Question 1

How are the effects of the financial crisis shown using the Phillips curve diagram?

Accepted Answer

As a move down along...

Question 2

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

Accepted Answer

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

Question 3

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) All of the above
F) B) and D)

Question 4

If a central bank announced that it was going to decrease inflation by 5%, people revised their inflation expectations downward by 4%, and the central bank only lowered inflation by 1%, the short run Phillips curve would shift

Accepted Answer

A)   right and unemployment would rise.
B)   right and unemployment would fall.
C)   left and unemployment would rise.
D)   left and unemployment would fall.E) B) and C)
F) C) and D)

Question 5

Moving from the late 1960s to 1970-1973,

Accepted Answer

A)   inflation remained high while the unemployment rate was lower than in the late 1960s.
B)   inflation remained high while the unemployment rate was higher than in the late 1960s.
C)   inflation remained low while the unemployment rate was lower than in the late 1960s.
D)   inflation remained low while the unemployment rate was higher than in the late 1960s.E) A) and B)
F) A) and C)

Question 6

If policymakers decrease aggregate demand, then in the long run

Accepted Answer

A)   prices will be lower and unemployment will be higher.
B)   prices will be lower and unemployment will be unchanged.
C)   prices and unemployment will be unchanged.
D)   None of the above is correct.E) B) and C)
F) B) and D)

Question 7

How are the effects of a favorable supply shock shown in the Phillips curve diagram? If the Fed wants to return unemployment to its natural rate after the shock, what should it do?

Accepted Answer

The short-run Phillips curve s...

Question 8

Which of the following is downward-sloping?

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 curve
D)   the short-run Phillips curve, but not the long-run aggregate-supply curveE) None of the above
F) A) and D)

Question 9

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

Question 10

If consumer confidence rises, then aggregate demand shifts

Accepted Answer

A)   right, making inflation higher than otherwise.
B)   right, making inflation lower than otherwise.
C)   left, making inflation higher than otherwise.
D)   left, making inflation lower than otherwise.E) A) and C)
F) All of the above

Question 11

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Accepted Answer

A)   short run, and the natural rate is constant over time.
B)   long run, and the natural rate is constant over time.
C)   short run, and the natural rate changes over time.
D)   long run, and the natural rate changes over time.E) C) and D)
F) All of the above

Question 12

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Accepted Answer

A)   he would try to fool them by raising inflation to decrease unemployment.
B)   inflation would be unchanged.
C)   inflation would fall but not by as much or as quickly as Volcker claimed.
D)   inflation would fall even further than Volcker was willing to admit.E) A) and C)
F) B) and C)

Question 13

A favorable supply shock causes the price level to

Accepted Answer

A)   rise. To counter this a central bank would increase the money supply.
B)   rise. To counter this a central bank would decrease the money supply.
C)   fall. To counter this a central bank would increase the money supply.
D)   fall. To counter this a central bank would decrease the money supply.E) A) and B)
F) A) and C)

Question 14

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 15

In the long run,

Accepted Answer

A)   the natural rate of unemployment depends primarily on the level of aggregate demand.
B)   inflation depends primarily upon the money supply growth rate.
C)   there is a tradeoff between the inflation rate and the natural rate of unemployment.
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 16

If a central bank decreases the money supply, then

Accepted Answer

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

Question 17

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 18

Which of the following is not correct?

Accepted Answer

A)   In the short run, policymakers face a tradeoff between inflation and unemployment.
B)   Events that shift the long-run Phillips curve right shift the long-run aggregate supply curve left.
C)   Unemployment can be changed only by the use of government policy.
D)   The decrease in output associated with reducing inflation is less if the policy change is announced ahead of time and is credible.E) A) and B)
F) B) and C)

Question 19

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

Accepted Answer

A)   shifts both the long-run and the short-run Phillips curves right.
B)   shifts the long-run Phillips curve left and the short-run Phillips curve right.
C)   shifts the long-run Phillips curve right and the short-run Phillips curve left.
D)   None of the above is correct.E) All of the above
F) B) and C)

Question 20

On a given short-run Phillips curve which of the following is held constant?

Accepted Answer

A)   the level of GDP
B)   the unemployment rate
C)   expected inflation
D)   employmentE) B) and C)
F) A) and D)

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

Which of the following is not correct?

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Friedman and Phelps argued that

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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

Moving from the late 1960s to 1970-1973,

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If policymakers decrease aggregate demand, then in the long run

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How are the effects of a favorable supply shock shown in the Phillips curve diagram? If the Fed wants to return unemployment to its natural rate after the shock, what should it do?

Correct AnswerverifiedThe short-run Phillips curve s...View AnswerShow Answer

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Correct AnswerverifiedShow Answer

On a given short-run Phillips curve which of the following is held constant?

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

Correct AnswerverifiedShow Answer

A favorable supply shock causes the price level to

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In the long run,

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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?

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If consumer confidence rises, then aggregate demand shifts

Correct AnswerverifiedShow Answer

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Correct AnswerverifiedShow Answer

How are the effects of the financial crisis shown using the Phillips curve diagram?

Correct AnswerverifiedAs a move down along...View AnswerShow Answer

If a central bank announced that it was going to decrease inflation by 5%, people revised their inflation expectations downward by 4%, and the central bank only lowered inflation by 1%, the short run Phillips curve would shift

Correct AnswerverifiedShow Answer

Which of the following is downward-sloping?

Correct AnswerverifiedShow Answer

Samuelson and Solow argued that when unemployment is high,

Correct AnswerverifiedShow Answer

If a central bank decreases the money supply, then

Correct AnswerverifiedShow Answer

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

Correct AnswerverifiedShow Answer

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They are consistent with the long-run Ph...
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The short-run Phillips curve s...
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As a move down along...
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