Question 1

A policy change that changes the natural rate of unemployment changes

Accepted Answer

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 D)
F) A) and B)

Question 2

Which of the following describes the Volcker disinflation most accurately?

Accepted Answer

A)  Almost all of the public believed that the Fed would keep money growth low, so unemployment rose less than it would have otherwise.
B)  Almost all of the public believed that the Fed would keep money growth low, so unemployment rose more than it would have otherwise.
C)  Much of the public did not believe that the Fed would keep money growth low, so unemployment rose less than it would have otherwise.
D)  Much of the public did not believe that the Fed would keep money growth low, so unemployment rose more than it would have otherwise.E) A) and D)
F) A) and C)

Question 3

Friedman argued that the Fed could use monetary policy to peg a rate for

Accepted Answer

A)  nominal exchange rates.
B)  real GDP.
C)  unemployment.
D)  None of the above is correct.E) B) and D)
F) C) and D)

Question 4

If the government raises government expenditures,in the short run,prices

Accepted Answer

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

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

There is a

Accepted Answer

A)  short-run tradeoff between inflation and unemployment.
B)  short-run tradeoff between the actual unemployment rate and the natural rate of unemployment.
C)  long-run tradeoff between inflation and unemployment.
D)  long-run tradeoff between the actual unemployment rate and the natural rate of unemployment.E) A) and D)
F) B) and D)

Question 7

For a number of years Canada and many European countries have had higher average unemployment rates than the United States.This suggests that these countries

Accepted Answer

A)  have higher average inflation rates than the United States.
B)  have long-run Phillips curves to the right of the United States'.
C)  may have less generous unemployment compensation or lower minimum wages.
D)  All of the above are consistent with the evidence on unemployment rates.E) A) and B)
F) None of the above

Question 8

The sacrifice ratio is the

Accepted Answer

A)  sum of the inflation and unemployment rates.
B)  inflation rate divided by the unemployment rate.
C)  number of percentage points annual output falls for each percentage point reduction in inflation.
D)  number of percentage points unemployment rises for each percentage point reduction in inflation.E) A) and B)
F) C) and D)

Question 9

Contractionary monetary policy would

Accepted Answer

A)  cause disinflation and make the short-run Phillips curve shift right.
B)  cause disinflation and make the short-run Phillips curve shift left.
C)  not cause disinflation, but make the short-run Phillips curve shift right.
D)  not cause disinflation, but make the short-run Phillips curve shift left.E) All of the above
F) A) and B)

Question 10

If a central bank reduced inflation by 2 percentage points and that made output fall by 3 percentage points for 2 years and the unemployment rate rises from 3 percent to 5 percent for 2 years,the sacrifice ratio is

Accepted Answer

A)  1.
B)  2.
C)  3.
D)  None of the above is correct.E) A) and C)
F) B) and C)

Question 11

Use the graph below to answer the following questions.
Figure 35-2
 
-Refer to Figure 35-2.If the economy starts at c and the money supply growth rate increases,in the short run the economy

Accepted Answer

A)  moves to b.
B)  moves to d.
C)  moves to e.
D)  None of the above is correct.E) A) and B)
F) All of the above

Question 12

If policymakers decrease aggregate demand,the price level

Accepted Answer

A)  falls, but unemployment rises.
B)  and unemployment fall.
C)  and unemployment rise.
D)  rises, but unemployment falls.E) A) and B)
F) All of the above

Question 13

Use the pair of diagrams below to answer the following questions.
Figure 35-1
 
-Refer to Figure 35-1.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)  d and 3.
D)  None of the above is correct.E) B) and C)
F) C) and D)

Question 14

The experience of the Volcker disinflation of the early 1980s

Accepted Answer

A)  generally increased estimates of the sacrifice ratio.
B)  generally decreased estimates of the sacrifice ratio.
C)  clearly refuted the predictions of the proponents of rational expectations.
D)  clearly refuted the predictions of the opponents of rational expectations.E) B) and D)
F) A) and C)

Question 15

When there is an adverse supply shock

Accepted Answer

A)  unemployment rises and the short-run Phillips curve shifts right.
B)  unemployment rises and the short-run Phillips curve shifts left.
C)  unemployment falls and the short-run Phillips curve shifts right.
D)  unemployment falls and the short-run Phillips curve shifts left.E) B) and D)
F) A) and B)

Question 16

If the sacrifice ratio is 2,reducing the inflation rate from 10 percent to 6 percent would require sacrificing

Accepted Answer

A)  2 percent of annual output.
B)  6 percent of annual output.
C)  8 percent of annual output.
D)  12 percent of annual output.E) B) and D)
F) A) and B)

Question 17

Which of the following would shift 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) All of the above
F) None of the above

Question 18

Over the long run the Volcker disinflation

Accepted Answer

A)  shifted the short-run and long-run Phillips curves left.
B)  shifted the short-run, but not the long-run Phillips curve left.
C)  shifted the long-run, but not the short-run Phillips curve left.
D)  None of the above is correct.E) None of the above
F) A) and B)

Question 19

Suppose the Fed increased the growth rate of the money supply.Which of the following would be higher in the long run?

Accepted Answer

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

Question 20

Suppose the central bank of an economy with high inflation decides to decrease the money supply growth rate.

Accepted Answer

A)  Initially unemployment rises.Eventually the short-run Phillips curve shifts right.
B)  Initially unemployment rises.Eventually the short-run Phillips curve shifts left.
C)  Initially unemployment falls.Eventually the short-run Phillips curve shifts right.
D)  Initially unemployment falls.Eventually the short-run Phillips curve shifts left.E) None of the above
F) A) and D)

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

For a number of years Canada and many European countries have had higher average unemployment rates than the United States.This suggests that these countries

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The sacrifice ratio is the

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There is a

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Use the graph below to answer the following questions. Figure 35-2 -Refer to Figure 35-2.If the economy starts at c and the money supply growth rate increases,in the short run the economy

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Contractionary monetary policy would

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Over the long run the Volcker disinflation

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If the government raises government expenditures,in the short run,prices

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

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A policy change that changes the natural rate of unemployment changes

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Which of the following describes the Volcker disinflation most accurately?

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

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When there is an adverse supply shock

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Which of the following would shift aggregate supply to the right?

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Friedman argued that the Fed could use monetary policy to peg a rate for

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The experience of the Volcker disinflation of the early 1980s

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If policymakers decrease aggregate demand,the price level

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If a central bank reduced inflation by 2 percentage points and that made output fall by 3 percentage points for 2 years and the unemployment rate rises from 3 percent to 5 percent for 2 years,the sacrifice ratio is

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Suppose the central bank of an economy with high inflation decides to decrease the money supply growth rate.

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If the sacrifice ratio is 2,reducing the inflation rate from 10 percent to 6 percent would require sacrificing

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Suppose the Fed increased the growth rate of the money supply.Which of the following would be higher in the long run?

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