Question 1

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-1. What is measured along the vertical axis of the right-hand graph?

Accepted Answer

A)  the interest rate
B)  the inflation rate
C)  the wage rate
D)  the growth rate of the nominal money supplyE) A) and C)
F) All of the above

Question 2

Which of the following scenarios is consistent with typical estimates of the sacrifice ratio?

Accepted Answer

A)  Inflation is reduced from 4 percent to 1 percent, and annual output falls by 10 percent.
B)  Inflation is reduced from 6 percent to 4 percent, and annual output falls by 10 percent.
C)  Inflation is reduced from 8 percent to 5 percent, and annual output falls by 9 percent.
D)  Inflation is reduced from 3 percent to 2 percent, and annual output falls by 3 percent.E) A) and C)
F) None of the above

Question 3

An adverse supply shock shifts the short-run Phillips curve right. If people raise their inflation expectations, the short-run Phillips curve shifts farther right.

Accepted Answer

A) True 
 B)False

Question 4

In the long run an increase in the money supply growth rate affects

Accepted Answer

A)  the inflation rate and the natural rate of unemployment.
B)  the inflation rate, but not the natural rate of unemployment.
C)  neither the inflation rate nor the natural rate of unemployment.
D)  the natural rate of unemployment, but not the inflation rate.E) A) and B)
F) All of the above

Question 5

Other things the same, if the central bank decreases the rate at which it increases the money supply, then in the long run

Accepted Answer

A)  the short-run Phillips curve shifts right.
B)  the short-run Phillips curve shifts left.
C)  the long-run Phillips curve shifts right.
D)  the long-run Phillips curve shifts left.E) A) and D)
F) B) and C)

Question 6

An increase in expected inflation shifts the

Accepted Answer

A)  short-run Phillips curve right.
B)  short-run Phillips curve left.
C)  long-run Phillips curve right.
D)  long-run Phillips curve left.E) A) and B)
F) A) and C)

Question 7

A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician's argument is

Accepted Answer

A)  consistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would not increase inflation.
B)  consistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would increase inflation.
C)  inconsistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would not increase inflation.
D)  inconsistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would increase inflation.E) B) and C)
F) A) and D)

Question 8

List one specific policy that would shift the long-run Phillips curve to the right.

Accepted Answer

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Question 9

According to the Phillips curve, unemployment and inflation are positively related in

Accepted Answer

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

Question 10

In his famous article published in an economics journal in 1958, A.W. Phillips

Accepted Answer

A)  used data for the United States to show a negative relationship between the rate of change of the U.S. consumer price index and the U.S. unemployment rate.
B)  used data for the United States to show a negative relationship between the rate of change of wages in the U.S. and the U.S. unemployment rate.
C)  used data for the United Kingdom to show a negative relationship between the rate of change of the U.K. consumer price index and the U.K. unemployment rate.
D)  used data for the United Kingdom to show a negative relationship between the rate of change of wages in the U.K. and the U.K. unemployment rate.E) B) and D)
F) C) and D)

Question 11

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." 1 to PC2, policymakers will A) ask whether the shift is temporary or permanent. B) be concerned with how people adjust their expectations of inflation as a result of the shift. C) face, as well, a decision as to whether to accommodate the shock. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" > 1 to PC2, policymakers will A) ask whether the shift is temporary or permanent. B) be concerned with how people adjust their expectations of inflation as a result of the shift. C) face, as well, a decision as to whether to accommodate the shock. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 35-9. Faced with the shift of the Phillips curve from PC1 to PC2, policymakers will

Accepted Answer

A)  ask whether the shift is temporary or permanent.
B)  be concerned with how people adjust their expectations of inflation as a result of the shift.
C)  face, as well, a decision as to whether to accommodate the shock.
D)  All of the above are correct.E) B) and D)
F) C) and D)

Question 12

Friedman and Phelps argued that

Accepted Answer

A)  if peoples' inflation expectations were fixed, then an increase in the money supply growth rate could not change output in the short or long run.
B)  if peoples' inflation expectations were fixed, then a decrease in the money supply growth rate could raise output and unemployment in the short run.
C)  any change in unemployment created by making aggregate demand increase more rapidly is temporary because people eventually revise their inflation expectations.
D)  None of the above is correct.E) B) and C)
F) A) and D)

Question 13

The sacrifice ratio of the Volcker disinflation was larger than previous estimates had predicted.

Accepted Answer

A) True 
 B)False

Question 14

Samuelson and Solow argued that when unemployment is high,

Accepted Answer

A)  aggregate demand is high, which puts upward pressure on wages and prices.
B)  aggregate demand is high, which puts downward pressure on wages and prices.
C)  aggregate demand is low, which puts upward pressure on wages and prices.
D)  aggregate demand is low, which puts downward pressure on wages and prices.E) A) and D)
F) C) and D)

Question 15

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in the money supply growth rate moves the economy to

Accepted Answer

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

Question 16

If a central bank increases 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 D)
F) B) and D)

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Suppose a middle-class tax cut increases consumption expenditures. Which of the following would you expect to occur as a result of this change?

Accepted Answer

A)  The economy will move up and to the left along the short-run Phillips Curve.
B)  The economy will move down and to the right along the short-run Phillips Curve.
C)  ​The short-run Phillips Curve will shift to the left.
D)  ​The short-run Phillips Curve will shift to the right.E) A) and C)
F) A) and B)

Question 19

According to the Philips curve diagram, if a central bank takes action to reduce the inflation rate, unemployment is

Accepted Answer

A)  higher in the short-run and the long-run.
B)  higher in the short-run only.
C)  lower in the short-run and the long-run.
D)  lower in the short-run only.E) A) and C)
F) A) and D)

Question 20

Which of the following leads to a lower level of unemployment in the long run?

Accepted Answer

A)  both an increase in the size of the money supply and an increase in the money supply growth rate
B)  an increase in the size of the money supply but not an increase in the money supply growth rate
C)  an increase in the money supply growth rate, but not an increase in the size of the money supply
D)  neither an increase in the size of the money supply nor an increase in the money supply growth rateE) B) and C)
F) A) and B)

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician's argument is

Correct AnswerverifiedShow Answer

An adverse supply shock shifts the short-run Phillips curve right. If people raise their inflation expectations, the short-run Phillips curve shifts farther right.

Correct AnswerverifiedShow Answer

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. Faced with the shift of the Phillips curve from PC1 to PC2, policymakers will

Correct AnswerverifiedShow Answer

In his famous article published in an economics journal in 1958, A.W. Phillips

Correct AnswerverifiedShow Answer

Which of the following scenarios is consistent with typical estimates of the sacrifice ratio?

Correct AnswerverifiedShow Answer

In the long run an increase in the money supply growth rate affects

Correct AnswerverifiedShow Answer

According to the Phillips curve, unemployment and inflation are positively related in

Correct AnswerverifiedShow Answer

Friedman and Phelps argued that

Correct AnswerverifiedShow Answer

Other things the same, if the central bank decreases the rate at which it increases the money supply, then in the long run

Correct AnswerverifiedShow Answer

An increase in expected inflation shifts the

Correct AnswerverifiedShow Answer

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate. -Refer to Figure 35-1. What is measured along the vertical axis of the right-hand graph?

Correct AnswerverifiedShow Answer

Samuelson and Solow argued that when unemployment is high,

Correct AnswerverifiedShow Answer

The sacrifice ratio of the Volcker disinflation was larger than previous estimates had predicted.

Correct AnswerverifiedShow Answer

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in the money supply growth rate moves the economy to

Correct AnswerverifiedShow Answer

Which of the following leads to a lower level of unemployment in the long run?

Correct AnswerverifiedShow Answer

According to the Philips curve diagram, if a central bank takes action to reduce the inflation rate, unemployment is

Correct AnswerverifiedShow Answer

Suppose a middle-class tax cut increases consumption expenditures. Which of the following would you expect to occur as a result of this change?

Correct AnswerverifiedShow Answer

List one specific policy that would shift the long-run Phillips curve to the right.

Correct AnswerverifiedMore generous unempl...View AnswerShow Answer

If a central bank increases 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

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

Correct AnswerverifiedShow Answer

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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. Faced with the shift of the Phillips curve from PC₁ to PC₂, policymakers will

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More generous unempl...
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