Question 1

What is meant by accommodation?

Accepted Answer

A central bank is said to acco...

Question 2

Assuming that rational expectations theory does not hold, if a central banks attempts to reduce the inflation rate what happens to the unemployment rate in the short-run?

Accepted Answer

The answer of Assuming that rational expectations theory does not...

Question 3

If an increase in inflation permanently reduced unemployment, then

Accepted Answer

A)  money would not be neutral and the long-run Phillips curve would slope upward.
B)  money would not be neutral and the long-run Phillips curve would slope downward.
C)  money would be neutral and the long-run Phillips curve would slope upward.
D)  money would be neutral and the long-run Phillips curve would slope downward.E) A) and B)
F) A) and D)

Question 4

​According to the Phillips curve, policymakers can reduce both inflation and unemployment by increasing the money supply.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

More generous unempl...

Question 6

The Fed increases the money supply growth rate. Assuming inflation expectations remain constant, use a Phillips curve diagram to show the short-run effects of the Fed's policy.

Accepted Answer

The economy moves al...

Question 7

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

Accepted Answer

A) True 
 B)False

Question 8

Suppose, as in the 1970's in the U.S., that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force. Would this have any effect on the long-run Phillips curve?

Accepted Answer

Since this would raise the nat...

Question 9

Which of the following are vertical?

Accepted Answer

A)  Both the long-run Phillips curve and the long-run aggregate supply curve
B)  Neither the long-run Phillips curve nor the long-run aggregate supply curve
C)  The long-run Phillips curve, but not the long-run aggregate supply curveD) A) and B)
E) A) and C)

Question 10

What would a central bank need to do to reverse the effects of a favorable supply shock on inflation? What would its reaction do to the unemployment rate in the short run?

Accepted Answer

It would increase the money su...

Question 11

In most of the 1970s, the Fed's policy created expectations of high inflation.

Accepted Answer

A) True 
 B)False

Question 12

A decrease in government expenditures serves as an example of an adverse supply shock.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 2%.

Accepted Answer

The econ...

Question 15

Suppose that in 2018 and 2019, households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Accepted Answer

A)  The change in inflation, but not the change in unemployment, is consistent with what a given short-run Phillips curve implies.
B)  The change in unemployment, but not the change in inflation, is consistent with what a given short-run Phillips curve implies.
C)  Both the change in inflation and the change in unemployment are consistent with what a given short-run Phillips curve implies.
D)  Neither the change in inflation nor the change in unemployment are consistent with what a given short-run Phillips curve implies.E) A) and D)
F) A) and C)

Question 16

Other things the same, a decrease in aggregate demand decreases both inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 17

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

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Veridian ...

Question 18

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

Accepted Answer

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

Question 19

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

Question 20

The Phillips curve and the short-run aggregate supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Accepted Answer

The Phillips curve shows the relation be...

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

Correct Answer
verified
Veridian ...
View Answer

Suppose that in 2018 and 2019, households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Correct Answer
verified

A decrease in government expenditures serves as an example of an adverse supply shock.

Correct Answer
verified

Which of the following are vertical?

Correct Answer
verified

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

Correct Answer
verified

What is meant by accommodation?

Correct Answer
verified
A central bank is said to acco...
View Answer

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

Correct Answer
verified

The Fed increases the money supply growth rate. Assuming inflation expectations remain constant, use a Phillips curve diagram to show the short-run effects of the Fed's policy.

Correct Answer
verified
The economy moves al...
View Answer

What would a central bank need to do to reverse the effects of a favorable supply shock on inflation? What would its reaction do to the unemployment rate in the short run?

Correct Answer
verified
It would increase the money su...
View Answer

The Phillips curve and the short-run aggregate supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Correct Answer
verified
The Phillips curve shows the relation be...
View Answer

In most of the 1970s, the Fed's policy created expectations of high inflation.

Correct Answer
verified

Other things the same, a decrease in aggregate demand decreases both inflation and unemployment.

Correct Answer
verified

Assuming that rational expectations theory does not hold, if a central banks attempts to reduce the inflation rate what happens to the unemployment rate in the short-run?

Correct Answer
verified

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

Correct Answer
verified
More generous unempl...
View Answer

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

Correct Answer
verified

Suppose, as in the 1970's in the U.S., that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force. Would this have any effect on the long-run Phillips curve?

Correct Answer
verified
Since this would raise the nat...
View Answer

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

Correct Answer
verified

Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 2%.

Correct Answer
verified

The econ...
View Answer

If an increase in inflation permanently reduced unemployment, then

Correct Answer
verified

According to the Phillips curve, policymakers can reduce both inflation and unemployment by increasing the money supply.

Correct Answer
verified

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

Correct Answerverified Veridian ...View AnswerShow Answer

Suppose that in 2018 and 2019, households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Correct AnswerverifiedShow Answer

A decrease in government expenditures serves as an example of an adverse supply shock.

Correct AnswerverifiedShow Answer

Which of the following are vertical?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is meant by accommodation?

Correct AnswerverifiedA central bank is said to acco...View AnswerShow Answer

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

Correct AnswerverifiedShow Answer

The Fed increases the money supply growth rate. Assuming inflation expectations remain constant, use a Phillips curve diagram to show the short-run effects of the Fed's policy.

Correct AnswerverifiedThe economy moves al...View AnswerShow Answer

What would a central bank need to do to reverse the effects of a favorable supply shock on inflation? What would its reaction do to the unemployment rate in the short run?

Correct AnswerverifiedIt would increase the money su...View AnswerShow Answer

The Phillips curve and the short-run aggregate supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Correct AnswerverifiedThe Phillips curve shows the relation be...View AnswerShow Answer

In most of the 1970s, the Fed's policy created expectations of high inflation.

Correct AnswerverifiedShow Answer

Other things the same, a decrease in aggregate demand decreases both inflation and unemployment.

Correct AnswerverifiedShow Answer

Assuming that rational expectations theory does not hold, if a central banks attempts to reduce the inflation rate what happens to the unemployment rate in the short-run?

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

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

Correct AnswerverifiedShow Answer

Suppose, as in the 1970's in the U.S., that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force. Would this have any effect on the long-run Phillips curve?

Correct AnswerverifiedSince this would raise the nat...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 2%.

Correct Answerverified​The econ...View AnswerShow Answer

If an increase in inflation permanently reduced unemployment, then

Correct AnswerverifiedShow Answer

​According to the Phillips curve, policymakers can reduce both inflation and unemployment by increasing the money supply.

Correct AnswerverifiedShow Answer

Correct Answer
verified
Veridian ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A central bank is said to acco...
View Answer

Correct Answer
verified

Correct Answer
verified
The economy moves al...
View Answer

Correct Answer
verified
It would increase the money su...
View Answer

Correct Answer
verified
The Phillips curve shows the relation be...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
More generous unempl...
View Answer

Correct Answer
verified

Correct Answer
verified
Since this would raise the nat...
View Answer

Correct Answer
verified

Correct Answer
verified

The econ...
View Answer

Correct Answer
verified

According to the Phillips curve, policymakers can reduce both inflation and unemployment by increasing the money supply.

Correct Answer
verified