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Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

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Question 31

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A policy change that changes the natural rate of unemployment changes

A) neither the long-run Phillips curve nor the long-run aggregate supply curve.
B) both the long-run Phillips curve and the long-run aggregate supply curve.
C) the long-run Phillips curve, but not the long-run aggregate supply curve.
D) the long-run aggregate supply curve, but not the long-run Phillips curve.

E) A) and B)
F) C) and D)

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Question 32

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In response to the financial crisis of 2007-2008, policymakers used

A) expansionary monetary policy and expansionary fiscal policy.
B) expansionary monetary policy and contractionary fiscal policy.
C) contractionary monetary policy and expansionary fiscal policy.
D) contractionary monetary policy and contractionary fiscal policy.

E) A) and B)
F) None of the above

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Question 33

Multiple Choice

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According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

During the financial crisis Congress and President Obama authorized tax cuts and increases in government spending. According to the Phillips curve, in the short run these policies should have

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

By about 1973, U.S. policymakers had learned that

In the early 1970s, the short-run Phillips curve shifted

Some countries have had relatively high inflation and relatively high unemployment for long periods of time. Is this consistent with the Phillips curve? Defend your answer.

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - x) .In this equation,

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

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

Samuelson and Solow believed that the Phillips curve offered policymakers a menu of possible economic outcomes.

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?

Friedman and Phelps argued that

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate. -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 2012, and those two points correspond to points B and C, respectively, on the left- hand graph. Also suppose we know that the price index equaled 120 in 2011. Then the numbers 115 and 130 on the vertical axis of the left-hand graph would have to be replaced by

If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run.

Suppose that an economy is currently experiencing 10 percent unemployment and 15 percent inflation. If in the process of bringing inflation down by 2 percentage points, real GDP falls by 6 percent for a year, the sacrifice ratio is

U.S. net exports fall due to recessions in foreign countries. A. According to the aggregate demand and supply model, what happens to the price level and output in the short run? B. According to the short-run Phillips curve what happens to inflation and unemployment in the short run? C. If the Fed wanted to reverse the effects of this shock on output, what should it do?

If consumer confidence rises, then aggregate demand shifts