Question 1

According to Friedman and Phelps, the unemployment rate

Accepted Answer

A)   is never below its natural rate.
B)   is below its natural rate when actual inflation is greater than expected inflation.
C)   is below its natural rate when actual inflation is less than expected inflation.
D)   is below its natural rate when actual inflation equals expected inflation.E) A) and C)
F) All of the above

Question 2

As the aggregate demand curve shifts rightward along a given aggregate supply curve,

Accepted Answer

A)   unemployment and inflation are higher.
B)   unemployment and inflation are lower.
C)   unemployment is higher and inflation is lower.
D)   unemployment is lower and inflation is higher.E) None of the above
F) A) and C)

Question 3

The very low inflation that the U.S. experienced in 2009 and 2010

Accepted Answer

A)   appears to have reduced expected inflation, and the short-run Phillips curve shifted downward as a result.
B)   appears to have reduced expected inflation, and the short-run Phillips curve shifted upward as a result.
C)   does not appear to have reduced expected inflation, and the short-run Phillips curve remained relatively stable as a result.
D)   does not appear to have reduced expected inflation, but the short-run Phillips curve shifted dramatically nevertheless.E) None of the above
F) B) and C)

Question 4

In the long run, an increase in the money supply growth rate

Accepted Answer

A)   increases inflation and shifts the short-run Phillips curve right.
B)   increases inflation and shifts the short-run Phillips curve left.
C)   decreases inflation and shifts the short-run Philips curve right.
D)   decreases inflation and shifts the short-run Phillips curve left.E) A) and D)
F) B) and C)

Question 5

In the equation, Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation) , the variable a is a parameter that measures how much

Accepted Answer

A)   actual inflation responds to expected inflation.
B)   expected inflation responds to actual inflation.
C)   the natural rate of unemployment responds to unexpected inflation.
D)   actual unemployment responds to unexpected inflation.E) B) and C)
F) All of the above

Question 6

If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has

Accepted Answer

A)   higher unemployment and lower output.
B)   higher unemployment and higher output.
C)   lower unemployment and lower output.
D)   lower unemployment and higher output.E) C) and D)
F) B) and D)

Question 7

Which of the following played a role in depressing aggregate demand in 2001?

Accepted Answer

A)   the end of a stock-market bubble
B)   corporate accounting scandals
C)   the terrorist attacks on September 11 of that year
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 8

If the Federal Reserve increases the growth rate of the money supply, in the long run

Accepted Answer

A)   inflation is higher and the unemployment rate is lower.
B)   inflation is higher while the unemployment rate is unchanged.
C)   inflation is unchanged while the unemployment rate is lower.
D)   None of the above is correct.E) A) and B)
F) A) and D)

Question 9

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) B) and D)
F) B) and C)

Question 10

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?

Accepted Answer

A)   Short-run aggregate supply decreases.
B)   The natural rate of unemployment increases.
C)   The price level increases more rapidly.
D)   The money supply increases less rapidly.E) B) and C)
F) A) and D)

Question 11

Any policy change that reduced the natural rate of unemployment

Accepted Answer

A)   would shift the long-run Phillips curve to the right.
B)   would shift the long-run aggregate-supply curve to the right.
C)   would be a policy change that impeded the functioning of the labor market.
D)   All of the above are correct.E) A) and B)
F) B) and D)

Question 12

The short-run relationship between inflation and unemployment is often called

Accepted Answer

A)   the Classical Dichotomy.
B)   Money Neutrality.
C)   the Phillips curve.
D)   None of the above is correct.E) C) and D)
F) A) and C)

Question 13

In the long run, an increase in the money supply growth rate

Accepted Answer

A)   shifts both the long-run and the short-run Phillips curves right.
B)   shifts the long-run Phillips curve left and the short-run Phillips curve right.
C)   shifts the long-run Phillips curve right and the short-run Phillips curve left.
D)   None of the above is correct.E) A) and B)
F) All of the above

Question 14

Friedman argued that the Fed could use monetary policy to peg

Accepted Answer

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

Question 15

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 16

An adverse supply shock will cause output

Accepted Answer

A)   and prices to rise.
B)   and prices to fall.
C)   to rise and prices to fall.
D)   to fall and prices to rise.E) B) and D)
F) B) and C)

Question 17

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) A) and D)
F) A) and C)

Question 18

When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that

Accepted Answer

A)   if they contract aggregate demand, the unemployment rate will increase further.
B)   if they expand aggregate demand, the inflation rate will increase further.
C)   they face a less favorable trade-off between inflation and unemployment than they did before the shock.
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 19

If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?

Accepted Answer

A)   both the price level and output
B)   the price level but not output
C)   output but not the price level
D)   neither output nor the price levelE) C) and D)
F) B) and D)

Question 20

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."  
-Refer to Figure 35-9. Faced with the shift of the Phillips curve from PC1 to PC2, policymakers will

Accepted Answer

A)   ask whether the shift is temporary or permanent.
B)   be concerned with how people adjust their expectations of inflation as a result of the shift.
C)   face, as well, a decision as to whether to accommodate the shock.
D)   All of the above are correct.E) B) and C)
F) A) and D)

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

As the aggregate demand curve shifts rightward along a given aggregate supply curve,

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In the long run, an increase in the money supply growth rate

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When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?

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Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. Faced with the shift of the Phillips curve from PC1 to PC2, policymakers will

Correct AnswerverifiedShow Answer

According to Friedman and Phelps, the unemployment rate

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Friedman argued that the Fed could use monetary policy to peg

Correct AnswerverifiedShow Answer

The very low inflation that the U.S. experienced in 2009 and 2010

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

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.

Correct AnswerverifiedShow Answer

An adverse supply shock will cause output

Correct AnswerverifiedShow Answer

If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has

Correct AnswerverifiedShow Answer

In the long run, an increase in the money supply growth rate

Correct AnswerverifiedShow Answer

When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the growth rate of the money supply, in the long run

Correct AnswerverifiedShow Answer

Any policy change that reduced the natural rate of unemployment

Correct AnswerverifiedShow Answer

In the equation, Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation) , the variable a is a parameter that measures how much

Correct AnswerverifiedShow Answer

If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?

Correct AnswerverifiedShow Answer

Which of the following played a role in depressing aggregate demand in 2001?

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

Correct AnswerverifiedShow Answer

The short-run relationship between inflation and unemployment is often called

Correct AnswerverifiedShow Answer

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