Question 1

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)   All of the above are correct.E) A) and B)
F) None of the above

Question 2

If the minimum wage increased, then at any given rate of inflation

Accepted Answer

A)   both output and employment would be higher.
B)   neither output nor employment would be higher.
C)   output would be higher and unemployment would be lower.
D)   output would be lower and unemployment would be higher.E) A) and D)
F) B) and C)

Question 3

Disinflation is a

Accepted Answer

A)   reduction in the price level, whereas deflation is a reduction in the rate of inflation.
B)   reduction in the rate of inflation, whereas deflation is a reduction in the price level.
C)   slow reduction in the price level, whereas deflation is a rapid reduction in the price level.
D)   rapid reduction in the price level, whereas deflation is a slow reduction in the price level.E) A) and D)
F) A) and C)

Question 4

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) B) and C)

Question 5

If policymakers decrease aggregate demand, then in the long run

Accepted Answer

A)   prices will be lower and unemployment will be higher.
B)   prices will be lower and unemployment will be unchanged.
C)   prices and unemployment will be unchanged.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 6

A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?

Accepted Answer

The answer of A central bank pledges to reduce the...

Question 7

The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to The Economy in 2008. In the short run the increased prices of world commodities

Accepted Answer

A)   raised both the price level and output.
B)   raised the price level and reduced output.
C)   reduced the price level and raised output.
D)   reduced both the price level and output.E) All of the above
F) C) and D)

Question 8

The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to the Economy in 2008. In the short-run the housing and financial crises

Accepted Answer

A)   raised both the price level and output.
B)   raised the price level and reduced output.
C)   reduced the price level and raised output.
D)   reduced both the price level and output.E) All of the above
F) B) and D)

Question 9

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Accepted Answer

In the long run the natural rate of unem...

Question 10

If expected inflation increases, which of the following shifts right?

Accepted Answer

A)   both 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 long-run nor the short-run Phillips curveE) A) and B)
F) A) and C)

Question 11

Which of the following would tend to shorten recessions associated with anti-inflation policies by central banks?

Accepted Answer

A)   People adjust their expectations of inflation rapidly.
B)   People believe policy announcements made by central bank officials.
C)   The short-run Phillips shifts rapidly.
D)   All of the above are correct.E) None of the above
F) B) and D)

Question 12

Suppose the price level is 110.00 at the end of 2020, 121.00 at the end of 2021, and 128.26 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

Accepted Answer

Yes. The rate of inflation for 2021 was ...

Question 13

How are the effects of a favorable supply shock shown in the Phillips curve diagram? If the Fed wants to return unemployment to its natural rate after the shock, what should it do?

Accepted Answer

The short-run Phillips curve s...

Question 14

Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later the inflation rate is lower, but there had been a serious recession. We could conclude with certainty that

Accepted Answer

A)   the rational expectations hypothesis is false.
B)   the rational expectations hypothesis is true.
C)   the policymakers lacked credibility.
D)   None of the above is certain.E) A) and B)
F) All of the above

Question 15

In most of the 1970s, the Fed's policy created expectations of high inflation.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is an example of an adverse supply shock?

Accepted Answer

A)   a decrease in the money supply
B)   a tax cut
C)   a worldwide drought
D)   decreased government spendingE) B) and C)
F) A) and D)

Question 17

A decrease in government expenditures serves as an example of an adverse supply shock.

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

Soon after he became the chairman of the Federal Reserve System in 1979, Paul Volcker embarked on a course

Accepted Answer

A)   of accommodative monetary policy.
B)   of disinflation.
C)   that was designed to reduce the unemployment rate.
D)   that produced results that were clearly consistent with those predicted by rational-expectations theorists.E) A) and C)
F) B) and C)

Question 20

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Accepted Answer

A)   the level or growth rate of a nominal variable, but not the level or growth rate of a real variable.
B)   the level of a nominal or real variable, but not the growth rate of a real or nominal variable.
C)   the level or growth rate of a real variable, but not the level or growth rate of a nominal variable.
D)   both levels and growth rates of both real and nominal variables.E) A) and D)
F) None of the above

Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

If the minimum wage increased, then at any given rate of inflation

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A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?

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How are the effects of a favorable supply shock shown in the Phillips curve diagram? If the Fed wants to return unemployment to its natural rate after the shock, what should it do?

Correct AnswerverifiedThe short-run Phillips curve s...View AnswerShow Answer

Soon after he became the chairman of the Federal Reserve System in 1979, Paul Volcker embarked on a course

Correct AnswerverifiedShow Answer

In most of the 1970s, the Fed's policy created expectations of high inflation.

Correct AnswerverifiedShow Answer

The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to The Economy in 2008. In the short run the increased prices of world commodities

Correct AnswerverifiedShow Answer

Milton Friedman argued that the Fed's control over the money supply could be used to peg

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If policymakers decrease aggregate demand, then in the long run

Correct AnswerverifiedShow Answer

Suppose the price level is 110.00 at the end of 2020, 121.00 at the end of 2021, and 128.26 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

Correct AnswerverifiedYes. The rate of inflation for 2021 was ...View AnswerShow Answer

Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later the inflation rate is lower, but there had been a serious recession. We could conclude with certainty that

Correct AnswerverifiedShow Answer

Disinflation is a

Correct AnswerverifiedShow Answer

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Correct AnswerverifiedIn the long run the natural rate of unem...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is an example of an adverse supply shock?

Correct AnswerverifiedShow Answer

The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to the Economy in 2008. In the short-run the housing and financial crises

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following would tend to shorten recessions associated with anti-inflation policies by central banks?

Correct AnswerverifiedShow Answer

If expected inflation increases, which of the following shifts right?

Correct AnswerverifiedShow Answer

A decrease in government expenditures serves as an example of an adverse supply shock.

Correct AnswerverifiedShow Answer

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The short-run Phillips curve s...
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Yes. The rate of inflation for 2021 was ...
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In the long run the natural rate of unem...
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