Question 1

How was the Phillips curve for most of the 1990s and why?

Accepted Answer

A)   It was fairly far to the right partly because of lower inflation expectations.
B)   It was fairly far to the left partly because of lower inflation expectations.
C)   It was fairly far to the right partly because of adverse supply shocks.
D)   It was fairly far to the left partly because of adverse supply shocks.E) A) and C)
F) A) and B)

Question 2

Suppose an economy with high inflation decides to decrease the money supply growth rate. Which of the following best describes the results?

Accepted Answer

A)   Initially unemployment rises. Eventually the short-run Phillips curve shifts right.
B)   Initially unemployment rises. Eventually the short-run Phillips curve shifts left.
C)   Initially unemployment falls. Eventually the short-run Phillips curve shifts right.
D)   Initially unemployment falls. Eventually the short-run Phillips curve shifts left.E) All of the above
F) A) and B)

Question 3

Figure 17-2 
-Refer to Figure 17-2. Suppose the economy is initially at point c. If the money supply increases, where does the economy move to in the short-run?

Accepted Answer

A)   b
B)   d
C)   e
D)   aE) B) and D)
F) B) and C)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation.

Accepted Answer

A) True 
 B)False

Question 6

According to classical macroeconomic theory, what does money growth influence in the long run?

Accepted Answer

A)   both real and nominal variables
B)   the unemployment rate and output
C)   only real variables
D)   only nominal variablesE) A) and B)
F) None of the above

Question 7

Figure 17-4 
-Refer to Figure 17-4. If the economy is at point h and the Bank of Canada pursues a contractionary monetary policy, then the economy will move to which point in the short run?

Accepted Answer

A)   point a
B)   point b
C)   point c
D)   point mE) None of the above
F) A) and C)

Question 8

Figure 17-3 
-Refer to Figure 17-3. 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)   e and 4
C)   d and 4
D)   e and 5E) B) and D)
F) None of the above

Question 9

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 10

What did Friedman and Phelps argue about the relationship between inflation and unemployment?

Accepted Answer

A)   The inflation rate is related to unemployment in the long-run.
B)   The inflation rate is unrelated to unemployment in the long-run.
C)   The inflation rate is related to unemployment in the short-run.
D)   The inflation rate is unrelated to unemployment in the short-run.E) All of the above
F) A) and C)

Question 11

If the short-run Phillips curve were stable, what would be unusual?

Accepted Answer

A)   an increase in government spending and a fall in unemployment
B)   an increase in inflation and a decrease in output
C)   a decrease in the inflation rate and a rise in the unemployment rate
D)   a decrease in output and an increase in unemploymentE) B) and C)
F) A) and B)

Question 12

How does the short-run Phillips curve reflect a financial crisis such as the one in 2008-2009?

Accepted Answer

A)   as a leftward shift in the short-run Phillips curve
B)   as a rightward shift in the short-run Phillips curve
C)   as a downward movement along the short-run Phillips curve
D)   as an upward movement along the short-run Phillips curveE) B) and C)
F) A) and D)

Question 13

A decrease in expected inflation shifts which of the following curves, and in what direction?

Accepted Answer

A)   It shifts the short-run Phillips curve right.
B)   It shifts the short-run Phillips curve left.
C)   It shifts the long-run Phillips curve right.
D)   It shifts the long-run Phillips curve left.E) B) and C)
F) B) and D)

Question 14

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve, what are the values of unemployment and inflation?

Accepted Answer

A)   Unemployment equals the natural rate, and expected inflation equals actual inflation.
B)   Unemployment is above the natural rate, and expected inflation equals actual inflation.
C)   Unemployment equals the natural rate, and expected inflation is lower than actual inflation.
D)   Unemployment is below the natural rate, and inflation is greater than the expected rate.E) C) and D)
F) B) and D)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

The long-run response to a decrease in the growth rate of the money supply is shown by shifting which of the Phillips curves and in what direction?

Accepted Answer

A)   by shifting the short-run and long-run Phillips curves left
B)   by shifting the short-run and long-run Phillips curves right
C)   by shifting only the short-run Phillips curve left
D)   by shifting only the short-run Phillips curve rightE) A) and C)
F) All of the above

Question 17

How does the short-run Phillips curve reflect an increase in the price of oil such as occurred in the early 1970s?

Accepted Answer

A)   as a leftward shift in the short-run Phillips curve
B)   as a rightward shift in the short-run Phillips curve
C)   as a downward movement along the short-run Phillips curve
D)   as an upward movement along the short-run Phillips curveE) B) and D)
F) None of the above

Question 18

Friedman argued that a central bank could use monetary policy to peg which of the following?

Accepted Answer

A)   the nominal exchange rate
B)   the real GDP growth rate
C)   the unemployment rate
D)   the interest rateE) B) and C)
F) A) and B)

Question 19

The Phillips curve and the short-run aggregate-supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Accepted Answer

The Phillips curve shows the relation be...

Question 20

How will a favourable supply shock shift short-run aggregate supply, and how will output change?

Accepted Answer

A)   It will shift short-run aggregate supply left, making output rise.
B)   It will shift short-run aggregate supply left, making output fall.
C)   It will shift short-run aggregate supply right, making output rise.
D)   It will shift short-run aggregate supply right, making output fall.E) None of the above
F) C) and D)

Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

What did Friedman and Phelps argue about the relationship between inflation and unemployment?

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If the short-run Phillips curve were stable, what would be unusual?

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If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve, what are the values of unemployment and inflation?

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

Correct AnswerverifiedShow Answer

Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation.

Correct AnswerverifiedShow Answer

Figure 17-3 -Refer to Figure 17-3. Starting from c and 3, in the long run, where does an increase in money supply growth move the economy to?

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The long-run response to a decrease in the growth rate of the money supply is shown by shifting which of the Phillips curves and in what direction?

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

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Friedman argued that a central bank could use monetary policy to peg which of the following?

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How will a favourable supply shock shift short-run aggregate supply, and how will output change?

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Figure 17-4 -Refer to Figure 17-4. If the economy is at point h and the Bank of Canada pursues a contractionary monetary policy, then the economy will move to which point in the short run?

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Figure 17-2 -Refer to Figure 17-2. Suppose the economy is initially at point c. If the money supply increases, where does the economy move to in the short-run?

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How does the short-run Phillips curve reflect a financial crisis such as the one in 2008-2009?

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A decrease in expected inflation shifts which of the following curves, and in what direction?

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How was the Phillips curve for most of the 1990s and why?

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

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The Phillips curve and the short-run aggregate-supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Correct AnswerverifiedThe Phillips curve shows the relation be...View AnswerShow Answer

According to classical macroeconomic theory, what does money growth influence in the long run?

Correct AnswerverifiedShow Answer

How does the short-run Phillips curve reflect an increase in the price of oil such as occurred in the early 1970s?

Correct AnswerverifiedShow Answer

Suppose an economy with high inflation decides to decrease the money supply growth rate. Which of the following best describes the results?

Correct AnswerverifiedShow Answer

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The Phillips curve shows the relation be...
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