Question 1

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

Question 2

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

Question 3

Figure 17-5
Use the graph below to answer the following questions.
 
-Refer to Figure 17-5. If the economy starts at C and the money supply growth rate decreases, in the short run the economy moves to

Accepted Answer

A)   B.
B)   C.
C)   F.
D)   None of the above is consistent with a decrease in the money supply growth rate.E) B) and C)
F) None of the above

Question 4

Suppose that the money supply increases. In the short run this decreases unemployment according to

Accepted Answer

A)   both the short-run Phillips curve and the aggregate demand and aggregate supply model.
B)   neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
C)   the short-run Phillips curve, but not the aggregate demand and supply model.
D)   the aggregate demand and aggregate supply model, but not the short-run Phillips curve.E) A) and C)
F) B) and D)

Question 5

Which of the following depends primarily on the growth rate of the money supply?

Accepted Answer

A)   inflation and the natural rate of unemployment
B)   inflation but not the natural rate of unemployment
C)   the natural rate of unemployment but not inflation
D)   neither inflation nor the natural rate of unemploymentE) B) and C)
F) A) and B)

Question 6

In the Friedman-Phelps analysis, when inflation is less than expected, the unemployment rate is less than the natural rate.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

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

Question 9

A.W. Phillips's discovery of a particular relationship between unemployment and inflation for the United Kingdom

Accepted Answer

A)   could not be extended to other countries, despite many researchers' attempts to provide that extension.
B)   was quickly extended to other countries by researchers.
C)   was extended to only one other country - the United States.
D)   was harshly criticized by the American economists Paul Samuelson and Robert Solow on the grounds that Phillips's study was fundamentally flawed.E) B) and D)
F) All of the above

Question 10

Friedman and Phelps believed that the natural rate of unemployment was constant.

Accepted Answer

A) True 
 B)False

Question 11

In responding to the Phillips curve hypothesis, Friedman argued that the Fed can peg the

Accepted Answer

A)   unemployment rate.
B)   inflation rate.
C)   growth rate of real national income.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 12

A policy intended to reduce unemployment by taking advantage of a tradeoff between inflation and unemployment leads to

Accepted Answer

A)   both higher inflation and higher unemployment in the long run.
B)   higher inflation and no change in unemployment in the long run.
C)   the same inflation rate and lower unemployment in the long run.
D)   higher inflation and lower unemployment in the long runE) B) and C)
F) None of the above

Question 13

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Accepted Answer

A) True 
 B)False

Question 14

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 15

If a central bank attempts to lower the inflation rate but the public doesn't believe the inflation rate will fall as far as the central bank says, then in the short run unemployment

Accepted Answer

A)   rises. As inflation expectations adjust, the short-run Phillips curve shifts right.
B)   rises. As inflation expectations adjust, the short-run Phillips curve shifts left.
C)   falls. As inflation expectations adjust, the short-run Phillips curve shifts right.
D)   falls. As inflation expectations adjust, the short-run Phillips curve shifts left.E) A) and B)
F) A) and C)

Question 16

If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the

Accepted Answer

A)   right. It remains to the right regardless of monetary policy.
B)   right. It remains to the right if the central bank pursues expansionary monetary policy.
C)   left. It remains to the left regardless of monetary policy.
D)   left. It remains to the left if the central bank pursues expansionary monetary policy.E) All of the above
F) A) and B)

Question 17

The sacrifice ratio is the

Accepted Answer

A)   sum of the inflation and unemployment rates.
B)   inflation rate divided by the unemployment rate.
C)   number of percentage points annual output falls for each percentage point reduction in inflation.
D)   number of percentage points unemployment rises for each percentage point reduction in inflation.E) C) and D)
F) A) and C)

Question 18

A central bank sets out to reduce unemployment by changing the money supply growth rate. The long-run Phillips curve shows that in comparison to their original rates, this policy will eventually lead to

Accepted Answer

A)   an increase in both the inflation rate and the unemployment rate.
B)   an increase in the inflation rate and a reduction in the unemployment rate.
C)   no change in either the inflation rate or the unemployment rate.
D)   an increase in the inflation rate and no change in the unemployment rate.E) B) and D)
F) A) and B)

Question 19

Which of the following implies that an increase in the money supply growth rate permanently changes the unemployment rate?

Accepted Answer

A)   both the long-run aggregate supply curve and the long-run Phillips curve
B)   the long-run aggregate supply curve, but not the long-run Phillips curve
C)   the long-run Phillips curve, but not the long-run aggregate supply curve
D)   neither the long-run Phillips curve nor the long-run aggregate supply curveE) All of the above
F) B) and C)

Question 20

Figure 17-5
Use the graph below to answer the following questions.
 
-Refer to Figure 17-5. If the economy starts at C and the money supply growth rate increases, in the long run the economy

Accepted Answer

A)   stays at C.
B)   moves to B.
C)   moves to F.
D)   None of the above is consistent wit an increase in the money supply growth rate.E) A) and D)
F) All of the above

Exam 17: The Short-Run Trade-Off Between Inflation and Unemployment

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

Correct Answer
verified

In the Friedman-Phelps analysis, when inflation is less than expected, the unemployment rate is less than the natural rate.

Correct Answer
verified

If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the

Correct Answer
verified

A policy intended to reduce unemployment by taking advantage of a tradeoff between inflation and unemployment leads to

Correct Answer
verified

A central bank sets out to reduce unemployment by changing the money supply growth rate. The long-run Phillips curve shows that in comparison to their original rates, this policy will eventually lead to

Correct Answer
verified

Figure 17-5 Use the graph below to answer the following questions. -Refer to Figure 17-5. If the economy starts at C and the money supply growth rate decreases, in the short run the economy moves to

Correct Answer
verified

Suppose that the money supply increases. In the short run this decreases unemployment according to

Correct Answer
verified

In the long run,

Correct Answer
verified

Correct Answer
verified

Which of the following implies that an increase in the money supply growth rate permanently changes the unemployment rate?

Correct Answer
verified

An adverse supply shock causes output to

Correct Answer
verified

Figure 17-5 Use the graph below to answer the following questions. -Refer to Figure 17-5. If the economy starts at C and the money supply growth rate increases, in the long run the economy

Correct Answer
verified

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

Correct Answer
verified

In responding to the Phillips curve hypothesis, Friedman argued that the Fed can peg the

Correct Answer
verified

Friedman and Phelps believed that the natural rate of unemployment was constant.

Correct Answer
verified

A.W. Phillips's discovery of a particular relationship between unemployment and inflation for the United Kingdom

Correct Answer
verified

Which of the following depends primarily on the growth rate of the money supply?

Correct Answer
verified

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Correct Answer
verified

If a central bank attempts to lower the inflation rate but the public doesn't believe the inflation rate will fall as far as the central bank says, then in the short run unemployment

Correct Answer
verified

The sacrifice ratio is the

Correct Answer
verified

Exam 17: The Short-Run Trade-Off Between Inflation and Unemployment

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

Correct AnswerverifiedShow Answer

In the Friedman-Phelps analysis, when inflation is less than expected, the unemployment rate is less than the natural rate.

Correct AnswerverifiedShow Answer

If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the

Correct AnswerverifiedShow Answer

A policy intended to reduce unemployment by taking advantage of a tradeoff between inflation and unemployment leads to

Correct AnswerverifiedShow Answer

A central bank sets out to reduce unemployment by changing the money supply growth rate. The long-run Phillips curve shows that in comparison to their original rates, this policy will eventually lead to

Correct AnswerverifiedShow Answer

Figure 17-5 Use the graph below to answer the following questions. -Refer to Figure 17-5. If the economy starts at C and the money supply growth rate decreases, in the short run the economy moves to

Correct AnswerverifiedShow Answer

Suppose that the money supply increases. In the short run this decreases unemployment according to

Correct AnswerverifiedShow Answer

In the long run,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following implies that an increase in the money supply growth rate permanently changes the unemployment rate?

Correct AnswerverifiedShow Answer

An adverse supply shock causes output to

Correct AnswerverifiedShow Answer

Figure 17-5 Use the graph below to answer the following questions. -Refer to Figure 17-5. If the economy starts at C and the money supply growth rate increases, in the long run the economy

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In responding to the Phillips curve hypothesis, Friedman argued that the Fed can peg the

Correct AnswerverifiedShow Answer

Friedman and Phelps believed that the natural rate of unemployment was constant.

Correct AnswerverifiedShow Answer

A.W. Phillips's discovery of a particular relationship between unemployment and inflation for the United Kingdom

Correct AnswerverifiedShow Answer

Which of the following depends primarily on the growth rate of the money supply?

Correct AnswerverifiedShow Answer

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Correct AnswerverifiedShow Answer

If a central bank attempts to lower the inflation rate but the public doesn't believe the inflation rate will fall as far as the central bank says, then in the short run unemployment

Correct AnswerverifiedShow Answer

The sacrifice ratio is the

Correct AnswerverifiedShow Answer

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