Question 1

If macroeconomic policy expands aggregate demand, unemployment will fall and inflation will rise in the short run.

Accepted Answer

A) True 
 B)False

Question 2

How will an adverse supply shock shift the short-run aggregate supply curve, and what will be the effect on prices?

Accepted Answer

A)  It will shift the short-run aggregate supply curve right, making prices rise.
B)  It will shift the short-run aggregate supply curve left, making prices rise.
C)  It will shift the short-run aggregate supply curve right, making prices fall.
D)  It will shift the short-run aggregate supply curve left, making prices fall.

Question 3

In responding to the Phillips curve hypothesis, Friedman argued that a central bank can peg which of the following?

Accepted Answer

A)  the unemployment rate
B)  the inflation rate
C)  the growth rate of real GDP
D)  the real exchange rate

Question 4

Figure 16-4 
-Refer to Figure 16-4. Along SRPC2, what is the expected rate of inflation?

Accepted Answer

A)  0 percent
B)  1 percent
C)  2 percent
D)  3 percent

Question 5

In the long run, which of the following does the inflation rate primarily depend on?

Accepted Answer

A)  the ability of unions to raise wages
B)  government spending
C)  the money supply growth rate
D)  the monopoly power of firms

Question 6

Which of the following refers to the theory that people optimally use all available information when forecasting the future?

Accepted Answer

A)  rational expectations theory
B)  perfect expectations theory
C)  momentum expectations theory
D)  accommodating expectations theory

Question 7

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following would shift aggregate supply to the right?

Accepted Answer

A)  increasing commodity prices
B)  an increase in money supply
C)  an increase in wages
D)  the discovery of a new, cheaper form of energy

Question 9

Suppose the minimum wage decreased. At any given rate of inflation, what would happen to output and employment?

Accepted Answer

A)  Both output and employment would be higher.
B)  Neither output nor employment would be higher.
C)  Output would be higher and unemployment would be lower.
D)  Unemployment would be lower and output would be higher.

Question 10

Suppose that in response to an adverse aggregate supply shock, the Bank of Canada increased the money supply. What would happen to unemployment and inflation?

Accepted Answer

A)  Unemployment and inflation would both be rise.
B)  Unemployment and inflation would both fall.
C)  Unemployment would rise and inflation would fall.
D)  Unemployment would fall and inflation would rise.

Question 11

How were inflation and unemployment from 1980 to 1989 in Canada?

Accepted Answer

A)  Inflation was relatively low, and there were no fluctuations in unemployment.
B)  Inflation was relatively low, and unemployment was high.
C)  Unemployment was relatively low, but there were large fluctuations in inflation.
D)  There were relatively large fluctuations in both unemployment and inflation.

Question 12

If policymakers accommodate an adverse supply shock, what will happen to the unemployment rate and inflation?

Accepted Answer

A)  The unemployment rate and the inflation rate will rise.
B)  The unemployment rate and the inflation rate will fall.
C)  The unemployment rate will rise and the inflation rate will fall.
D)  The unemployment rate will fall and the inflation rate will rise.

Question 13

Which of the following data supported A.W. Phillips' findings?

Accepted Answer

A)  data from 1861-1957 for the United Kingdom
B)  data from 1861-1957 for the United States
C)  data mostly from the post-World War II period in the United Kingdom
D)  data mostly from the post-World War II period in the United States

Question 14

Which of the following changes will move the economy to a point on the Phillips curve where unemployment is lower?

Accepted Answer

A)  lower inflation
B)  lower taxes
C)  a decrease the money supply
D)  higher expectations about inflation

Question 15

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists?

Accepted Answer

If inflation remains low, even...

Question 16

In the long run, policy that changes aggregate demand also changes which of the following?

Accepted Answer

A)  both unemployment and the price level
B)  neither unemployment nor the price level
C)  only unemployment
D)  only the price level

Question 17

Suppose that the Bank of Canada unexpectedly decreases the money supply. What will happen to unemployment in the short run? What will happen to unemployment in the long run?

Accepted Answer

In the short run, unemployment will rise...

Question 18

The economy is in long-run equilibrium when an MP argues that the Bank of Canada should do more to fight unemployment. He argues that if the Bank of Canada increased the money supply faster, more workers would find jobs. How correct is the MP's argument?

Accepted Answer

A)  true for both the long run and the short run
B)  wrong for both the long run and the short run
C)  true for the short run but not the long run
D)  true for the long run but not the short run

Question 19

Figure 16-3 
-Refer to Figure 16-3. Starting from c and 3, in the long run, where does an increase in money supply growth move the economy to?

Accepted Answer

A)  a and 1
B)  back to c and 3
C)  d and 4
D)  e and 5

Question 20

Suppose a policy affects the natural rate of unemployment. Which of the following does such a policy change?

Accepted Answer

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

Exam 16: The Short-Run Tradeoff Between Inflation and Unemployment

Suppose that the Bank of Canada unexpectedly decreases the money supply. What will happen to unemployment in the short run? What will happen to unemployment in the long run?

Correct AnswerverifiedIn the short run, unemployment will rise...View AnswerShow Answer

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Correct AnswerverifiedShow Answer

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists?

Correct AnswerverifiedIf inflation remains low, even...View AnswerShow Answer

How were inflation and unemployment from 1980 to 1989 in Canada?

Correct AnswerverifiedShow Answer

Which of the following data supported A.W. Phillips' findings?

Correct AnswerverifiedShow Answer

Which of the following would shift aggregate supply to the right?

Correct AnswerverifiedShow Answer

Suppose a policy affects the natural rate of unemployment. Which of the following does such a policy change?

Correct AnswerverifiedShow Answer

Suppose the minimum wage decreased. At any given rate of inflation, what would happen to output and employment?

Correct AnswerverifiedShow Answer

Figure 16-3 -Refer to Figure 16-3. Starting from c and 3, in the long run, where does an increase in money supply growth move the economy to?

Correct AnswerverifiedShow Answer

In the long run, policy that changes aggregate demand also changes which of the following?

Correct AnswerverifiedShow Answer

How will an adverse supply shock shift the short-run aggregate supply curve, and what will be the effect on prices?

Correct AnswerverifiedShow Answer

Suppose that in response to an adverse aggregate supply shock, the Bank of Canada increased the money supply. What would happen to unemployment and inflation?

Correct AnswerverifiedShow Answer

Figure 16-4 -Refer to Figure 16-4. Along SRPC2, what is the expected rate of inflation?

Correct AnswerverifiedShow Answer

The economy is in long-run equilibrium when an MP argues that the Bank of Canada should do more to fight unemployment. He argues that if the Bank of Canada increased the money supply faster, more workers would find jobs. How correct is the MP's argument?

Correct AnswerverifiedShow Answer

Which of the following refers to the theory that people optimally use all available information when forecasting the future?

Correct AnswerverifiedShow Answer

If macroeconomic policy expands aggregate demand, unemployment will fall and inflation will rise in the short run.

Correct AnswerverifiedShow Answer

If policymakers accommodate an adverse supply shock, what will happen to the unemployment rate and inflation?

Correct AnswerverifiedShow Answer

Which of the following changes will move the economy to a point on the Phillips curve where unemployment is lower?

Correct AnswerverifiedShow Answer

In the long run, which of the following does the inflation rate primarily depend on?

Correct AnswerverifiedShow Answer

In responding to the Phillips curve hypothesis, Friedman argued that a central bank can peg which of the following?

Correct AnswerverifiedShow Answer

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In the short run, unemployment will rise...
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If inflation remains low, even...
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