Question 1

Suppose the Fed decreased the growth rate of the money supply. Which of the following would be lower 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) C) and D)
F) A) and B)

Question 2

A favorable supply shock will cause inflation to

Accepted Answer

A)  rise and shift the short-run Phillips curve right.
B)  rise and shift the short-run Phillips curve left.
C)  fall and shift the short-run Phillips curve right.
D)  fall and shift the short-run Phillips curve left.E) A) and B)
F) All of the above

Question 3

The theory by which people optimally use all available information when forecasting the future is known as

Accepted Answer

A)  rational expectations.
B)  perfect expectations.
C)  credible expectations.
D)  predictive expectations.E) A) and D)
F) A) and B)

Question 4

Figure 22-2
Use the pair of diagrams below to answer the following questions. 
-Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, a decrease in government expenditures moves the economy to

Accepted Answer

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

Question 5

An adverse supply shock shifts the short-run Phillips curve to the left.

Accepted Answer

A) True 
 B)False

Question 6

A central bank can reduce inflation by reducing money supply growth, but it necessarily does so at the cost of permanently raising the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 7

On a given short-run Phillips curve which of the following is held constant?

Accepted Answer

A)  the level of GDP
B)  the unemployment rate
C)  expected inflation
D)  employmentE) All of the above
F) B) and D)

Question 8

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) All of the above

Question 9

The long-run response to a decrease in the money supply growth rate is shown by shifting

Accepted Answer

A)  the short-run and long-run Phillips curves left.
B)  the short-run and long-run Phillips curves right.
C)  only the short-run Phillips curve left.
D)  only the short-run Phillips curve right.E) A) and D)
F) A) and C)

Question 10

Other things the same, a decrease in aggregate demand decreases both inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 11

In the long run, an increase in the money supply

Accepted Answer

A)  leaves prices and unemployment unchanged.
B)  raises prices and unemployment.
C)  raises prices and leaves unemployment unchanged.
D)  leaves prices unchanged and reduces unemployment.E) B) and C)
F) None of the above

Question 12

For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips curve which of the following could explain this? Country A has

Accepted Answer

A)  maintained a higher money supply growth rate.
B)  maintained a lower money supply growth rate.
C)  a higher minimum wage than country B.
D)  a lower minimum wage than country B.E) All of the above
F) A) and B)

Question 13

If the Federal Reserve increases the rate at which it increases the money supply, then unemployment is lower

Accepted Answer

A)  in the long run and the short run.
B)  in the long run but not the short run.
C)  in the short run but not the long run.
D)  in neither the short run nor the long run.E) B) and D)
F) B) and C)

Question 14

In the 1970s, the Fed accommodated a(n)

Accepted Answer

A)  adverse supply shock and so contributed to higher inflation.
B)  adverse supply shock and so contributed to lower inflation.
C)  favorable supply shock and so contributed to higher inflation.
D)  favorable supply shock and so contributed to lower inflation.E) C) and D)
F) A) and B)

Question 15

Which of the following would reduce the natural rate of unemployment?

Accepted Answer

A)  both an increase in the rate of money growth and increased unemployment compensation
B)  an increase in the rate of money growth but not increased unemployment compensation
C)  an increase in unemployment compensation but not an increase in the rate of money growth.
D)  neither an increase in unemployment compensation nor an increase in the rate of money growth.E) A) and B)
F) None of the above

Question 16

The misery index is calculated as the

Accepted Answer

A)  inflation rate plus the unemployment rate.
B)  unemployment rate minus the inflation rate.
C)  actual inflation rate minus the expected inflation rate.
D)  natural unemployment rate times the inflation rateE) None of the above
F) All of the above

Question 17

A. W. Phillips' findings were based on data

Accepted Answer

A)  from 1861-1957 for the United Kingdom.
B)  from 1861-1957 for the United States.
C)  mostly from the post-World War II period in the United Kingdom.
D)  mostly from the post-World War II period in the United States.E) A) and C)
F) None of the above

Question 18

Which of the following shifts the long-run Phillips curve left?

Accepted Answer

A)  both an increase in the inflation rate and a decrease in the minimum wage rate
B)  an increase in the inflation rate, but not a decrease in the minimum wage rate
C)  a decrease in the minimum wage rate, but not an increase in the inflation rate
D)  neither a decrease in the minimum wage rate nor an increase in the inflation rateE) A) and B)
F) B) and D)

Question 19

Other things the same, if there is an increase in the money supply growth rate that is larger than expected, then in the short run

Accepted Answer

A)  the natural rate of unemployment rises.
B)  the natural rate of unemployment falls.
C)  the unemployment rate will be above its natural rate.
D)  the unemployment rate will be below its natural rate.E) None of the above
F) A) and B)

Question 20

An adverse supply shock shifts the short-run Phillips curve to the

Accepted Answer

A)  right. This means the unemployment rate is higher at each inflation rate.
B)  right. This means the unemployment rate is lower at each inflation rate.
C)  left. This means the unemployment rate is higher at each inflation rate.
D)  left. This means the unemployment rate is lower at each inflation rate.E) B) and C)
F) B) and D)

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

An adverse supply shock shifts the short-run Phillips curve to the

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

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The long-run response to a decrease in the money supply growth rate is shown by shifting

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An adverse supply shock shifts the short-run Phillips curve to the left.

Correct AnswerverifiedShow Answer

In the 1970s, the Fed accommodated a(n)

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For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips curve which of the following could explain this? Country A has

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On a given short-run Phillips curve which of the following is held constant?

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Figure 22-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, a decrease in government expenditures moves the economy to

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Which of the following shifts the long-run Phillips curve left?

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The theory by which people optimally use all available information when forecasting the future is known as

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Other things the same, a decrease in aggregate demand decreases both inflation and unemployment.

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A. W. Phillips' findings were based on data

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A central bank can reduce inflation by reducing money supply growth, but it necessarily does so at the cost of permanently raising the unemployment rate.

Correct AnswerverifiedShow Answer

The misery index is calculated as the

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the rate at which it increases the money supply, then unemployment is lower

Correct AnswerverifiedShow Answer

A favorable supply shock will cause inflation to

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Which of the following would reduce the natural rate of unemployment?

Correct AnswerverifiedShow Answer

In the long run, an increase in the money supply

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

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Other things the same, if there is an increase in the money supply growth rate that is larger than expected, then in the short run

Correct AnswerverifiedShow Answer

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