Question 1

If expected inflation rises but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

Accepted Answer

Unemployment rises. The increa...

Question 2

The natural rate of unemployment is the same as the socially optimal rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

The short-run Phillips curve is based on the classical dichotomy.

Accepted Answer

A) True 
 B)False

Question 5

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 6

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Accepted Answer

A) True 
 B)False

Question 7

The proliferation of Internet usage serves as an example of a favorable supply shock.

Accepted Answer

A) True 
 B)False

Question 8

If the central bank keeps the money supply growth rate constant, but people raise their inflation expectations by 1 percentage point, then the short-run Phillips curve shifts

Accepted Answer

A)  right and the unemployment rate rises.
B)  right and the unemployment rate falls.
C)  left and the unemployment rate rises.
D)  left and the unemployment rate falls.E) None of the above
F) A) and B)

Question 9

Which of the following decreases inflation and increases unemployment in the short run?

Accepted Answer

A)  Either a decrease in government expenditures by itself or a decrease in the money supply growth rate by itself.
B)  A decrease in government expenditures, but not a decrease in the money supply growth rate.
C)  A decrease in the money supply growth rate, but not a decrease in government expenditures.
D)  Neither a decrease in government expenditures nor a decrease in the money supply.E) All of the above
F) None of the above

Question 10

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

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

If policymakers increase aggregate demand, then in the short run the price level

Accepted Answer

A)  rises and unemployment falls.
B)  and unemployment rise.
C)  and unemployment fall.
D)  falls and unemployment rises.E) A) and B)
F) A) and C)

Question 13

As the aggregate demand curve shifts to the right, what happens to the price level and output? What do these changes imply happens to the inflation rate and the unemployment rate?

Accepted Answer

The price level and output ris...

Question 14

What does the natural-rate hypothesis claim?

Accepted Answer

That eventually unem...

Question 15

According to the Phillips curve diagram, if a central bank disinflates what ultimately happens to the unemployment rate?

Accepted Answer

It returns...

Question 16

In the long run, a decrease in the money supply growth rate

Accepted Answer

A)  increases inflation and shifts the short-run Phillips curve right.
B)  increases inflation and shifts the short-run Phillips curve left.
C)  decreases inflation and shifts the short-run Philips curve right.
D)  decreases inflation and shifts the short-run Phillips curve left.E) A) and B)
F) B) and D)

Question 17

If expected inflation decreases does the short-run Phillips curve shift? If so, what direction does it shift? Does the long-run Phillips curve shift? If so, what direction does it shift?

Accepted Answer

If expected inflation decrease...

Question 18

If inflation expectations rise, the short-run Phillips curve shifts

Accepted Answer

A)  right, so that at any inflation rate output is higher in the short run than before.
B)  left, so that at any inflation rate output is higher in the short run than before.
C)  right, so that at any inflation rate output is lower in the short run than before.
D)  left, so that at any inflation rate output is lower in the short run than before.E) C) and D)
F) A) and D)

Question 19

Figure 35-3  ​
​
-Refer to Figure 35-3. Curve 2 is the

Accepted Answer

A)  long-run aggregate-supply curve.
B)  short-run aggregate-supply curve.
C)  long-run Phillips curve.
D)  short-run Phillips curve.E) C) and D)
F) None of the above

Question 20

The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate above its natural rate.

Accepted Answer

A) True 
 B)False

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

The short-run Phillips curve is based on the classical dichotomy.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the central bank keeps the money supply growth rate constant, but people raise their inflation expectations by 1 percentage point, then the short-run Phillips curve shifts

Correct AnswerverifiedShow Answer

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Correct AnswerverifiedShow Answer

If inflation expectations rise, the short-run Phillips curve shifts

Correct AnswerverifiedShow Answer

As the aggregate demand curve shifts to the right, what happens to the price level and output? What do these changes imply happens to the inflation rate and the unemployment rate?

Correct AnswerverifiedThe price level and output ris...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The natural rate of unemployment is the same as the socially optimal rate of unemployment.

Correct AnswerverifiedShow Answer

Figure 35-3 ​ ​ -Refer to Figure 35-3. Curve 2 is the

Correct AnswerverifiedShow Answer

If expected inflation decreases does the short-run Phillips curve shift? If so, what direction does it shift? Does the long-run Phillips curve shift? If so, what direction does it shift?

Correct AnswerverifiedIf expected inflation decrease...View AnswerShow Answer

The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate above its natural rate.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

According to the Phillips curve diagram, if a central bank disinflates what ultimately happens to the unemployment rate?

Correct AnswerverifiedIt returns...View AnswerShow Answer

If policymakers increase aggregate demand, then in the short run the price level

Correct AnswerverifiedShow Answer

What does the natural-rate hypothesis claim?

Correct AnswerverifiedThat eventually unem...View AnswerShow Answer

Which of the following decreases inflation and increases unemployment in the short run?

Correct AnswerverifiedShow Answer

In the long run, a decrease in the money supply growth rate

Correct AnswerverifiedShow Answer

If expected inflation rises but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

Correct AnswerverifiedUnemployment rises. The increa...View AnswerShow Answer

The proliferation of Internet usage serves as an example of a favorable supply shock.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The price level and output ris...
View Answer

Correct Answer
verified

Correct Answer
verified

Figure 35-3 -Refer to Figure 35-3. Curve 2 is the

Correct Answer
verified

Correct Answer
verified
If expected inflation decrease...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
It returns...
View Answer

Correct Answer
verified

Correct Answer
verified
That eventually unem...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Unemployment rises. The increa...
View Answer

Correct Answer
verified