Question 1

Figure 35-5 1 to AS2, but it could not explain the shift of the Phillips curve from PC1 to PC2. B) the shift of the Phillips curve from PC1 to PC2, but it could not explain the shift of the aggregate-supply curve from AS1 to AS2. C) both the shift of the aggregate-supply curve from AS1 to AS2 and the shift of the Phillips curve from PC1 to PC2. D) neither the shift of the aggregate-supply curve from AS1 to AS2 nor the shift of the Phillips curve from PC1 to PC2." class="answers-bank-image d-inline" rel="preload" > 1 to AS2, but it could not explain the shift of the Phillips curve from PC1 to PC2. B) the shift of the Phillips curve from PC1 to PC2, but it could not explain the shift of the aggregate-supply curve from AS1 to AS2. C) both the shift of the aggregate-supply curve from AS1 to AS2 and the shift of the Phillips curve from PC1 to PC2. D) neither the shift of the aggregate-supply curve from AS1 to AS2 nor the shift of the Phillips curve from PC1 to PC2." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 35-5. A significant increase in the world price of oil could explain

Accepted Answer

A)  the shift of the aggregate-supply curve from AS1 to AS2, but it could not explain the shift of the Phillips curve from PC1 to PC2.
B)  the shift of the Phillips curve from PC1 to PC2, but it could not explain the shift of the aggregate-supply curve from AS1 to AS2.
C)  both the shift of the aggregate-supply curve from AS1 to AS2 and the shift of the Phillips curve from PC1 to PC2.
D)  neither the shift of the aggregate-supply curve from AS1 to AS2 nor the shift of the Phillips curve from PC1 to PC2.E) A) and B)
F) All of the above

Question 2

Other things the same, if there is an increase in the money supply growth rate that is larger than expected, then in the short run

Accepted Answer

A)  the natural rate of unemployment rises.
B)  the natural rate of unemployment falls.
C)  the unemployment rate will be above its natural rate.
D)  the unemployment rate will be below its natural rate.E) B) and C)
F) All of the above

Question 3

If prices and wages adjusted rapidly and producers could quickly distinguish the difference between a change in the price level and a change in the relative price of their products, then an increase in the money supply growth rate would have at most a very short-lived affect on unemployment.

Accepted Answer

A) True 
 B)False

Question 4

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 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) B) and D)
F) All of the above

Question 5

Does a more steeply sloped Phillips curve make the sacrifice ratio smaller or larger than otherwise?

Accepted Answer

A steeper Phillips c...

Question 6

U.S. monetary policy in the early 1980s reduced the inflation rate by more than half.

Accepted Answer

A) True 
 B)False

Question 7

If expected inflation falls but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

Accepted Answer

Unemployment falls. The decrea...

Question 8

If there were a favorable supply shock and the central bank wanted to offset the change in the unemployment rate, what would it do?

Accepted Answer

It would r...

Question 9

Figure 35-1   ​
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-Refer to Figure 35-1. Suppose points F and G on the right-hand graph represent two possible outcomes for an imaginary economy in the year 2020, and those two points correspond to points B and C, respectively, on the left-hand graph. Then it is apparent that the price index equaled

Accepted Answer

A)  130 in 2019.
B)  115 in 2019.
C)  110 in 2019.
D)  100 in 2019.E) A) and D)
F) A) and B)

Question 10

Just as the aggregate-demand curve slopes downward only in the short run, the trade-off between inflation and unemployment holds only in the long run.

Accepted Answer

A) True 
 B)False

Question 11

If the Fed reduces inflation by 2 percentage points and this results in a 6 percentage-point increase in unemployment, then the sacrifice ratio is equal to 3.

Accepted Answer

A) True 
 B)False

Question 12

What evidence does the Volcker disinflation provide concerning the importance of inflation expectations to the costs of disinflation?

Accepted Answer

Unemployment did rise. However, the sacr...

Question 13

In 1980, the combination of inflation and unemployment the U.S. was experiencing

Accepted Answer

A)  resulted from a leftward shift of the short-run Phillips curve.
B)  was consistent with feasible inflation-unemployment combinations provided by the Phillips curve of the 1960s.
C)  followed two supply shocks that were triggered by the Organization of Petroleum Exporting Countries.
D)  resulted from expansionary monetary policy.E) B) and C)
F) A) and D)

Question 14

A favorable supply shock causes the price level to

Accepted Answer

A)  rise.To counter this a central bank could increase the money supply.
B)  rise.To counter this a central bank could decrease the money supply.
C)  fall.To counter this a central bank could increase the money supply.
D)  fall.To counter this a central bank could decrease the money supply.E) A) and B)
F) B) and D)

Question 15

If people correctly anticipate that inflation will fall by 1%, then

Accepted Answer

A)  the short-run Phillips curve shifts right and unemployment is unchanged.
B)  the short-run Phillips curve shifts right and unemployment rises.
C)  the short-run Phillips curve shifts left and unemployment is unchanged.
D)  the short-run Phillips curve would shift left and unemployment falls.E) B) and C)
F) A) and D)

Question 16

According to the long-run Phillips curve, in the long run monetary policy influences

Accepted Answer

A)  both the inflation rate and the unemployment rate.
B)  the inflation rate but not the unemployment rate.
C)  the unemployment rate but not the inflation rate.
D)  neither the unemployment rate nor the inflation rate.E) B) and C)
F) A) and D)

Question 17

A policy change that reduces the natural rate of unemployment shifts both the long-run aggregate-supply curve and the long-run Phillips curve left.

Accepted Answer

A) True 
 B)False

Question 18

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 19

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 20

A central bank can reduce inflation by reducing money supply growth, but it necessarily does so at the cost of permanently raising the unemployment rate.

Accepted Answer

A) True 
 B)False

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

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A favorable supply shock causes the price level to

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According to the long-run Phillips curve, in the long run monetary policy influences

Correct AnswerverifiedShow Answer

If prices and wages adjusted rapidly and producers could quickly distinguish the difference between a change in the price level and a change in the relative price of their products, then an increase in the money supply growth rate would have at most a very short-lived affect on unemployment.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Does a more steeply sloped Phillips curve make the sacrifice ratio smaller or larger than otherwise?

Correct AnswerverifiedA steeper Phillips c...View AnswerShow Answer

What evidence does the Volcker disinflation provide concerning the importance of inflation expectations to the costs of disinflation?

Correct AnswerverifiedUnemployment did rise. However, the sacr...View AnswerShow Answer

A central bank can reduce inflation by reducing money supply growth, but it necessarily does so at the cost of permanently raising the unemployment rate.

Correct AnswerverifiedShow Answer

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

Correct AnswerverifiedShow Answer

In 1980, the combination of inflation and unemployment the U.S. was experiencing

Correct AnswerverifiedShow Answer

A policy change that reduces the natural rate of unemployment shifts both the long-run aggregate-supply curve and the long-run Phillips curve left.

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Figure 35-5 -Refer to Figure 35-5. A significant increase in the world price of oil could explain

Correct AnswerverifiedShow Answer

If there were a favorable supply shock and the central bank wanted to offset the change in the unemployment rate, what would it do?

Correct AnswerverifiedIt would r...View AnswerShow Answer

Other things the same, if there is an increase in the money supply growth rate that is larger than expected, then in the short run

Correct AnswerverifiedShow Answer

If expected inflation falls but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

Correct AnswerverifiedUnemployment falls. The decrea...View AnswerShow Answer

If people correctly anticipate that inflation will fall by 1%, then

Correct AnswerverifiedShow Answer

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

Correct AnswerverifiedShow Answer

Just as the aggregate-demand curve slopes downward only in the short run, the trade-off between inflation and unemployment holds only in the long run.

Correct AnswerverifiedShow Answer

U.S. monetary policy in the early 1980s reduced the inflation rate by more than half.

Correct AnswerverifiedShow Answer

If the Fed reduces inflation by 2 percentage points and this results in a 6 percentage-point increase in unemployment, then the sacrifice ratio is equal to 3.

Correct AnswerverifiedShow Answer

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A steeper Phillips c...
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Unemployment did rise. However, the sacr...
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It would r...
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Unemployment falls. The decrea...
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