Question 1

Scenario 35-1
Suppose that in the first half of June 2022, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to Scenario 35-1. In the short-run the effects of the housing and financial crises

Accepted Answer

A)  raise both inflation and the unemployment rate.
B)  raise the inflation rate and reduce the unemployment rate.
C)  reduce the inflation rate and raise the unemployment rate.
D)  reduce both the inflation rate and the unemployment rate.E) None of the above
F) A) and B)

Question 2

Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by

Accepted Answer

A)  moving to the left along the short-run Phillips curve.
B)  moving to the right along the short-run Phillips curve.
C)  shifting the short-run Phillips curve to the right.
D)  shifting the short-run Phillips curve to the left.E) All of the above
F) A) and C)

Question 3

Friedman and Phelps argued that it was dangerous to think of the short-run Phillips curve as a menu of options for policymakers to choose from. Explain the logic of their argument.

Accepted Answer

Eventually the economy moves back to the...

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action

Accepted Answer

A)  lowers both inflation and unemployment.
B)  lowers inflation but raises unemployment.
C)  raises inflation but lowers unemployment.
D)  raises both inflation and unemployment.E) B) and D)
F) B) and C)

Question 6

Some countries have inflation around or in excess of 8 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent? In your answer, define the sacrifice ratio and explain how you found the cost of inflation reduction.

Accepted Answer

The sacrifice ratio gives the annual per...

Question 7

If there is a favorable supply shock which direction does the short-run Phillips curve shift? What initially happens to unemployment and inflation as a result of this shock?

Accepted Answer

The short-run Philli...

Question 8

According to the Friedman-Phelps analysis, in the long run actual inflation equals expected inflation and unemployment is at its natural rate.

Accepted Answer

A) True 
 B)False

Question 9

A central bank announces it will decrease the inflation rate by 10 percentage points. People are skeptical of the announcement, but do expect the central bank will reduce inflation by 5 percentage points and so expected inflation falls by 5 percentage points. If the central bank decreases inflation by only 3 percentage points then the unemployment rate will fall.

Accepted Answer

A) True 
 B)False

Question 10

Suppose OPEC is unable to come to an agreement regarding oil production and as a result the price of oil drops. Which of the following would you expect to occur as a result of this favorable supply shock?

Accepted Answer

A)  The short-run Phillips curve will shift to the right and the unemployment rate will increase.
B)  The short-run Phillips curve will shift to the right and the unemployment rate will decrease.
C)  The short-run Phillips curve will shift to the left and the unemployment rate will increase.
D)  The short-run Phillips curve will shift to the left and the unemployment rate will decrease.E) A) and D)
F) C) and D)

Question 11

If the unemployment rate is below the natural rate, then

Accepted Answer

A)  inflation is less than expected.As inflation expectations are revised the short-run Phillips curve will shift right.
B)  inflation is less than expected.As inflation expectations are revised the short-run Phillips curve will shift left.
C)  inflation is greater than expected.As inflation expectations are revised the short-run Phillips curve will shift left.
D)  inflation is greater than expected.As inflation expectations are revised the short-run Phillips curve will shift right.E) All of the above
F) C) and D)

Question 12

The natural rate of unemployment

Accepted Answer

A)  is constant over time.
B)  varies over time, but can't be affected by government policies.
C)  is the unemployment rate that the economy tends to move to in the long run.
D)  depends on the rate at which the Fed increases the money supply.E) A) and B)
F) B) and D)

Question 13

The short-run relationship between inflation and unemployment is often called

Accepted Answer

A)  the Classical Dichotomy.
B)  Money Neutrality.
C)  the Phillips curve.
D)  the Aggregate Supply and Demand model.E) None of the above
F) All of the above

Question 14

An adverse supply shock will shift short-run aggregate supply

Accepted Answer

A)  right, making prices rise.
B)  left, making prices rise.
C)  right, making prices fall.
D)  left, making prices fall.E) B) and C)
F) A) and C)

Question 15

One determinant of the long-run average unemployment rate is the

Accepted Answer

A)  market power of unions, while the inflation rate depends primarily upon government spending.
B)  minimum wage, while the inflation rate depends primarily upon the money supply growth rate.
C)  rate of growth of the money supply, while the inflation rate depends primarily upon the market power of unions.
D)  existence of efficiency wages, while the inflation rate depends primarily upon the extent to which firms are competitive.E) A) and B)
F) A) and C)

Question 16

A central bank raises the money supply growth rate and keeps it at that higher rate. Explain the process by which the economy moves to long-run equilibrium.

Accepted Answer

Continued higher money supply growth rai...

Question 17

An adverse supply shock causes inflation to

Accepted Answer

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

Question 18

Suppose expected inflation and actual inflation are both low, and unemployment is at its natural rate. If the Fed then pursues an expansionary monetary policy, which of the following results would be expected in the short run?

Accepted Answer

A)  The short-run Phillips curve would shift to the left.
B)  The short-run Phillips curve would shift to the right.
C)  The economy would move up and to the left along a given short-run Phillips curve.
D)  The economy would move down and to the right along a given short-run Phillips curve.E) A) and B)
F) A) and C)

Question 19

Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the Phillips curve is

Accepted Answer

A)  downward-sloping, which implies that monetary and fiscal policies can influence the level of unemployment in the long run.
B)  downward-sloping, which implies that monetary and fiscal policies cannot influence the rate of inflation in the long run.
C)  vertical, which implies that monetary and fiscal policies cannot influence the level of unemployment in the long run.
D)  vertical, which implies that monetary and fiscal policies cannot influence the rate of inflation in the long run.E) A) and B)
F) C) and D)

Question 20

A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?

Accepted Answer

The answer of A central bank pledges to reduce the...

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

Suppose expected inflation and actual inflation are both low, and unemployment is at its natural rate. If the Fed then pursues an expansionary monetary policy, which of the following results would be expected in the short run?

Correct Answer
verified

According to the Friedman-Phelps analysis, in the long run actual inflation equals expected inflation and unemployment is at its natural rate.

Correct Answer
verified

The short-run relationship between inflation and unemployment is often called

Correct Answer
verified

Scenario 35-1 Suppose that in the first half of June 2022, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to Scenario 35-1. In the short-run the effects of the housing and financial crises

Correct Answer
verified

Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by

Correct Answer
verified

Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the Phillips curve is

Correct Answer
verified

Some countries have inflation around or in excess of 8 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent? In your answer, define the sacrifice ratio and explain how you found the cost of inflation reduction.

Correct Answer
verified
The sacrifice ratio gives the annual per...
View Answer

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action

Correct Answer
verified

One determinant of the long-run average unemployment rate is the

Correct Answer
verified

A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?

Correct Answer
verified

If there is a favorable supply shock which direction does the short-run Phillips curve shift? What initially happens to unemployment and inflation as a result of this shock?

Correct Answer
verified
The short-run Philli...
View Answer

An adverse supply shock will shift short-run aggregate supply

Correct Answer
verified

Suppose OPEC is unable to come to an agreement regarding oil production and as a result the price of oil drops. Which of the following would you expect to occur as a result of this favorable supply shock?

Correct Answer
verified

A central bank raises the money supply growth rate and keeps it at that higher rate. Explain the process by which the economy moves to long-run equilibrium.

Correct Answer
verified
Continued higher money supply growth rai...
View Answer

The natural rate of unemployment

Correct Answer
verified

An adverse supply shock causes inflation to

Correct Answer
verified

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

Correct Answer
verified

Friedman and Phelps argued that it was dangerous to think of the short-run Phillips curve as a menu of options for policymakers to choose from. Explain the logic of their argument.

Correct Answer
verified
Eventually the economy moves back to the...
View Answer

If the unemployment rate is below the natural rate, then

Correct Answer
verified

Correct Answer
verified

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

Suppose expected inflation and actual inflation are both low, and unemployment is at its natural rate. If the Fed then pursues an expansionary monetary policy, which of the following results would be expected in the short run?

Correct AnswerverifiedShow Answer

According to the Friedman-Phelps analysis, in the long run actual inflation equals expected inflation and unemployment is at its natural rate.

Correct AnswerverifiedShow Answer

The short-run relationship between inflation and unemployment is often called

Correct AnswerverifiedShow Answer

Scenario 35-1 Suppose that in the first half of June 2022, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to Scenario 35-1. In the short-run the effects of the housing and financial crises

Correct AnswerverifiedShow Answer

Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by

Correct AnswerverifiedShow Answer

Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the Phillips curve is

Correct AnswerverifiedShow Answer

Some countries have inflation around or in excess of 8 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent? In your answer, define the sacrifice ratio and explain how you found the cost of inflation reduction.

Correct AnswerverifiedThe sacrifice ratio gives the annual per...View AnswerShow Answer

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action

Correct AnswerverifiedShow Answer

One determinant of the long-run average unemployment rate is the

Correct AnswerverifiedShow Answer

A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?

Correct AnswerverifiedShow Answer

If there is a favorable supply shock which direction does the short-run Phillips curve shift? What initially happens to unemployment and inflation as a result of this shock?

Correct AnswerverifiedThe short-run Philli...View AnswerShow Answer

An adverse supply shock will shift short-run aggregate supply

Correct AnswerverifiedShow Answer

Suppose OPEC is unable to come to an agreement regarding oil production and as a result the price of oil drops. Which of the following would you expect to occur as a result of this favorable supply shock?

Correct AnswerverifiedShow Answer

A central bank raises the money supply growth rate and keeps it at that higher rate. Explain the process by which the economy moves to long-run equilibrium.

Correct AnswerverifiedContinued higher money supply growth rai...View AnswerShow Answer

The natural rate of unemployment

Correct AnswerverifiedShow Answer

An adverse supply shock causes inflation to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Friedman and Phelps argued that it was dangerous to think of the short-run Phillips curve as a menu of options for policymakers to choose from. Explain the logic of their argument.

Correct AnswerverifiedEventually the economy moves back to the...View AnswerShow Answer

If the unemployment rate is below the natural rate, then

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The sacrifice ratio gives the annual per...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The short-run Philli...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Continued higher money supply growth rai...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Eventually the economy moves back to the...
View Answer

Correct Answer
verified

Correct Answer
verified