Question 1

Figure 17-7
Use this graph to answer the questions below.
 
-Refer to figure 17-7. Suppose the economy starts at 5% unemployment and 3% inflation and expected inflation remains at 3%. Which one of the following points could the economy move to in the short run if the Federal Reserve pursues a more expansionary monetary policy?

Accepted Answer

A)   7% unemployment and 1% inflation
B)   7% unemployment and 3% inflation
C)   3% unemployment and 5% inflation
D)   3% unemployment and 7% inflationE) A) and B)
F) A) and C)

Question 2

According to the short-run Phillips curve, inflation

Accepted Answer

A)   and unemployment would fall if the policymakers decreased the money supply.
B)   would fall and unemployment would rise if policymakers decreased the money supply.
C)   and unemployment would fall if the policymakers increased the money supply.
D)   would fall and unemployment would rise if policymakers increased the money supply.E) None of the above
F) All of the above

Question 3

Some economists argue suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real fiscal reforms, people will expect the government will eventually need to expand the money supply to pay for its expenditures. Thus, the promise to fight inflation will not be credible. Explain why credibility is important to a reduction in the inflation rate.

Accepted Answer

If people believe that the government re...

Question 4

In the long run,

Accepted Answer

A)   the natural rate of unemployment depends primarily on the level of aggregate demand.
B)   inflation depends primarily upon the money supply growth rate.
C)   there is a tradeoff between the inflation rate and the natural rate of unemployment.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 5

As aggregate demand shifts right along the aggregate supply curve,

Accepted Answer

A)   inflation and unemployment are higher.
B)   inflation is higher and unemployment is lower.
C)   unemployment is higher and inflation is lower.
D)   unemployment and inflation are lower.E) C) and D)
F) A) and B)

Question 6

Figure 17-3. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate.
  
-Refer to Figure 17-3. What is measured along the vertical axis of the right-hand graph?

Accepted Answer

A)   the interest rate
B)   the inflation rate
C)   the government's budget deficit as a percent of GDP
D)   the growth rate of the nominal money supplyE) None of the above
F) A) and B)

Question 7

If an increase in inflation permanently reduced unemployment then,

Accepted Answer

A)   money would not be neutral and the long-run Phillips curve would slope upward.
B)   money would not be neutral and the long-run Phillips curve would slope downward.
C)   money would be neutral and the long-run Phillips curve would slope upward.
D)   money would be neutral and the long-run Phillips curve would slope downward.E) A) and C)
F) B) and C)

Question 8

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) B) and D)
F) None of the above

Question 9

Figure 17-2
Use the pair of diagrams below to answer the following questions.
 
-Refer to Figure 17-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to

Accepted Answer

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

Question 10

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve.  Which of the following statements is correct?

Accepted Answer

A)   These points are consistent with the theoretical long-run Phillips curve, but not with the short-run Phillips curve.
B)   These points are consistent with the theoretical short-run Phillips curve, but not with the long-run Phillips curve.
C)   These points are consistent with both the theoretical short-run and long-run Phillips curves.
D)   These points are not consistent with either the theoretical short-run or long-run Phillips curves.E) A) and B)
F) A) and C)

Question 11

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Accepted Answer

Friedman and Phelps predicted that, over...

Question 12

In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Accepted Answer

A)   The change in inflation, but not the change in unemployment is consistent with what a given short-run Phillips curve implies.
B)   The change in unemployment, but not the change in inflation is consistent with what a given short-run Phillips curve implies.
C)   Both the change in inflation and the change in unemployment are consistent with what a given short-run Phillips curve implies.
D)   Neither the change in inflation nor the change in unemployment are consistent with what a given short-run Phillips curve implies.E) A) and C)
F) A) and B)

Question 13

Figure 17-1. 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 17-1. What is measured along the vertical axis of the right-hand graph?

Accepted Answer

A)   the interest rate
B)   the inflation rate
C)   the wage rate
D)   the growth rate of the nominal money supplyE) None of the above
F) A) and B)

Question 14

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 15

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

Accepted Answer

A)   increasing the money supply.
B)   increasing government expenditures.
C)   raising taxes.
D)   None of the above is correct.E) A) and D)
F) B) and C)

Question 16

In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that

Accepted Answer

A)   it seemed to work for wages but not for inflation.
B)   monetary policy was ineffective in combating inflation.
C)   the Phillips curve did not apply in the long run.
D)   Phillips had made errors in collecting his data.E) None of the above
F) A) and D)

Question 17

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

Accepted Answer

A)   aggregate demand right.
B)   aggregate demand left.
C)   aggregate supply right.
D)   aggregate supply left.E) C) and D)
F) A) and B)

Question 18

According to classical macroeconomic theory, in the long run

Accepted Answer

A)   monetary growth affects both real and nominal variables.
B)   the only real variable affected by monetary growth is the unemployment rate.
C)   a number of factors that affect unemployment are influenced by monetary growth.
D)   monetary growth affects nominal but not real variables.E) A) and B)
F) A) and C)

Question 19

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

Accepted Answer

A)   existed in the long run and the short run.
B)   existed in the long run but not the short run.
C)   existed in the short run but not the long run.
D)   did not exist.E) B) and C)
F) C) and D)

Question 20

According to Friedman and Phelps, the unemployment rate is above the natural rate when actual inflation

Accepted Answer

A)   is greater than expected inflation.
B)   is less than expected inflation.
C)   equals expected inflation.
D)   low whether its greater than or less than expected.E) A) and C)
F) A) and B)

Exam 17: The Short-Run Trade-Off Between Inflation and Unemployment

In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that

Correct Answer
verified

According to Friedman and Phelps, the unemployment rate is above the natural rate when actual inflation

Correct Answer
verified

If an increase in inflation permanently reduced unemployment then,

Correct Answer
verified

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

Correct Answer
verified

Correct Answer
verified

Figure 17-1. 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 17-1. What is measured along the vertical axis of the right-hand graph?

Correct Answer
verified

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

Correct Answer
verified

In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Correct Answer
verified

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

Correct Answer
verified

Correct Answer
verified

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 Answer
verified

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve. Which of the following statements is correct?

Correct Answer
verified

According to classical macroeconomic theory, in the long run

Correct Answer
verified

According to the short-run Phillips curve, inflation

Correct Answer
verified

As aggregate demand shifts right along the aggregate supply curve,

Correct Answer
verified

Figure 17-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 17-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to

Correct Answer
verified

Correct Answer
verified
If people believe that the government re...
View Answer

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Correct Answer
verified
Friedman and Phelps predicted that, over...
View Answer

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Correct Answer
verified

In the long run,

Correct Answer
verified

Exam 17: The Short-Run Trade-Off Between Inflation and Unemployment

In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that

Correct AnswerverifiedShow Answer

According to Friedman and Phelps, the unemployment rate is above the natural rate when actual inflation

Correct AnswerverifiedShow Answer

If an increase in inflation permanently reduced unemployment then,

Correct AnswerverifiedShow Answer

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 17-1. 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 17-1. What is measured along the vertical axis of the right-hand graph?

Correct AnswerverifiedShow Answer

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

Correct AnswerverifiedShow Answer

In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Correct AnswerverifiedShow Answer

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow 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

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory, in the long run

Correct AnswerverifiedShow Answer

According to the short-run Phillips curve, inflation

Correct AnswerverifiedShow Answer

As aggregate demand shifts right along the aggregate supply curve,

Correct AnswerverifiedShow Answer

Figure 17-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 17-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIf people believe that the government re...View AnswerShow Answer

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Correct AnswerverifiedFriedman and Phelps predicted that, over...View AnswerShow Answer

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Correct AnswerverifiedShow Answer

In the long run,

Correct AnswerverifiedShow Answer

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Correct Answer
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verified
If people believe that the government re...
View Answer

Correct Answer
verified
Friedman and Phelps predicted that, over...
View Answer

Correct Answer
verified

Correct Answer
verified