Question 1

Figure 35-4 
-Refer to Figure 35-4. Suppose the economy starts at 5% unemployment and 3% inflation and expected inflation remains at 3%. Which one of the following points could the economy move to in the short run if the Federal Reserve pursues a more expansionary monetary policy?

Accepted Answer

A)  7% unemployment and 1% inflation
B)  7% unemployment and 3% inflation
C)  3% unemployment and 5% inflation
D)  3% unemployment and 7% inflationE) B) and D)
F) A) and C)

Question 2

Which of the following would reduce the natural rate of unemployment?

Accepted Answer

A)  Both an increase in the rate of money growth and increased unemployment compensation
B)  An increase in the rate of money growth but not increased unemployment compensation
C)  An increase in unemployment compensation but not an increase in the rate of money growth
D)  Neither an increase in unemployment compensation nor an increase in the rate of money growthE) None of the above
F) B) and C)

Question 3

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 4

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Accepted Answer

It would shift right...

Question 5

Suppose the Fed decreased the growth rate of the money supply. Which of the following would be lower in the long run?

Accepted Answer

A)  Both 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 unemployment rate nor the inflation rateE) A) and B)
F) None of the above

Question 6

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

Accepted Answer

A)  downward pressures on prices and wages.
B)  downward pressures on prices and upward pressures on wages.
C)  upward pressures on prices and downward pressures on wages.
D)  upward pressures on prices and wages.E) B) and D)
F) B) and C)

Question 7

Table 35-1
An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve.
   Actual Inflation Rate  (Percent)   Unemployment Rate  (Percent)  54.044.535.025.5\begin{array} { | c | c | } \hline \begin{array} { c } 	ext { Actual Inflation Rate } \	ext { (Percent)  }\end{array} & \begin{array} { c } 	ext { Unemployment Rate } \	ext { (Percent)  }\end{array} \\hline 5 & 4.0 \\hline 4 & 4.5 \\hline 3 & 5.0 \\hline 2 & 5.5 \\hline\end{array} Actual Inflation Rate  (Percent)  ​5432​ Unemployment Rate  (Percent)  ​4.04.55.05.5​​ 
-Refer to Table 35-1. Which of the following statements is correct?

Accepted Answer

A)  These points are consistent with the theoretical long-run Phillips curve, but not with the short-run Phillips curve.
B)  These points are consistent with the theoretical short-run Phillips curve, but not with the long-run Phillips curve.
C)  These points are consistent with both the theoretical short-run and long-run Phillips curves.
D)  These points are not consistent with either the theoretical short-run or long-run Phillips curves. E) A) and D)
F) All of the above

Question 8

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

Accepted Answer

A)  increase the money supply growth rate, which raises the inflation rate.
B)  increase the money supply growth rate, which reduces the inflation rate.
C)  decrease the money supply growth rate, which raises the inflation rate.
D)  decrease the money supply growth rate, which reduces the inflation rate.E) A) and D)
F) A) and C)

Question 9

In 2009, Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have

Accepted Answer

A)  raised unemployment and inflation.
B)  raised unemployment and reduced inflation.
C)  reduced unemployment and raised inflation.
D)  reduced unemployment and inflation.E) C) and D)
F) A) and B)

Question 10

Which of the following would shift the long-run Phillips curve to the right?

Accepted Answer

A)  Expansionary fiscal policy
B)  An increase in the inflation rate
C)  Increases in unemployment compensation
D)  Expansionary monetary policy.E) B) and C)
F) A) and B)

Question 11

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

Accepted Answer

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

Question 12

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Accepted Answer

Friedman and Phelps predicted that, over...

Question 13

Contractionary monetary policy

Accepted Answer

A)  leads to disinflation and makes the short-run Phillips curve shift right.
B)  leads to disinflation and makes the short-run Phillips curve shift left.
C)  does not lead to disinflation but makes the short-run Phillips curve shift right.
D)  does not lead to disinflation but makes the short-run Phillips curve shift left.E) B) and C)
F) All of the above

Question 14

Suppose that businesses become less optimistic about the future. Assuming no change in inflation expectations, how would the effects of this shock be shown on the Phillips curve diagram and what would happen to inflation and unemployment?

Accepted Answer

The decrease in spending is sh...

Question 15

If because they expect the central bank to disinflate, people reduce their inflation expectations, then is the sacrifice ratio larger or smaller the otherwise? Defend your answer by referring to the Phillips curve.

Accepted Answer

The sacrifice ratio will be smaller beca...

Question 16

If the Federal Reserve increases the growth rate of the money supply, in the long run

Accepted Answer

A)  inflation is higher and the unemployment rate is lower.
B)  inflation is higher while the unemployment rate is unchanged.
C)  inflation is unchanged while the unemployment rate is lower.
D)  inflation is lower and the unemployment rate is higher.E) A) and C)
F) C) and D)

Question 17

Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Accepted Answer

In the short run, unemployment will rise...

Question 18

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) A) and C)
F) A) and B)

Question 19

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Accepted Answer

A)  the level or growth rate of a nominal variable, but not the level or growth rate of a real variable.
B)  the level of a nominal or real variable, but not the growth rate of a real or nominal variable.
C)  the level or growth rate of a real variable, but not the level or growth rate of a nominal variable.
D)  both levels and growth rates of both real and nominal variables.E) A) and B)
F) C) and D)

Question 20

If the Fed raised the money supply growth by more than expected then the unemployment rate would _____ in the short run. Explain the process by which the economy moves to the long run if the Fed maintains the higher money supply growth rate.

Accepted Answer

fall. Eventually inflation exp...

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

Suppose that businesses become less optimistic about the future. Assuming no change in inflation expectations, how would the effects of this shock be shown on the Phillips curve diagram and what would happen to inflation and unemployment?

Correct Answer
verified
The decrease in spending is sh...
View Answer

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

Correct Answer
verified

In 2009, Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have

Correct Answer
verified

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Correct Answer
verified

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

Correct Answer
verified

Figure 35-4 -Refer to Figure 35-4. Suppose the economy starts at 5% unemployment and 3% inflation and expected inflation remains at 3%. Which one of the following points could the economy move to in the short run if the Federal Reserve pursues a more expansionary monetary policy?

Correct Answer
verified

Contractionary monetary policy

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

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

Correct Answer
verified

Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Correct Answer
verified
In the short run, unemployment will rise...
View Answer

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Correct Answer
verified
It would shift right...
View Answer

Suppose the Fed decreased the growth rate of the money supply. Which of the following would be lower in the long run?

Correct Answer
verified

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Correct Answer
verified
Friedman and Phelps predicted that, over...
View Answer

If the Fed raised the money supply growth by more than expected then the unemployment rate would _____ in the short run. Explain the process by which the economy moves to the long run if the Fed maintains the higher money supply growth rate.

Correct Answer
verified
fall. Eventually inflation exp...
View Answer

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

Correct Answer
verified

Which of the following would reduce the natural rate of unemployment?

Correct Answer
verified

Which of the following would shift the long-run Phillips curve to the right?

Correct Answer
verified

Correct Answer
verified

If the Federal Reserve increases the growth rate of the money supply, in the long run

Correct Answer
verified

If because they expect the central bank to disinflate, people reduce their inflation expectations, then is the sacrifice ratio larger or smaller the otherwise? Defend your answer by referring to the Phillips curve.

Correct Answer
verified
The sacrifice ratio will be smaller beca...
View Answer

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

Suppose that businesses become less optimistic about the future. Assuming no change in inflation expectations, how would the effects of this shock be shown on the Phillips curve diagram and what would happen to inflation and unemployment?

Correct AnswerverifiedThe decrease in spending is sh...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

In 2009, Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have

Correct AnswerverifiedShow Answer

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Correct AnswerverifiedShow Answer

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

Correct AnswerverifiedShow Answer

Figure 35-4 -Refer to Figure 35-4. Suppose the economy starts at 5% unemployment and 3% inflation and expected inflation remains at 3%. Which one of the following points could the economy move to in the short run if the Federal Reserve pursues a more expansionary monetary policy?

Correct AnswerverifiedShow Answer

Contractionary monetary policy

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

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

Correct AnswerverifiedShow Answer

Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Correct AnswerverifiedIn the short run, unemployment will rise...View AnswerShow Answer

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Correct AnswerverifiedIt would shift right...View AnswerShow Answer

Suppose the Fed decreased the growth rate of the money supply. Which of the following would be lower in the long run?

Correct AnswerverifiedShow Answer

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Correct AnswerverifiedFriedman and Phelps predicted that, over...View AnswerShow Answer

If the Fed raised the money supply growth by more than expected then the unemployment rate would _____ in the short run. Explain the process by which the economy moves to the long run if the Fed maintains the higher money supply growth rate.

Correct Answerverifiedfall. Eventually inflation exp...View AnswerShow Answer

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

Correct AnswerverifiedShow Answer

Which of the following would reduce the natural rate of unemployment?

Correct AnswerverifiedShow Answer

Which of the following would shift the long-run Phillips curve to the right?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the growth rate of the money supply, in the long run

Correct AnswerverifiedShow Answer

If because they expect the central bank to disinflate, people reduce their inflation expectations, then is the sacrifice ratio larger or smaller the otherwise? Defend your answer by referring to the Phillips curve.

Correct AnswerverifiedThe sacrifice ratio will be smaller beca...View AnswerShow Answer

Correct Answer
verified
The decrease in spending is sh...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
In the short run, unemployment will rise...
View Answer

Correct Answer
verified
It would shift right...
View Answer

Correct Answer
verified

Correct Answer
verified
Friedman and Phelps predicted that, over...
View Answer

Correct Answer
verified
fall. Eventually inflation exp...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The sacrifice ratio will be smaller beca...
View Answer