Question 9

How could we transform the AD-AS model such that, instead of the price level and output it would show the relationship between the inflation rate (ð) and the rate of output growth (g)?

Accepted Answer

One can start from the AD-AS model in th...

Question 10

Which Canadian economist confirmed the theory of an inflation-unemployment tradeoff?

Accepted Answer

A)   R. Lipsey
B)   A.W. Phillips
C)   M. Carney
D)   J. GalbraithE) A) and D)
F) None of the above

Question 11

A vertical long-run Phillips curve is consistent with which of the following?

Accepted Answer

A)   the principle of monetary neutrality
B)   unemployment depends on money growth
C)   a natural rate of unemployment that depends on the inflation rate
D)   a downward-sloping aggregate-demand curveE) B) and D)
F) C) and D)

Question 12

In the long run, what are the effects of a decrease in the rate of growth of the money supply on the Phillips curves?

Accepted Answer

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

Question 13

Proponents of rational expectations theory have argued that, in the most extreme case, if policymakers are credibly committed to reducing inflation, and if rational people understand that commitment and quickly lower their inflation expectation, the sacrifice ratio could be as small as what?

Accepted Answer

A)   0
B)   1
C)   3
D)   5E) All of the above
F) A) and C)

Question 14

What is a long-run economic aspect on which most economists agree?

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 direct relationship between the inflation rate and the natural rate of unemployment.
D)   The rate of economic growth depends primarily on the growth in money supply.E) C) and D)
F) A) and B)

Question 15

How is the misery index calculated?

Accepted Answer

A)   It is the inflation rate plus the unemployment rate.
B)   It is the unemployment rate multiplied by the inflation rate.
C)   It is the inflation rate plus the expected interest rate.
D)   It is the natural unemployment rate minus the long-run growth rate.E) C) and D)
F) None of the above

Question 16

What would NOT be associated with an adverse supply shock?

Accepted Answer

A)   short-run Phillips curve shifts right
B)   unemployment rises
C)   price level falls
D)   output fallsE) B) and C)
F) C) and D)

Question 17

What did Friedman and Phelps argue about inflation and unemployment?

Accepted Answer

A)   that in the long run, monetary growth did not influence those factors that determine the unemployment rate
B)   that the Phillips curve could be exploited in the long run by using monetary, but not fiscal policy
C)   that the short-run Phillips curve was very steep but the long-run curve was very flat
D)   that there was neither a short-run nor long-run tradeoff between inflation and unemploymentE) A) and D)
F) B) and D)

Question 18

If efficiency wages became more common, where would the long-run Phillips curve and the long-run aggregate-supply curve shift?

Accepted Answer

A)   Both the long-run Phillips curve and the long-run aggregate-supply curve would shift right.
B)   Both the long-run Phillips curve and the long-run aggregate-supply curve would shift left.
C)   The long-run Phillips curve would shift right, and the long-run aggregate-supply curve would shift left.
D)   The long-run Phillips curve would shift left, and the long-run aggregate-supply curve would shift right.E) A) and B)
F) A) and C)

Question 19

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

Accepted Answer

A) True 
 B)False

Question 20

Suppose that reducing inflation 3 percentage points would cost a country 12 percent of annual output. What is this country's sacrifice ratio?

Accepted Answer

A)   3
B)   4
C)   9
D)   12E) A) and B)
F) A) and C)

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

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

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

Correct AnswerverifiedShow Answer

What did Friedman and Phelps argue about inflation and unemployment?

Correct AnswerverifiedShow Answer

Figure 17-1 -Refer to Figure 17-1. If the economy starts at c and 1, then in the short run, an increase in taxes moves the economy to where?

Correct AnswerverifiedShow Answer

Which statement best describes how the natural rate of unemployment changes?

Correct AnswerverifiedShow Answer

Suppose a policy increases the natural rate of unemployment. What is the effect of such a policy change?

Correct AnswerverifiedShow Answer

What will a favourable supply shock cause the price level and output to do?

Correct AnswerverifiedShow Answer

A vertical long-run Phillips curve is consistent with which of the following?

Correct AnswerverifiedShow Answer

In the long run, what are the effects of a decrease in the rate of growth of the money supply on the Phillips curves?

Correct AnswerverifiedShow Answer

Suppose the central bank wants to permanently reduce the inflation rate. What are the possible ways of doing so, and what are the consequences?

Correct AnswerverifiedIn the 1970s, Canadian authorities tried...View AnswerShow Answer

If efficiency wages became more common, where would the long-run Phillips curve and the long-run aggregate-supply curve shift?

Correct AnswerverifiedShow Answer

How could we transform the AD-AS model such that, instead of the price level and output it would show the relationship between the inflation rate (ð) and the rate of output growth (g)?

Correct AnswerverifiedOne can start from the AD-AS model in th...View AnswerShow Answer

What would NOT be associated with an adverse supply shock?

Correct AnswerverifiedShow Answer

Suppose that reducing inflation 3 percentage points would cost a country 12 percent of annual output. What is this country's sacrifice ratio?

Correct AnswerverifiedShow Answer

Which Canadian economist confirmed the theory of an inflation-unemployment tradeoff?

Correct AnswerverifiedShow Answer

Proponents of rational expectations theory have argued that, in the most extreme case, if policymakers are credibly committed to reducing inflation, and if rational people understand that commitment and quickly lower their inflation expectation, the sacrifice ratio could be as small as what?

Correct AnswerverifiedShow Answer

How is the misery index calculated?

Correct AnswerverifiedShow Answer

Which statement characterizes the long-run Phillips curve?

Correct AnswerverifiedShow Answer

What is a long-run economic aspect on which most economists agree?

Correct AnswerverifiedShow Answer

Suppose the natural rate of unemployment is 6 percent, the expected inflation is 2 percent, and the constant "a" in the short-run Phillips curve equation is 0.8. Describe the process of adjustment when the expected inflation rate changes from 2 percent to 3 percent.

Correct AnswerverifiedFirst, the actual inflation rate increas...View AnswerShow Answer

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In the 1970s, Canadian authorities tried...
View Answer

Correct Answer
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Correct Answer
verified
One can start from the AD-AS model in th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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First, the actual inflation rate increas...
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