Question 1

If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 8 percent would require sacrificing how much annual output?

Accepted Answer

A)  2 percent of annual output
B)  6 percent of annual output
C)  8 percent of annual output
D)  10 percent of annual outputE) C) and D)
F) A) and B)

Question 2

Figure 16-3 
-Refer to Figure 16-3. Starting from c and 3, in the long run, where does a decrease in money supply growth move the economy to?

Accepted Answer

A)  a and 1
B)  back to c and 3
C)  d and 4
D)  e and 5E) B) and C)
F) C) and D)

Question 3

In the late 1960s and early 1970s, how did the short-run Phillips curve shift?

Accepted Answer

A)  It shifted right as inflation expectations rose.
B)  It shifted right as inflation expectations fell.
C)  It shifted left as inflation expectations rose.
D)  It shifted left as inflation expectations fell.E) None of the above
F) A) and B)

Question 4

In the long run, people come to expect whatever inflation rate the Bank of Canada chooses to produce, so unemployment returns to its natural rate.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  a and1
B)  b and 2
C)  back to c and 3
D)  d and 4E) B) and C)
F) A) and B)

Question 6

Which of the following did Phillips discover?

Accepted Answer

A)  a positive relation between unemployment and inflation in the United Kingdom
B)  a positive relation between unemployment and inflation in Canada
C)  a negative relation between unemployment and inflation in Canada
D)  a negative relation between unemployment and inflation in the United KingdomE) None of the above
F) B) and C)

Question 7

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. Th...

Question 8

According to Phillips, which of the following sets of two items have a negative relation?

Accepted Answer

A)  output and unemployment
B)  output and employment
C)  wage inflation and output
D)  wage inflation and unemploymentE) C) and D)
F) A) and B)

Question 9

Suppose the long-run Phillips curve shifts to the right. 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) A) and C)
F) A) and B)

Question 10

What will an adverse supply shock cause output and prices to do?

Accepted Answer

A)  It will cause output and prices to rise.
B)  It will cause output and prices to fall.
C)  It will cause output to rise and prices to fall.
D)  It will cause output to fall and prices to rise.E) B) and C)
F) A) and C)

Question 11

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

Accepted Answer

A)  point b
B)  point c
C)  point d
D)  point hE) All of the above
F) A) and B)

Question 12

Which of the following would we NOT expect to happen if government policy moved the economy up along a given short-run Phillips curve?

Accepted Answer

A)  Ravi reads in the newspaper that the central bank raised the money supply.
B)  Tony gets more job offers.
C)  Louis makes smaller increases in the prices at his health food store.
D)  Jessica's nominal wage increases at a faster rate.E) All of the above
F) A) and C)

Question 13

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

Accepted Answer

A)  a and 1
B)  b and 2
C)  back to c and 3
D)  d and 4E) A) and B)
F) B) and C)

Question 14

In the long run, the natural rate of unemployment depends primarily on the growth rate of the money supply.

Accepted Answer

A) True 
 B)False

Question 15

How does a decrease in the expected rate of inflation shift the Phillips curves?

Accepted Answer

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

Question 16

How will a favourable supply shock shift the short-run Phillips curve and how does it change inflation?

Accepted Answer

A)  It will shift the short-run Phillips curve right and raise inflation.
B)  It will shift the short-run Phillips curve right and lower inflation.
C)  It will shift the short-run Phillips curve left and raise inflation.
D)  It will shift the short-run Phillips curve left and lower inflation.E) B) and C)
F) A) and D)

Question 17

Suppose that the money supply increases. In the short run, this increases employment according to what theory?

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)  only the short-run Phillips curve
D)  only the aggregate demand and aggregate supply modelE) C) and D)
F) A) and B)

Question 18

Figure 16-1 
-Refer to Figure 16-1. If the economy starts at c and 1, then in the short run, a decrease in government expenditures moves the economy to where?

Accepted Answer

A)  d and 2
B)  d and 3
C)  e and 3
D)  e and 2E) A) and C)
F) C) and D)

Question 19

In the long run, what are the effects of a decrease in the rate of growth of the money supply?

Accepted Answer

A)  It will increase inflation and shift the short-run Phillips curve right.
B)  It will increase inflation and shift the short-run Phillips curve left.
C)  It will decrease inflation and shift the short-run Philips curve right.
D)  It will decrease inflation and shift the short-run Phillips curve left.E) A) and C)
F) B) and D)

Question 20

If policymakers expand aggregate demand, what happens to inflation and unemployment?

Accepted Answer

A)  Inflation falls, but unemployment rises.
B)  Inflation and unemployment fall.
C)  Inflation and unemployment rise.
D)  Inflation rises, but unemployment falls.E) B) and C)
F) A) and D)

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

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

Correct AnswerverifiedShow Answer

Which of the following did Phillips discover?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What will an adverse supply shock cause output and prices to do?

Correct AnswerverifiedShow Answer

In the long run, people come to expect whatever inflation rate the Bank of Canada chooses to produce, so unemployment returns to its natural rate.

Correct AnswerverifiedShow Answer

If policymakers expand aggregate demand, what happens to inflation and unemployment?

Correct AnswerverifiedShow Answer

Figure 16-3 -Refer to Figure 16-3. Starting from c and 3, in the long run, where does a decrease in money supply growth move the economy to?

Correct AnswerverifiedShow Answer

In the long run, what are the effects of a decrease in the rate of growth of the money supply?

Correct AnswerverifiedShow Answer

How does a decrease in the expected rate of inflation shift the Phillips curves?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to Phillips, which of the following sets of two items have a negative relation?

Correct AnswerverifiedShow Answer

In the late 1960s and early 1970s, how did the short-run Phillips curve shift?

Correct AnswerverifiedShow Answer

In the long run, the natural rate of unemployment depends primarily on the growth rate of the money supply.

Correct AnswerverifiedShow Answer

Which of the following would we NOT expect to happen if government policy moved the economy up along a given short-run Phillips curve?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 8 percent would require sacrificing how much annual output?

Correct AnswerverifiedShow Answer

Suppose that the money supply increases. In the short run, this increases employment according to what theory?

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. Th...View AnswerShow Answer

Figure 16-1 -Refer to Figure 16-1. If the economy starts at c and 1, then in the short run, a decrease in government expenditures moves the economy to where?

Correct AnswerverifiedShow Answer

How will a favourable supply shock shift the short-run Phillips curve and how does it change inflation?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified