Question 1

The misery index is calculated as the

Accepted Answer

A)   inflation rate plus the unemployment rate.
B)   unemployment rate minus the inflation rate.
C)   actual inflation rate minus the expected inflation rate.
D)   natural unemployment rate times the inflation rateE) B) and C)
F) A) and D)

Question 2

The short-run relationship between inflation and unemployment is often called

Accepted Answer

A)   the Classical Dichotomy.
B)   Money Neutrality.
C)   the Phillips curve.
D)   None of the above is correct.E) A) and C)
F) None of the above

Question 3

An increase in the inflation rate permanently reduces the natural rate of unemployment.

Accepted Answer

A) True 
 B)False  False

Question 4

Which of the following is not correct?

Accepted Answer

A)   In the short run,policymakers face a tradeoff between inflation and unemployment.
B)   Events that shift the long-run Phillips curve right shift the long-run aggregate supply curve left.
C)   Unemployment can be changed only by the use of government policy.
D)   The decrease in output associated with reducing inflation is less if the policy change is announced ahead of time and is credible.E) None of the above
F) B) and C)

Question 5

A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate.The politician's argument is

Accepted Answer

A)   consistent with the long-run Phillips curve.Further,the long-run Phillips curve implies that such a policy would not increase inflation.
B)   consistent with the long-run Phillips curve.However,the long-run Phillips curve implies that such a policy would increase inflation.
C)   inconsistent with the long-run Phillips curve.However,the long-run Phillips curve implies that such a policy would not increase inflation.
D)   inconsistent with the long-run Phillips curve.Further,the long-run Phillips curve implies that such a policy would increase inflation.E) A) and B)
F) None of the above

Question 6

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 taxes moves the economy to

Accepted Answer

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

Question 7

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Accepted Answer

Friedman and Phelps predicted that,over ...

Question 8

The economist A.W.Phillips published a famous article in 1958 in which he showed a

Accepted Answer

A)   negative correlation between the rate of unemployment and the rate of inflation.
B)   positive correlation between the rate of unemployment and the rate of inflation.
C)   negative correlation between the rate of unemployment and the rate of interest.
D)   positive correlation between the rate of unemployment and the rate of interestE) B) and D)
F) All of the above

Question 9

In the long run,a decrease in the money supply growth rate

Accepted Answer

A)   shifts both the long-run and the short-run Phillips curves right.
B)   shifts the long-run Phillips curve left and the short-run Phillips curve right.
C)   shifts the long-run Phillips curve right and the short-run Phillips curve left.
D)   None of the above is correct.E) B) and D)
F) A) and B)

Question 10

Suppose that the money supply decreases.In the short run,this increases prices according to

Accepted Answer

A)   both the short-run Phillips curve and the aggregate demand and aggregate supply model.
B)   neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
C)   the short-run Phillips curve,but not the aggregate demand and aggregate supply model.
D)   the aggregate demand and aggregate supply model but not the short-run Phillips curve.E) None of the above
F) A) and C) B

Question 11

A favorable 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.E) A) and B)
F) B) and C)

Question 12

A favorable supply shock will cause inflation to

Accepted Answer

A)   rise and shift the short-run Phillips curve right.
B)   rise and shift the short-run Phillips curve left.
C)   fall and shift the short-run Phillips curve right.
D)   fall and shift the short-run Phillips curve left.E) B) and D)
F) All of the above

Question 13

Which of the following is correct if there is a favorable supply shock?

Accepted Answer

A)   the short-run aggregate supply curve and the short-run Phillips curve both shift right.
B)   the short-run aggregate supply curve and the short-run Phillips curve both shift left.
C)   the short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left.
D)   the short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right.E) None of the above
F) A) and C)

Question 14

A shock increases the costs of production.Given the effects of this shock,if the central bank wants to return the unemployment rate towards its previous level it would

Accepted Answer

A)   increase the rate at which the money supply increases.This will also move inflation closer to its previous rate..
B)   increase the rate at which the money supply increases.However,this will make inflation higher than its previous rate
C)   decrease the rate at which the money supply increases.This will also move inflation closer to its original rate
D)   decrease the rate at which the money supply increases.However,this will make higher than its previous rate.E) A) and C)
F) B) and C)

Question 15

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

Accepted Answer

A)   above the natural rate.In the long run the short-run Phillips curve will shift right.
B)   above the natural rate.In the long run the short-run Phillips curve will shift left.
C)   below the natural rate.In the long run the short-run Phillips curve will shift right.
D)   below the natural rate.In the long run the short-run Phillips curve will shift left.E) B) and D)
F) A) and D)

Question 16

A central bank sets out to reduce unemployment by changing the money supply growth rate.The long-run Phillips curve shows that in comparison to their original rates,this policy will eventually lead to

Accepted Answer

A)   an increase in both the inflation rate and the unemployment rate.
B)   an increase in the inflation rate and a reduction in the unemployment rate.
C)   no change in either the inflation rate or the unemployment rate.
D)   an increase in the inflation rate and no change in the unemployment rate.E) A) and D)
F) B) and C) D

Question 17

In the long run,if there is an increase in the money supply growth rate,which of the following curves shifts right?

Accepted Answer

A)   the short-run and the long run Phillips curves
B)   the short-run but not the long run Phillips curve
C)   the long-run but not the short-run Phillips curve
D)   neither the short-run nor the long-run Phillips curvesE) B) and D)
F) A) and B)

Question 18

In 2001,Congress and President Bush instituted tax cuts.According to the short-run Phillips curve,in the short run this change should have

Accepted Answer

A)   reduced inflation and unemployment.
B)   raised inflation and unemployment.
C)   reduce inflation and raised unemployment.
D)   raised inflation and reduced unemployment.E) A) and B)
F) A) and C)

Question 19

A favorable supply shock will shift short-run aggregate supply

Accepted Answer

A)   left,making output rise.
B)   left,making output fall.
C)   right,making output rise.
D)   right,making output fall.E) A) and C)
F) C) and D)

Question 20

Friedman argued that the Fed could use monetary policy to peg

Accepted Answer

A)   nominal exchange rates.
B)   the level of real GDP.
C)   the rate of unemployment.
D)   None of the above is correct.E) A) and B)
F) All of the above

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

The misery index is calculated as the

Correct AnswerverifiedShow Answer

The short-run relationship between inflation and unemployment is often called

Correct AnswerverifiedShow Answer

An increase in the inflation rate permanently reduces the natural rate of unemployment.

Correct AnswerverifiedFalse

Which of the following is not correct?

Correct AnswerverifiedShow Answer

A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate.The politician's argument is

Correct AnswerverifiedShow Answer

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 taxes moves the economy to

Correct AnswerverifiedShow Answer

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Correct AnswerverifiedFriedman and Phelps predicted that,over ...View AnswerShow Answer

The economist A.W.Phillips published a famous article in 1958 in which he showed a

Correct AnswerverifiedShow Answer

In the long run,a decrease in the money supply growth rate

Correct AnswerverifiedShow Answer

Suppose that the money supply decreases.In the short run,this increases prices according to

Correct AnswerverifiedB

A favorable supply shock causes output to

Correct AnswerverifiedShow Answer

A favorable supply shock will cause inflation to

Correct AnswerverifiedShow Answer

Which of the following is correct if there is a favorable supply shock?

Correct AnswerverifiedShow Answer

A shock increases the costs of production.Given the effects of this shock,if the central bank wants to return the unemployment rate towards its previous level it would

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A central bank sets out to reduce unemployment by changing the money supply growth rate.The long-run Phillips curve shows that in comparison to their original rates,this policy will eventually lead to

Correct AnswerverifiedD

In the long run,if there is an increase in the money supply growth rate,which of the following curves shifts right?

Correct AnswerverifiedShow Answer

In 2001,Congress and President Bush instituted tax cuts.According to the short-run Phillips curve,in the short run this change should have

Correct AnswerverifiedShow Answer

A favorable supply shock will shift short-run aggregate supply

Correct AnswerverifiedShow Answer

Friedman argued that the Fed could use monetary policy to peg

Correct AnswerverifiedShow Answer

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Friedman and Phelps predicted that,over ...
View Answer

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B

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D

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