Question 1

According to Friedman and Phelps, the unemployment rate is above the natural rate when actual inflation

Accepted Answer

A)  is greater than expected inflation.
B)  is less than expected inflation.
C)  equals expected inflation.
D)  low whether its greater than or less than expected.

Question 2

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

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.

Question 4

Suppose a central bank takes actions that will lead to a higher inflation rate. The public, however, is slow to adjust its expectation of inflation. 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.

Question 5

If inflation is less than expected, then the unemployment rate is

Accepted Answer

A)  greater than the natural rate. In the long run the short-run Phillips curve will shift right.
B)  greater than the natural rate. In the long run the short-run Phillips curve will shift left.
C)  less than the natural rate. In the long run the short-run Phillips curve will shift right.
D)  less than the natural rate. In the long run the short-run Phillips curve will shift left.

Question 6

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.

Question 7

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short-run consequence of this contraction?

Accepted Answer

A)  The inflation rate decreases.
B)  The level of output decreases.
C)  The unemployment rate increases.
D)  All of the above are correct.

Question 8

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.

Question 9

Figure 35-6
Use the graph below to answer the following questions. 
-Refer to Figure 35-6. The money supply growth rate is greatest at

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  F.

Question 10

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

Accepted Answer

Unemployment rises. The increa...

Question 11

Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run.

Accepted Answer

A) True 
 B)False

Question 12

If the natural rate of unemployment falls,

Accepted Answer

A)  both the short-run Phillips curve and the long-run Phillips curve shift.
B)  only the short-run Phillips curve shifts.
C)  only the long-run Phillips curve shifts.
D)  neither the short-run nor the long-run Phillips curves shift.

Question 13

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 14

Samuelson and Solow argued that when unemployment is high, there is

Accepted Answer

A)  upward pressure on wages and prices.
B)  upward pressure on wages and downward pressure on prices.
C)  upward pressure on prices and downward pressure on wages.
D)  downward pressure on wages and prices.

Question 15

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." 1 to AS2, but it could not explain the shift of the Phillips curve from PC1 to PC2. B) the shift of the Phillips curve from PC1 to PC2, but it could not explain the shift of the aggregate-supply curve from AS1 to AS2. C) both the shift of the aggregate-supply curve from AS1 to AS2 and the shift of the Phillips curve from PC1 to PC2. D) neither the shift of the aggregate-supply curve from AS1 to AS2 nor the shift of the Phillips curve from PC1 to PC2." class="answers-bank-image d-inline" rel="preload" > 1 to AS2, but it could not explain the shift of the Phillips curve from PC1 to PC2. B) the shift of the Phillips curve from PC1 to PC2, but it could not explain the shift of the aggregate-supply curve from AS1 to AS2. C) both the shift of the aggregate-supply curve from AS1 to AS2 and the shift of the Phillips curve from PC1 to PC2. D) neither the shift of the aggregate-supply curve from AS1 to AS2 nor the shift of the Phillips curve from PC1 to PC2." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 35-9. A significant increase in the world price of oil could explain

Accepted Answer

A)  the shift of the aggregate-supply curve from AS1 to AS2, but it could not explain the shift of the Phillips curve from PC1 to PC2.
B)  the shift of the Phillips curve from PC1 to PC2, but it could not explain the shift of the aggregate-supply curve from AS1 to AS2.
C)  both the shift of the aggregate-supply curve from AS1 to AS2 and the shift of the Phillips curve from PC1 to PC2.
D)  neither the shift of the aggregate-supply curve from AS1 to AS2 nor the shift of the Phillips curve from PC1 to PC2.

Question 16

In the long run, if the Fed decreases the growth rate of the money supply,

Accepted Answer

A)  inflation will be lower.
B)  unemployment will be higher.
C)  real GDP will be lower.
D)  All of the above are correct.

Question 17

If a central bank increases the money supply growth rate, then in the short run

Accepted Answer

A)  unemployment rises. In the long run the short-run Phillips curve shifts right.
B)  unemployment rises. In the long run the short-run Phillips curve shifts left.
C)  unemployment falls. In the long run the short-run Phillips curve shifts right.
D)  unemployment falls. In the long run the short-run Phillips curve shifts left.

Question 18

An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.

Accepted Answer

A) True 
 B)False

Question 19

Suppose the Federal Reserve makes monetary policy more expansionary. In the long run

Accepted Answer

A)  both inflation and the unemployment rate are higher than they were prior to the change in policy.
B)  inflation is higher and the unemployment rate is the same as it was prior to the change in policy.
C)  inflation is lower and the unemployment rate is lower than it was prior to the change in policy.
D)  inflation is lower and unemployment is the same as it was prior to the change in policy.

Question 20

Figure 35-7
Use the two graphs in the diagram to answer the following questions.  
-Refer to Figure 35-7. Starting from C and 3, in the short run an unexpected increase in money supply growth moves the economy to

Accepted Answer

A)  A and 1.
B)  B and 2.
C)  back to C and 3.
D)  D and 4.

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

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Correct AnswerverifiedShow Answer

Suppose a central bank takes actions that will lead to a higher inflation rate. The public, however, is slow to adjust its expectation of inflation. Then, in the short run, unemployment

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Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run.

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Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. The money supply growth rate is greatest at

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According to Friedman and Phelps, the unemployment rate is above the natural rate when actual inflation

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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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An adverse supply shock causes output to

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An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

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In the long run, if the Fed decreases the growth rate of the money supply,

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Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. Starting from C and 3, in the short run an unexpected increase in money supply growth moves the economy to

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An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.

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Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. A significant increase in the world price of oil could explain

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedUnemployment rises. The increa...View AnswerShow Answer

If inflation is less than expected, then the unemployment rate is

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If the natural rate of unemployment falls,

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If a central bank increases the money supply growth rate, then in the short run

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Suppose the Federal Reserve makes monetary policy more expansionary. In the long run

Correct AnswerverifiedShow Answer

Samuelson and Solow argued that when unemployment is high, there is

Correct AnswerverifiedShow Answer

Moving from the late 1960s to 1970-1973,

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Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short-run consequence of this contraction?

Correct AnswerverifiedShow Answer

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Unemployment rises. The increa...
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