Question 1

After an oil price shock, which of the following would move unemployment back towards its natural rate?

Accepted Answer

A)   the Fed sells bonds
B)   the government raises taxes
C)   the government increases expenditures
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 2

Suppose that the central bank unexpectedly increases the growth rate of the money supply. In the short run the effects of this are shown by

Accepted Answer

A)   moving to the left along the short-run Phillips curve.
B)   moving to the right along the short-run Phillips curve.
C)   shifting the short-run Phillips curve to the right.
D)   shifting the short-run Phillips curve to the left.E) A) and C)
F) All of the above

Question 3

Prime Minister Emma Bigshot urges passage of a bill to reduce unemployment benefits from very generous levels in her country. She also urges her country's central bank to raise the rate at which the money supply is increasing. In the long run which, if either, of these policies will reduce the unemployment rate?

Accepted Answer

A)   both reducing the generosity of unemployment benefits and raising the rate at which the money supply is increasing
B)   reducing the generosity of unemployment benefits but not raising the rate at which the money supply is increasing
C)   raising the rate at which the money supply is increasing, but not reducing the generosity of unemployment benefits
D)   neither reducing the generosity of unemployment benefits nor raising the rate at which the money supply is increasingE) B) and C)
F) A) and C)

Question 4

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Accepted Answer

It would shift right...

Question 5

Figure 35-5 
-Refer to figure 35-5. In this order, which curve is a long-run Phillips curve and which is a short-run Phillips curve?

Accepted Answer

A)   A, B
B)   A, D
C)   C, B
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 6

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

Accepted Answer

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

Question 7

The short-run Phillips curve is based on the classical dichotomy.

Accepted Answer

A) True 
 B)False

Question 8

A central bank disinflates. Output falls by 3% for one year, 2% the second year, and 1% the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Accepted Answer

The answer of A central bank disinflates. Output falls by...

Question 9

In which case, if any, will inflation remain higher after a temporary adverse supply shock?

Accepted Answer

A)   both when the central bank maintains a higher money supply growth rate and when the central bank does nothing
B)   only if the central bank does nothing
C)   only if the central bank maintains a higher money supply growth rate
D)   None of the above is correct. Whether the central bank maintains a higher money supply growth rate or not, the inflation rate will return to its original level.E) A) and C)
F) A) and B)

Question 10

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

Accepted Answer

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

Question 11

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to

Accepted Answer

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

Question 12

Other things constant, which of the following would reduce unemployment and raise inflation?

Accepted Answer

A)   businesses become more optimistic about the future of the economy
B)   because of high growth abroad, net exports rise
C)   the government cuts taxes
D)   All of the above are correct.E) A) and C)
F) A) and B)

Question 13

The idea that the long-run Phillips curve is

Accepted Answer

A)   vertical stems from the analysis of Samuelson and Solow.
B)   vertical stems from the analysis of Friedman and Phelps.
C)   vertical was disproved by the experiment that monetary and fiscal policymakers inadvertently created in the 1970s.
D)   downward-sloping can be correct if unemployment responds very quickly to unexpected inflation.E) A) and B)
F) All of the above

Question 14

A central bank raises the money supply growth rate and keeps it higher. As the economy moves from the short-run equilibrium created by the increase in the money supply growth back to long-run equilibrium what happens to the unemployment rate?

Accepted Answer

The answer of A central bank raises the money supply...

Question 15

A low sacrifice ratio would make a central bank less willing to reduce the inflation rate.

Accepted Answer

A) True 
 B)False

Question 16

If people anticipate higher inflation, but inflation remains the same then

Accepted Answer

A)   the short-run Phillips curve would shift right and unemployment would rise.
B)   the short-run Phillips curve would shift right and unemployment would fall.
C)   the short-run Phillips curve would shift left and unemployment would rise.
D)   the short-run Phillips curve would shift left and unemployment would fall.E) None of the above
F) B) and C)

Question 17

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.E) B) and C)
F) All of the above

Question 18

What does the natural-rate hypothesis claim?

Accepted Answer

That eventually unem...

Question 19

Disinflation is like

Accepted Answer

A)   slowing a car down, whereas deflation is like putting the car into reverse gear.
B)   maintaining a car's speed, whereas deflation is like slowing the car down.
C)   putting a car into reverse gear, whereas deflation is like slowing the car down.
D)   maintaining a car's speed, whereas deflation is like putting the car into reverse gear.E) None of the above
F) B) and C)

Question 20

If the Fed raised the money supply growth by more than expected then the unemployment rate would_______in the short run. Explain the process by which the economy moves to the long run if the Fed maintains the higher money supply growth rate.

Accepted Answer

fall. Eventually inflation exp...

Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

After an oil price shock, which of the following would move unemployment back towards its natural rate?

Correct Answer
verified

In which case, if any, will inflation remain higher after a temporary adverse supply shock?

Correct Answer
verified

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

Correct Answer
verified

Other things constant, which of the following would reduce unemployment and raise inflation?

Correct Answer
verified

A low sacrifice ratio would make a central bank less willing to reduce the inflation rate.

Correct Answer
verified

A central bank disinflates. Output falls by 3% for one year, 2% the second year, and 1% the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Correct Answer
verified

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Correct Answer
verified
It would shift right...
View Answer

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to

Correct Answer
verified

Correct Answer
verified

The short-run Phillips curve is based on the classical dichotomy.

Correct Answer
verified

What does the natural-rate hypothesis claim?

Correct Answer
verified
That eventually unem...
View Answer

Suppose that the central bank unexpectedly increases the growth rate of the money supply. In the short run the effects of this are shown by

Correct Answer
verified

The idea that the long-run Phillips curve is

Correct Answer
verified

If people anticipate higher inflation, but inflation remains the same then

Correct Answer
verified

Disinflation is like

Correct Answer
verified

A central bank raises the money supply growth rate and keeps it higher. As the economy moves from the short-run equilibrium created by the increase in the money supply growth back to long-run equilibrium what happens to the unemployment rate?

Correct Answer
verified

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

Correct Answer
verified

Figure 35-5 -Refer to figure 35-5. In this order, which curve is a long-run Phillips curve and which is a short-run Phillips curve?

Correct Answer
verified

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

Correct Answer
verified

If the Fed raised the money supply growth by more than expected then the unemployment rate would_______in the short run. Explain the process by which the economy moves to the long run if the Fed maintains the higher money supply growth rate.

Correct Answer
verified
fall. Eventually inflation exp...
View Answer

Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

After an oil price shock, which of the following would move unemployment back towards its natural rate?

Correct AnswerverifiedShow Answer

In which case, if any, will inflation remain higher after a temporary adverse supply shock?

Correct AnswerverifiedShow Answer

Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?

Correct AnswerverifiedShow Answer

Other things constant, which of the following would reduce unemployment and raise inflation?

Correct AnswerverifiedShow Answer

A low sacrifice ratio would make a central bank less willing to reduce the inflation rate.

Correct AnswerverifiedShow Answer

A central bank disinflates. Output falls by 3% for one year, 2% the second year, and 1% the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Correct AnswerverifiedShow Answer

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Correct AnswerverifiedIt would shift right...View AnswerShow Answer

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The short-run Phillips curve is based on the classical dichotomy.

Correct AnswerverifiedShow Answer

What does the natural-rate hypothesis claim?

Correct AnswerverifiedThat eventually unem...View AnswerShow Answer

Suppose that the central bank unexpectedly increases the growth rate of the money supply. In the short run the effects of this are shown by

Correct AnswerverifiedShow Answer

The idea that the long-run Phillips curve is

Correct AnswerverifiedShow Answer

If people anticipate higher inflation, but inflation remains the same then

Correct AnswerverifiedShow Answer

Disinflation is like

Correct AnswerverifiedShow Answer

A central bank raises the money supply growth rate and keeps it higher. As the economy moves from the short-run equilibrium created by the increase in the money supply growth back to long-run equilibrium what happens to the unemployment rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 35-5 -Refer to figure 35-5. In this order, which curve is a long-run Phillips curve and which is a short-run Phillips curve?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the Fed raised the money supply growth by more than expected then the unemployment rate would_______in the short run. Explain the process by which the economy moves to the long run if the Fed maintains the higher money supply growth rate.

Correct Answerverifiedfall. Eventually inflation exp...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
It would shift right...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
That eventually unem...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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fall. Eventually inflation exp...
View Answer