Question 1

Just as the aggregate-demand curve slopes downward only in the short run, the trade-off between inflation and unemployment holds only in the long run.

Accepted Answer

A) True 
 B)False

Question 2

Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.

Accepted Answer

Consider what happens when the aggregate...

Question 3

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

Accepted Answer

A)   a reduction in the natural rate of unemployment or expansionary monetary policy.
B)   expansionary monetary policy, but not a reduction in the natural rate of unemployment.
C)   either a reduction in the natural rate of unemployment or a contractionary monetary policy.
D)   contractionary monetary policy, but not a reduction in the natural rate of unemployment.E) B) and D)
F) All of the above

Question 4

In 1980, the U.S. economy had an inflation rate of

Accepted Answer

A)   about 1 percent and an unemployment rate of about 7 percent.
B)   less than 4 percent and an unemployment rate of less than 6 percent.
C)   less than 7 percent and an unemployment rate of about 9 percent.
D)   more than 9 percent and an unemployment rate of about 7 percent.E) B) and D)
F) A) and C)

Question 5

Figure 17-5
Use the graph below to answer the following questions.
 
-Refer to Figure 17-5. The money supply growth rate is greatest at

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   F.E) A) and B)
F) C) and D)

Question 6

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

Accepted Answer

A)   decreased the money supply.
B)   increased government expenditures.
C)   decreased taxes.
D)   None of the above is correct.E) All of the above
F) A) and C)

Question 7

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

Question 8

Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation.

Accepted Answer

A) True 
 B)False

Question 9

If a central bank decreases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?

Accepted Answer

A)   both the price level and output
B)   the price level but not output
C)   output but not the price level
D)   neither output nor the price levelE) A) and B)
F) A) and C)

Question 10

A favorable supply shock will cause the price level

Accepted Answer

A)   and output to rise.
B)   and output to fall.
C)   to rise and output to fall.
D)   to fall and output to rise.E) All of the above
F) A) and D)

Question 11

Any policy change that reduced the natural rate of unemployment

Accepted Answer

A)   would shift the long-run Phillips curve to the right.
B)   would shift the long-run aggregate-supply curve to the right.
C)   would be a policy change that impeded the functioning of the labor market.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 12

An increase in the inflation rate permanently reduces the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 13

A change in expected inflation shifts

Accepted Answer

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

Question 14

Figure 17-2
Use the pair of diagrams below to answer the following questions.
 
-Refer to Figure 17-2. If the economy starts at C and 1, then in the short run, a decrease in the money supply moves the economy to

Accepted Answer

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

Question 15

Figure 17-5
Use the graph below to answer the following questions.
 
-Refer to Figure 17-5. If the economy starts at C and the money supply growth rate increases, then in the short run the economy moves to

Accepted Answer

A)   B.
B)   D.
C)   F.
D)   None of the above is consistent with an increase in the money supply growth rate.E) B) and D)
F) None of the above

Question 16

If policymakers accommodate an adverse supply shock, then in the short run the unemployment rate

Accepted Answer

A)   and the inflation rate rise.
B)   and the inflation rate fall.
C)   rises and the inflation rate falls.
D)   falls and the inflation rate rises.E) B) and D)
F) All of the above

Question 17

The experience of the Volcker disinflation of the early 1980s

Accepted Answer

A)   generally increased estimates of the sacrifice ratio.
B)   generally decreased estimates of the sacrifice ratio.
C)   clearly refuted the predictions of the proponents of rational expectations.
D)   clearly refuted the predictions of the opponents of rational expectations.E) B) and C)
F) A) and B)

Question 18

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Accepted Answer

A)   short run, and the natural rate is constant over time.
B)   long run, and the natural rate is constant over time.
C)   short run, and the natural rate changes over time.
D)   long run, and the natural rate changes over time.E) C) and D)
F) A) and D)

Question 19

A favorable supply shock will cause inflation to

Accepted Answer

A)   rise and shift the short-run Phillips curve right.
B)   rise and shift the short-run Phillips curve left.
C)   fall and shift the short-run Phillips curve right.
D)   fall and shift the short-run Phillips curve left.E) B) and D)
F) B) and C)

Question 20

According to the long-run Phillips curve, in the long run monetary policy influences

Accepted Answer

A)   inflation but not the unemployment rate; this is consistent with classical theory.
B)   inflation but not the unemployment rate; this is inconsistent with classical theory.
C)   the unemployment rate but not inflation; this is consistent with classical theory.
D)   the unemployment rate but not inflation; this is inconsistent with classical theory.E) None of the above
F) A) and D)

Exam 17: The Short-Run Trade-Off Between Inflation and Unemployment

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

Correct AnswerverifiedShow Answer

Just as the aggregate-demand curve slopes downward only in the short run, the trade-off between inflation and unemployment holds only in the long run.

Correct AnswerverifiedShow Answer

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 17-5 Use the graph below to answer the following questions. -Refer to Figure 17-5. The money supply growth rate is greatest at

Correct AnswerverifiedShow Answer

A change in expected inflation shifts

Correct AnswerverifiedShow Answer

In 1980, the U.S. economy had an inflation rate of

Correct AnswerverifiedShow Answer

Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation.

Correct AnswerverifiedShow Answer

An increase in the inflation rate permanently reduces the natural rate of unemployment.

Correct AnswerverifiedShow Answer

Any policy change that reduced the natural rate of unemployment

Correct AnswerverifiedShow Answer

If a central bank decreases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?

Correct AnswerverifiedShow Answer

A favorable supply shock will cause the price level

Correct AnswerverifiedShow Answer

According to the long-run Phillips curve, in the long run monetary policy influences

Correct AnswerverifiedShow Answer

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

Correct AnswerverifiedShow Answer

The experience of the Volcker disinflation of the early 1980s

Correct AnswerverifiedShow Answer

Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.

Correct AnswerverifiedConsider what happens when the aggregate...View AnswerShow Answer

Figure 17-5 Use the graph below to answer the following questions. -Refer to Figure 17-5. If the economy starts at C and the money supply growth rate increases, then in the short run the economy moves to

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Figure 17-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 17-2. If the economy starts at C and 1, then in the short run, a decrease in the money supply moves the economy to

Correct AnswerverifiedShow Answer

If policymakers accommodate an adverse supply shock, then in the short run the unemployment rate

Correct AnswerverifiedShow Answer

A favorable supply shock will cause inflation to

Correct AnswerverifiedShow Answer

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Consider what happens when the aggregate...
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