Question 1

Some countries have had high inflation rates for a long time and other countries have had low inflation rates for a long time.Yet in some of the high-inflation countries,the unemployment rate is not much different or even higher than in the low-inflation countries.Explain how these observations can be consistent with the Phillips curve.

Accepted Answer

It is reasonable to guess that in countries with chronically high inflation,expected inflation would also be high.In the long run,countries are on their long-run Phillips curve whose position is determined by labour laws,unemployment compensation,the nature of job searches,and other real factors.These can differ across countries and so the natural rate of unemployment can differ across countries.Different rates of inflation are possible along any given long-run Phillips curve,so countries can have similar unemployment rates with different inflation rates.Also,countries with higher expected inflation have short-run Phillips curves that are farther to the right.So a country with high expected inflation is on a Phillips curve to the right of one with low expected inflation.On a higher Phillips curve,inflation and the unemployment rate can be higher than on a lower Phillips curve.

Question 2

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  True

Question 3

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve (that is,to increase inflation and reduce unemployment)? Were they right or wrong?

Accepted Answer

Friedman and Phelps predicted that,over ...

Question 4

What did proponents of rational expectations argue about the sacrifice ratio and why?

Accepted Answer

A)  The sacrifice ratio would be high because it was rational for people not to immediately change their expectations.
B)  The sacrifice ratio would be high because people might adjust their expectations quickly if they found anti-inflation policy credible.
C)  The sacrifice ratio could be low because it was rational for people not to immediately change their expectations.
D)  The sacrifice ratio could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.E) A) and B)
F) C) and D)

Question 5

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Accepted Answer

Both reflect the classical dichotomy.The...

Question 6

Are the effects of an increase in aggregate demand in the AD-AS model consistent with the Phillips curve? Explain.

Accepted Answer

Consider what happens when the aggregate...

Question 7

According to Samuelson and Solow,when aggregate demand is high,how are unemployment,wages,and prices affected?

Accepted Answer

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

Question 8

Figure 16-4
 
-Refer to the Figure 16-4.If the economy is at point a and the Bank of Canada pursues an expansionary monetary policy,then the economy will move to which of the following points in the short and long run?

Accepted Answer

A)  point a in the short run and point b in the long run
B)  point b in the short run and point a in the long run
C)  point b in the short run and point c in the long run
D)  point m in the short run and point h in the long runE) A) and B)
F) B) and C)

Question 9

When aggregate demand increases,what happens to prices and employment?

Accepted Answer

A)  Prices will fall and unemployment will rise.
B)  Prices and unemployment fall.
C)  Prices and unemployment rise.
D)  Prices will rise and unemployment will fall.E) None of the above
F) A) and D)

Question 10

What is the long-run effect of an increase in expected inflation predicted by the Phillips curve model?

Accepted Answer

A)  higher inflation, but no change in unemployment
B)  higher inflation and higher output
C)  lower inflation and lower unemployment
D)  no change in inflation, but lower unemploymentE) None of the above
F) B) and C)

Question 11

What did Friedman and Phelps argue about the effectiveness of monetary policies?

Accepted Answer

A)  As long as people's inflation expectations were fixed, an increase in the money supply growth rate could not change output in the short or long run.
B)  If people's inflation expectations were fixed, in the short run, a decrease in the money supply growth rate could raise output and unemployment.
C)  When the money supply growth rate changed, people would eventually revise their inflation expectations so that any change in unemployment created by an increase in the money supply growth rate would be temporary.
D)  When the money supply growth rate changes, people slowly adjust their inflation expectations; therefore, the unemployment rate changes only in the long run but not in the short run.E) B) and C)
F) A) and B)

Question 12

Figure 16-4
 
-Refer to the Figure 16-4.At point m,how do actual and expected inflation rates and unemployment rates compare?

Accepted Answer

A)  The actual inflation rate exceeds the expected inflation rate and the actual unemployment rate exceeds the natural rate of unemployment.
B)  The actual inflation rate exceeds the expected inflation rate and the actual unemployment rate is less than the natural rate of unemployment.
C)  The actual inflation rate is less than the expected inflation rate and the actual unemployment rate exceeds the natural rate of unemployment.
D)  The actual inflation rate is less than the expected inflation rate and the actual unemployment rate is less than the natural rate of unemployment.E) None of the above
F) A) and B)

Question 13

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 D)

Question 14

Figure 16-4
 
-Refer to the Figure 16-4.Along SRPC3,what is the expected rate of inflation?

Accepted Answer

A)  0 percent
B)  2 percent
C)  3 percent
D)  5 percentE) A) and B)
F) A) and C)

Question 15

According to classical macroeconomic theory,which of the following does money growth influence in the long run?

Accepted Answer

A)  both real and nominal variables
B)  the unemployment rate
C)  factors that affect unemployment
D)  only nominal variablesE) B) and C)
F) A) and D)

Question 16

Which of the following is the misery index supposed to measure?

Accepted Answer

A)  the extent of poverty in an economy
B)  the health of the economy
C)  the degree of inequality
D)  the standard of livingE) B) and C)
F) A) and C)

Question 17

Suppose the long-run Phillips curve shifts to the left.For any given rate of money growth and inflation,how would unemployment and output change?

Accepted Answer

A)  Unemployment would be higher, and output would be lower.
B)  Unemployment would be higher, and output would be higher.
C)  Unemployment would be lower, and output would be lower.
D)  Unemployment would be lower, and output would be higher.E) B) and C)
F) A) and D)

Question 18

Faced with an adverse supply shock,what can policymakers increase,and how will prices and output be affected?

Accepted Answer

A)  They can increase aggregate demand, which increases prices and output.
B)  They can increase aggregate demand, which decreases prices and increases output.
C)  They can increase aggregate supply, which increases prices and output.
D)  They can increase aggregate supply, which decreases prices and increases output.E) None of the above
F) A) and D) A

Question 19

Which of the following would shift the long-run Phillips curve to the right?

Accepted Answer

A)  an increase in the money supply
B)  an increase in the inflation rate
C)  increases in unemployment compensation
D)  a decrease in the unemployment rateE) C) and D)
F) B) and D)

Question 20

Figure 16-3
 
-Refer to the Figure 16-3.Starting from c and 3,in the short run,where does an unexpected increase in money supply move the economy to?

Accepted Answer

A)  a and 1
B)  b and 2
C)  e and 5
D)  d and 4E) All of the above
F) A) and B)

Exam 16: The Short-Run Tradeoff between Inflation and Unemployment

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

Correct Answer
verified
True

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve (that is,to increase inflation and reduce unemployment)? Were they right or wrong?

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

What did proponents of rational expectations argue about the sacrifice ratio and why?

Correct Answer
verified

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Correct Answer
verified
Both reflect the classical dichotomy.The...
View Answer

Are the effects of an increase in aggregate demand in the AD-AS model consistent with the Phillips curve? Explain.

Correct Answer
verified
Consider what happens when the aggregate...
View Answer

According to Samuelson and Solow,when aggregate demand is high,how are unemployment,wages,and prices affected?

Correct Answer
verified

Figure 16-4 -Refer to the Figure 16-4.If the economy is at point a and the Bank of Canada pursues an expansionary monetary policy,then the economy will move to which of the following points in the short and long run?

Correct Answer
verified

When aggregate demand increases,what happens to prices and employment?

Correct Answer
verified

What is the long-run effect of an increase in expected inflation predicted by the Phillips curve model?

Correct Answer
verified

What did Friedman and Phelps argue about the effectiveness of monetary policies?

Correct Answer
verified

Figure 16-4 -Refer to the Figure 16-4.At point m,how do actual and expected inflation rates and unemployment rates compare?

Correct Answer
verified

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

Correct Answer
verified

Figure 16-4 -Refer to the Figure 16-4.Along SRPC3,what is the expected rate of inflation?

Correct Answer
verified

According to classical macroeconomic theory,which of the following does money growth influence in the long run?

Correct Answer
verified

Which of the following is the misery index supposed to measure?

Correct Answer
verified

Suppose the long-run Phillips curve shifts to the left.For any given rate of money growth and inflation,how would unemployment and output change?

Correct Answer
verified

Faced with an adverse supply shock,what can policymakers increase,and how will prices and output be affected?

Correct Answer
verified
A

Which of the following would shift the long-run Phillips curve to the right?

Correct Answer
verified

Figure 16-3 -Refer to the Figure 16-3.Starting from c and 3,in the short run,where does an unexpected increase in money supply move the economy to?

Correct Answer
verified

Exam 16: The Short-Run Tradeoff between Inflation and Unemployment

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

Correct AnswerverifiedTrue

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve (that is,to increase inflation and reduce unemployment)? Were they right or wrong?

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

What did proponents of rational expectations argue about the sacrifice ratio and why?

Correct AnswerverifiedShow Answer

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Correct AnswerverifiedBoth reflect the classical dichotomy.The...View AnswerShow Answer

Are the effects of an increase in aggregate demand in the AD-AS model consistent with the Phillips curve? Explain.

Correct AnswerverifiedConsider what happens when the aggregate...View AnswerShow Answer

According to Samuelson and Solow,when aggregate demand is high,how are unemployment,wages,and prices affected?

Correct AnswerverifiedShow Answer

Figure 16-4 -Refer to the Figure 16-4.If the economy is at point a and the Bank of Canada pursues an expansionary monetary policy,then the economy will move to which of the following points in the short and long run?

Correct AnswerverifiedShow Answer

When aggregate demand increases,what happens to prices and employment?

Correct AnswerverifiedShow Answer

What is the long-run effect of an increase in expected inflation predicted by the Phillips curve model?

Correct AnswerverifiedShow Answer

What did Friedman and Phelps argue about the effectiveness of monetary policies?

Correct AnswerverifiedShow Answer

Figure 16-4 -Refer to the Figure 16-4.At point m,how do actual and expected inflation rates and unemployment rates compare?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 16-4 -Refer to the Figure 16-4.Along SRPC3,what is the expected rate of inflation?

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory,which of the following does money growth influence in the long run?

Correct AnswerverifiedShow Answer

Which of the following is the misery index supposed to measure?

Correct AnswerverifiedShow Answer

Suppose the long-run Phillips curve shifts to the left.For any given rate of money growth and inflation,how would unemployment and output change?

Correct AnswerverifiedShow Answer

Faced with an adverse supply shock,what can policymakers increase,and how will prices and output be affected?

Correct AnswerverifiedA

Which of the following would shift the long-run Phillips curve to the right?

Correct AnswerverifiedShow Answer

Figure 16-3 -Refer to the Figure 16-3.Starting from c and 3,in the short run,where does an unexpected increase in money supply move the economy to?

Correct AnswerverifiedShow Answer

Correct Answer
verified
True

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

Correct Answer
verified

Correct Answer
verified
Both reflect the classical dichotomy.The...
View Answer

Correct Answer
verified
Consider what happens when the aggregate...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A

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