Question 1

Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.

Accepted Answer

Consider what happens when the aggregate...

Question 2

Suppose that businesses become less optimistic about the future. Assuming no change in inflation expectations, how would the effects of this shock be shown on the Phillips curve diagram and what would happen to inflation and unemployment?

Accepted Answer

The decrease in spending is sh...

Question 3

In 2009 Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have

Accepted Answer

A)   raised unemployment and inflation.
B)   raised unemployment and reduced inflation.
C)   reduced unemployment and raised inflation.
D)   reduced unemployment and inflation.E) B) and C)
F) All of the above

Question 4

If policymakers expand aggregate demand, then in the long run

Accepted Answer

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

Question 5

Suppose a central bank takes actions that will lead to a higher inflation rate. The public, however, is slow to adjust its expectation of inflation. Then, in the short run, unemployment

Accepted Answer

A)   rises. As inflation expectations adjust, the short-run Phillips curve shifts right.
B)   rises. As inflation expectations adjust, the short-run Phillips curve shifts left.
C)   falls. As inflation expectations adjust, the short-run Phillips curve shifts right.
D)   falls. As inflation expectations adjust, the short-run Phillips curve shifts left.E) A) and D)
F) A) and B)

Question 6

Figure 35-6
Use the graph below to answer the following questions. 
-Refer to Figure 35-6. If the economy starts at C and the money supply growth rate decreases, in the short run the economy moves to

Accepted Answer

A)   B.
B)   C.
C)   F.
D)   None of the above is consistent with a decrease in the money supply growth rate.E) B) and D)
F) A) and C)

Question 7

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

Accepted Answer

A) True 
 B)False

Question 8

The economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's argument

Accepted Answer

A)   is completely correct.
B)   is completely wrong.
C)   is true for the short run but not the long run.
D)   is true for the long run but not the short run .E) B) and C)
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

Suppose that the money supply increases. In the short run this decreases unemployment 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 according to the aggregate demand and supply model.
D)   the aggregate demand and aggregate supply model, but not according to the short-run Phillips curve.E) B) and D)
F) B) and C)

Question 11

On a given short-run Phillips curve which of the following is not held constant?

Accepted Answer

A)   the level of GDP
B)   the position of the aggregate-supply curve
C)   expected inflation
D)   the expected growth rate of the money supplyE) B) and C)
F) B) and D)

Question 12

What does the natural-rate hypothesis claim?

Accepted Answer

That eventually unem...

Question 13

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following shifts aggregate supply to the right?

Accepted Answer

A)   a decline in the price of imported natural resources
B)   a technological advance
C)   an older labor force that leaves jobs less frequently
D)   All of the above are correct.E) C) and D)
F) A) and C)

Question 15

Natural rate of unemployment - a × Αctual inflation - Expected inflation)  =

Accepted Answer

A)   Quantity of goods and services demanded.
B)   Quantity of goods and services supplied.
C)   Unemployment rate.
D)   Previous year's inflation rate.E) None of the above
F) A) and B)

Question 16

Figure 35-2
Use the pair of diagrams below to answer the following questions.
  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to

Accepted Answer

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

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

If there is a favorable supply shock which direction does the short-run Phillips curve shift? What initially happens to unemployment and inflation as a result of this shock?

Accepted Answer

The short-run Philli...

Question 19

In the long run a reduction in the money supply growth rate affects

Accepted Answer

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

Question 20

In the 1970's the Federal Reserve responded to an adverse supply shock. Its policy made

Accepted Answer

A)   the recession that followed smaller and so provided a more favorable tradeoff between inflation and unemployment.
B)   the recession that followed smaller, but in doing so produced a less favorable tradeoff between inflation and unemployment.
C)   the recession that followed larger, but in doing so provided a more favorable tradeoff between inflation and unemployment.
D)   the recession that followed larger and also produced a less favorable tradeoff between inflation and unemployment.E) None of the above
F) A) and B)

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

Natural rate of unemployment - a × Αctual inflation - Expected inflation) =

Correct AnswerverifiedShow Answer

Suppose that businesses become less optimistic about the future. Assuming no change in inflation expectations, how would the effects of this shock be shown on the Phillips curve diagram and what would happen to inflation and unemployment?

Correct AnswerverifiedThe decrease in spending is sh...View AnswerShow Answer

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. If the economy starts at C and the money supply growth rate decreases, in the short run the economy moves to

Correct AnswerverifiedShow Answer

Suppose a central bank takes actions that will lead to a higher inflation rate. The public, however, is slow to adjust its expectation of inflation. Then, in the short run, unemployment

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate supply to the right?

Correct AnswerverifiedShow Answer

In 2009 Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have

Correct AnswerverifiedShow Answer

If there is a favorable supply shock which direction does the short-run Phillips curve shift? What initially happens to unemployment and inflation as a result of this shock?

Correct AnswerverifiedThe short-run Philli...View AnswerShow Answer

Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.

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

In the 1970's the Federal Reserve responded to an adverse supply shock. Its policy made

Correct AnswerverifiedShow Answer

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to

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

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

Correct AnswerverifiedShow Answer

In the long run a reduction in the money supply growth rate affects

Correct AnswerverifiedShow Answer

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Correct AnswerverifiedShow Answer

The economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's argument

Correct AnswerverifiedShow Answer

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

Correct AnswerverifiedShow Answer

What does the natural-rate hypothesis claim?

Correct AnswerverifiedThat eventually unem...View AnswerShow Answer

If policymakers expand aggregate demand, then in the long run

Correct AnswerverifiedShow Answer

On a given short-run Phillips curve which of the following is not held constant?

Correct AnswerverifiedShow Answer

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The decrease in spending is sh...
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The short-run Philli...
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Consider what happens when the aggregate...
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In the long run the natural rate of unem...
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That eventually unem...
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