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

Figure 35-6
Use the graph below to answer the following questions. 
-Refer to Figure 35-6. If the economy starts at C and the money supply growth rate increases, then in the short run the economy moves to

Accepted Answer

A)   B.
B)   D.
C)   F.
D)   None of the above is consistent with an increase in the money supply growth rate.E) None of the above
F) All of the above

Question 3

If consumption expenditures fall, then in the short run

Accepted Answer

A)   inflation and unemployment rise.
B)   inflation rises and unemployment falls.
C)   inflation falls and unemployment rises.
D)   inflation and unemployment fall.E) B) and D)
F) None of the above

Question 4

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

Accepted Answer

A)   increasing the money supply.
B)   increasing government expenditures.
C)   raising taxes.
D)   None of the above is correct.E) A) and C)
F) C) and D)

Question 5

In 1979, when the Fed was deciding how aggressively to fight inflation, the typical estimate of the sacrifice ratio was

Accepted Answer

A)   1.
B)   5.
C)   7.
D)   10.E) A) and C)
F) A) and B)

Question 6

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 7

Any policy change that reduced the natural rate of unemployment would

Accepted Answer

A)   shift the long-run Phillips curve to the left.
B)   shift the long-run aggregate-supply curve to the right.
C)   improve the functioning of the labor market.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Figure 35-6
Use the graph below to answer the following questions. 
-Refer to Figure 35-6. Curve 1 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) A) and B)
F) All of the above

Question 10

An adverse supply shock causes output 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) None of the above
F) A) and C)

Question 11

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 12

In the 1970s, the Fed accommodated a(n)

Accepted Answer

A)   adverse supply shock and so contributed to higher inflation.
B)   adverse supply shock and so contributed to lower inflation.
C)   favorable supply shock and so contributed to higher inflation.
D)   favorable supply shock and so contributed to lower inflation.E) None of the above
F) All of the above

Question 13

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

Question 14

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

Accepted Answer

Unemployment falls. The decrea...

Question 15

In 1979, Fed Chair Paul Volcker

Accepted Answer

A)   instituted an accommodative monetary policy to address adverse supply shocks.
B)   believed that inflation had not yet reached unacceptable levels.
C)   believed decreasing inflation would temporarily decrease output growth.
D)   All of the above are correct.E) A) and B)
F) B) and D)

Question 16

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 17

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)   None of the above is correct.E) None of the above
F) A) and D)

Question 18

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

Accepted Answer

A) True 
 B)False

Question 19

Unemployment would decrease and prices would increase if

Accepted Answer

A)   aggregate demand shifted right.
B)   aggregate demand shifted left.
C)   aggregate supply shifted right.
D)   aggregate supply shifted left.E) B) and C)
F) A) and B)

Question 20

Friedman and Phelps argued

Accepted Answer

A)   that in the long run, monetary growth did not influence those factors that determine the economy's unemployment rate.
B)   that the Phillips curve could be exploited in the long run by using monetary, but not fiscal policy.
C)   that the short-run Phillips curve was very steep, but not vertical.
D)   that there was neither a short-run nor long-run tradeoff between inflation and unemployment.E) A) and B)
F) A) and C)

Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

Friedman and Phelps argued

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According to the Phillips curve, policymakers could reduce both inflation and unemployment by

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Unemployment would decrease and prices would increase if

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

Correct AnswerverifiedUnemployment falls. The decrea...View AnswerShow Answer

An adverse supply shock causes output to

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

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If consumption expenditures fall, then in the short run

Correct AnswerverifiedShow Answer

In the 1970s, the Fed accommodated a(n)

Correct AnswerverifiedShow Answer

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. Curve 1 is the

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Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. If the economy starts at C and the money supply growth rate increases, then in the short run the economy moves to

Correct AnswerverifiedShow Answer

In 1979, when the Fed was deciding how aggressively to fight inflation, the typical estimate of the sacrifice ratio was

Correct AnswerverifiedShow Answer

In 1979, Fed Chair Paul Volcker

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

Any policy change that reduced the natural rate of unemployment would

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

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

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

Correct AnswerverifiedShow Answer

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Unemployment falls. The decrea...
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As a move down along...
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The short-run Phillips curve s...
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The sacrifice ratio gives the annual per...
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Correct Answer
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