Question 1

The government of Murkland considers two policies. Policy A would shift AD right by 300 units while policy B would shift AD right by 200 units. According to the short-run Phillips curve, policy A will lead

Accepted Answer

A)  to a lower unemployment rate and a lower inflation rate than policy B.
B)  to a lower unemployment rate and a higher inflation rate than policy B.
C)  to a higher unemployment rate and lower inflation rate than policy B.
D)  to a higher unemployment rate and higher inflation rate than policy B.E) All of the above
F) C) and D)

Question 2

Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have

Accepted Answer

A)  lower unemployment and higher inflation
B)  higher unemployment and higher inflation
C)  lower unemployment and lower inflation
D)  None of the above is necessarily correct.E) None of the above
F) B) and C)

Question 3

Unemployment would decrease and prices 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) A) and B)
F) All of the above

Question 4

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 5

Samuelson and Solow reasoned that when aggregate demand was low, unemployment was

Accepted Answer

A)  high, so there was upward pressure on wages and prices.
B)  high, so there was downward pressure on wages and prices.
C)  low, so there was upward pressure on wages and prices.
D)  low, so there was downward pressure on wages and prices.E) A) and D)
F) B) and D)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

A decrease in government expenditures serves as an example of an adverse supply shock.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not associated with an adverse supply shock?

Accepted Answer

A)  the short-run Phillips curve shifts left
B)  unemployment rises
C)  the price level rises
D)  output fallsE) A) and B)
F) B) and D)

Question 9

In the long run, inflation

Accepted Answer

A)  and unemployment are primarily determined by labor market factors.
B)  and unemployment are primarily determined by the rate of money supply growth.
C)  is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors.
D)  is primarily determined by labor market factors while unemployment is primarily determined by the rate of money supply growth.E) All of the above
F) B) and C)

Question 10

If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?

Accepted Answer

A)  Inflation expectations rise which shifts the short-run Phillips curve to the right.
B)  Inflation expectations rise which shifts the short-run Phillips curve to the left.
C)  Inflation expectations fall which shifts the short-run Phillips curve to the right.
D)  Inflation expectations fall which shifts the short-run Phillips curve to the left.E) C) and D)
F) A) and B)

Question 11

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) All of the above

Question 12

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 C)
F) C) and D)

Question 13

If a central bank decreases the money supply, then

Accepted Answer

A)  prices, output, and unemployment rise.
B)  prices and output rise and unemployment falls.
C)  prices rise and output and unemployment fall.
D)  prices and output fall and unemployment rises.E) A) and D)
F) A) and C)

Question 14

Figure 22-2
Use the pair of diagrams below to answer the following questions. 
-Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, a decrease in the money supply moves the economy to

Accepted Answer

A)  E and 1.
B)  D and 2.
C)  D and 3.
D)  None of the above is correct.E) All of the above
F) C) and D)

Question 15

A decrease in expected inflation shifts

Accepted Answer

A)  the long-run Phillips curve left.
B)  the short-run Phillips curve left.
C)  neither the short-run nor long-run Phillips curve left.
D)  both the short-run and long-run Phillips curve left.E) None of the above
F) C) and D)

Question 16

An adverse supply shock will shift short-run aggregate supply

Accepted Answer

A)  right, making prices rise.
B)  left, making prices rise.
C)  right, making prices fall.
D)  left, making prices fall.E) A) and B)
F) All of the above

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

If unemployment is below its natural rate, what happens to move the economy to long-run equilibrium?

Accepted Answer

A)  Inflation expectations rise which shifts the short-run Phillips curve to the right.
B)  Inflation expectations rise which shifts the short-run Phillips curve to the left.
C)  Inflation expectations fall which shifts the short-run Phillips curve to the right.
D)  Inflation expectations fall which shifts the short-run Phillips curve to the left.E) All of the above
F) A) and B)

Question 20

If the Fed announced a policy to reduce inflation and people found it credible, the short-run Phillips curve would shift

Accepted Answer

A)  right and the sacrifice ratio would fall.
B)  right and the sacrifice ratio would rise.
C)  left and the sacrifice ratio would fall.
D)  left and the sacrifice ratio would rise.E) B) and C)
F) None of the above

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

In 1979, Fed Chair Paul Volcker

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If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?

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A decrease in government expenditures serves as an example of an adverse supply shock.

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The sacrifice ratio is the

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If a central bank decreases the money supply, then

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

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A decrease in expected inflation shifts

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If unemployment is below its natural rate, what happens to move the economy to long-run equilibrium?

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Which of the following is not associated with an adverse supply shock?

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

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

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

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Figure 22-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, a decrease in the money supply moves the economy to

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In the long run, inflation

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Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have

Correct AnswerverifiedShow Answer

If the Fed announced a policy to reduce inflation and people found it credible, the short-run Phillips curve would shift

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Samuelson and Solow reasoned that when aggregate demand was low, unemployment was

Correct AnswerverifiedShow Answer

An adverse supply shock will shift short-run aggregate supply

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The government of Murkland considers two policies. Policy A would shift AD right by 300 units while policy B would shift AD right by 200 units. According to the short-run Phillips curve, policy A will lead

Correct AnswerverifiedShow Answer

Unemployment would decrease and prices increase if

Correct AnswerverifiedShow Answer

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