Question 1

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

Accepted Answer

A)  both the short and long run.
B)  the short run, but not the long run.
C)  the long run, but not the short run.
D)  neither the short nor the long run.E) None of the above
F) All of the above

Question 2

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a * ctual inflation - x) .In this equation,

Accepted Answer

A)  a is a parameter that measures how much actual inflation responds to expected inflation.
B)  a = 0 at the point of intersection of the short-run and long-run Phillips curves.
C)  x is the expected rate of inflation.
D)  All of the above are correct.E) None of the above
F) All of the above

Question 3

During the mid and last part of the 1990's both inflation and unemployment were low. In general this could have been the result of

Accepted Answer

A)  adverse supply shocks that shifted the short-run Phillips curve left.
B)  adverse supply shocks that shifted the short-run Phillips curve right.
C)  favorable supply shocks that shifted the short-run Phillips curve left.
D)  favorable supply shocks that shifted the short-run Phillips curve right.E) None of the above
F) A) and B)

Question 4

Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run.

Accepted Answer

A) True 
 B)False

Question 5

In response to the financial crisis of 2007-2008, policymakers used

Accepted Answer

A)  expansionary monetary policy and expansionary fiscal policy.
B)  expansionary monetary policy and contractionary fiscal policy.
C)  contractionary monetary policy and expansionary fiscal policy.
D)  contractionary monetary policy and contractionary fiscal policy.E) B) and C)
F) A) and D)

Question 6

In the 1970's the Federal Reserve responded to an adverse supply shock. Its policy made

Accepted Answer

A)  the recession that followed smaller and so provided a more favorable tradeoff between inflation and unemployment.
B)  the recession that followed smaller, but in doing so produced a less favorable tradeoff between inflation and unemployment.
C)  the recession that followed larger, but in doing so provided a more favorable tradeoff between inflation and unemployment.
D)  the recession that followed larger and also produced a less favorable tradeoff between inflation and unemployment.E) B) and C)
F) A) and D)

Question 7

Suppose that the Prime Minister and Parliament of Veridian are disappointed with the high inflation rates under the current system where the Veridian Ministry of Finance is in charge of the money supply. They make reforms to lower inflation from its current rate of 8%. Suppose further that the public is confident that with the reforms in place that inflation will fall to 2%. Also suppose that those in control of the money supply actually conduct monetary policy so that the actual inflation rate is 4%. Using long-run and short-run Phillips curves and assuming the natural rate of unemployment is 6%, show the initial long run equilibrium of Veridian and label it "A". Assuming that the government had actually set inflation at 2% and that the public believed this, label the long-run equilibrium "B". Now, suppose that inflation expectations fell to 2% and that the government unexpectedly created inflation of 4%. Show the short-run equilibrium and label it "C". If the money supply continues to grow at a rate consistent with 4% inflation, show where the economy ends up and label that point "D".

Accepted Answer

The answer of Suppose that the Prime Minister and Parliament...

Question 8

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) B) and C)
F) None of the above

Question 9

The arguments of Friedman and Phelps would suggest that other things the same, a country that pursues a disinflationary policy that the public does not find completely credible

Accepted Answer

A)  should not see an increase in the unemployment rate even in the short run.
B)  will having rising unemployment for a while, but then return to the natural rate of unemployment.
C)  will have a permanently higher unemployment rate.
D)  None of the above is suggested by the arguments of Friedman and Phelps.E) A) and B)
F) A) and C)

Question 10

Proponents of rational expectations argued that the sacrifice ratio

Accepted Answer

A)  could be high because it was rational for people not to immediately change their expectations.
B)  could be high because people might adjust their expectations quickly if they found anti-inflation policy credible.
C)  could be low because it was rational for people not to immediately change their expectations.
D)  could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.E) B) and C)
F) A) and C)

Question 11

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 12

Which of the following describes the Volcker disinflation most accurately?

Accepted Answer

A)  Almost all of the public believed that the Fed would keep money growth low, so unemployment rose less than it would have otherwise.
B)  Almost all of the public believed that the Fed would keep money growth low, so unemployment rose more than it would have otherwise.
C)  Much of the public did not believe that the Fed would keep money growth low, so unemployment rose less than it would have otherwise.
D)  Much of the public did not believe that the Fed would keep money growth low, so unemployment rose more than it would have otherwise.E) A) and B)
F) None of the above

Question 13

Some countries have had relatively high inflation and relatively high unemployment for long periods of time. Is this consistent with the Phillips curve? Defend your answer.

Accepted Answer

They are consistent with the long-run Ph...

Question 14

If the natural rate of unemployment falls,

Accepted Answer

A)  both the short-run Phillips curve and the long-run Phillips curve shift.
B)  only the short-run Phillips curve shifts.
C)  only the long-run Phillips curve shifts.
D)  neither the short-run nor the long-run Phillips curves shift.E) A) and D)
F) B) and D)

Question 15

A movement to the right along a given short-run Phillips curve could be caused by

Accepted Answer

A)  an increase in the natural rate of unemployment or expansionary monetary policy.
B)  expansionary monetary policy, but not an increase in the natural rate of unemployment.
C)  an increase in the natural rate of unemployment or a contractionary monetary policy.
D)  contractionary monetary policy, but not an increase in the natural rate of unemployment.E) None of the above
F) C) and D)

Question 16

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) A) and C)

Question 17

An event that directly affects firms' costs of production and thus the prices they charge is called

Accepted Answer

A)  a Phillips contraction.
B)  an inflationary spiral.
C)  a demand shock.
D)  a supply shock.E) B) and D)
F) C) and D)

Question 18

Figure 22-3. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate. 
-Refer to Figure 22-3. What is measured along the vertical axis of the right-hand graph?

Accepted Answer

A)  the interest rate
B)  the inflation rate
C)  the government's budget deficit as a percent of GDP
D)  the growth rate of the nominal money supplyE) All of the above
F) B) and D)

Question 19

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Accepted Answer

A)  he would try to fool them by raising inflation to decrease unemployment.
B)  inflation would be unchanged.
C)  inflation would fall but not by as much or as quickly as Volcker claimed.
D)  inflation would fall even further than Volcker was willing to admit.E) B) and D)
F) A) and B)

Question 20

If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run

Accepted Answer

A)  both the unemployment rate and the inflation rate would be lower.
B)  the unemployment rate would be lower and the inflation rate would be higher.
C)  the unemployment rate would be higher and the inflation rate would be lower.
D)  the unemployment rate and the inflation rate would be higher.E) B) and C)
F) None of the above

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

In response to the financial crisis of 2007-2008, policymakers used

Correct Answer
verified

During the mid and last part of the 1990's both inflation and unemployment were low. In general this could have been the result of

Correct Answer
verified

If the natural rate of unemployment falls,

Correct Answer
verified

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Correct Answer
verified

Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run.

Correct Answer
verified

Disinflation is like

Correct Answer
verified

Which of the following describes the Volcker disinflation most accurately?

Correct Answer
verified

The arguments of Friedman and Phelps would suggest that other things the same, a country that pursues a disinflationary policy that the public does not find completely credible

Correct Answer
verified

Some countries have had relatively high inflation and relatively high unemployment for long periods of time. Is this consistent with the Phillips curve? Defend your answer.

Correct Answer
verified
They are consistent with the long-run Ph...
View Answer

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a * ctual inflation - x) .In this equation,

Correct Answer
verified

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

Correct Answer
verified

A movement to the right along a given short-run Phillips curve could be caused by

Correct Answer
verified

Moving from the late 1960s to 1970-1973,

Correct Answer
verified

Proponents of rational expectations argued that the sacrifice ratio

Correct Answer
verified

If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run

Correct Answer
verified

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

Correct Answer
verified

An event that directly affects firms' costs of production and thus the prices they charge is called

Correct Answer
verified

Correct Answer
verified

In the 1970's the Federal Reserve responded to an adverse supply shock. Its policy made

Correct Answer
verified

Correct Answer
verified

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

In response to the financial crisis of 2007-2008, policymakers used

Correct AnswerverifiedShow Answer

During the mid and last part of the 1990's both inflation and unemployment were low. In general this could have been the result of

Correct AnswerverifiedShow Answer

If the natural rate of unemployment falls,

Correct AnswerverifiedShow Answer

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Correct AnswerverifiedShow Answer

Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run.

Correct AnswerverifiedShow Answer

Disinflation is like

Correct AnswerverifiedShow Answer

Which of the following describes the Volcker disinflation most accurately?

Correct AnswerverifiedShow Answer

The arguments of Friedman and Phelps would suggest that other things the same, a country that pursues a disinflationary policy that the public does not find completely credible

Correct AnswerverifiedShow Answer

Some countries have had relatively high inflation and relatively high unemployment for long periods of time. Is this consistent with the Phillips curve? Defend your answer.

Correct AnswerverifiedThey are consistent with the long-run Ph...View AnswerShow Answer

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a * ctual inflation - x) .In this equation,

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

A movement to the right along a given short-run Phillips curve could be caused by

Correct AnswerverifiedShow Answer

Moving from the late 1960s to 1970-1973,

Correct AnswerverifiedShow Answer

Proponents of rational expectations argued that the sacrifice ratio

Correct AnswerverifiedShow Answer

If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run

Correct AnswerverifiedShow Answer

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

Correct AnswerverifiedShow Answer

An event that directly affects firms' costs of production and thus the prices they charge is called

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the 1970's the Federal Reserve responded to an adverse supply shock. Its policy made

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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They are consistent with the long-run Ph...
View Answer

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