Question 1

Suppose the Bank of Canada decreased the growth rate of the money supply. What would permanently decrease?

Accepted Answer

A)   the unemployment level
B)   the unemployment rate
C)   the inflation rate
D)   the price levelE) C) and D)
F) A) and B)

Question 2

Suppose that a central bank increases the money supply. According to the Phillips curve, what should happen to prices, output, and employment?

Accepted Answer

A)   Prices, output, and employment all rise.
B)   Prices and output rise, and employment falls.
C)   Prices rise, and output and employment fall.
D)   Prices fall, and output and employment rise.E) A) and D)
F) None of the above

Question 3

Ultimately, what causes the short-run reduction in unemployment associated with an increase in inflation?

Accepted Answer

A)   the shape of the long-run aggregate-supply curve
B)   unanticipated inflation, not inflation per se
C)   rational expectations
D)   anticipated changes in the price levelE) None of the above
F) A) and D)

Question 4

How will an adverse supply shock shift the short-run Phillips curve, and how will it change unemployment?

Accepted Answer

A)   It will shift the short-run Phillips curve right and raise unemployment.
B)   It will shift the short-run Phillips curve right and lower unemployment.
C)   It will shift the short-run Phillips curve left and raise unemployment.
D)   It will shift the short-run Phillips curve left and lower unemployment.E) None of the above
F) A) and D)

Question 5

Suppose that in response to an adverse aggregate supply shock, the Bank of Canada increased the money supply. What would happen to unemployment and inflation?

Accepted Answer

A)   Unemployment and inflation would both rise.
B)   Unemployment and inflation would both fall.
C)   Unemployment would rise and inflation would fall.
D)   Unemployment would fall and inflation would rise.E) B) and D)
F) B) and C)

Question 6

Figure 16-3
 
-Refer to the Figure 16-3. When would the economy move from c and 3 to e and 5?

Accepted Answer

A)   in the short run if money supply growth increased unexpectedly
B)   in the short run if money supply growth decreased unexpectedly
C)   in the long run if money supply growth increases
D)   in the long run if money supply growth decreasesE) B) and D)
F) C) and D)

Question 7

Proponents of rational expectations theory have argued that the sacrifice ratio could be as small as what?

Accepted Answer

A)   0
B)   2
C)   4
D)   6E) None of the above
F) A) and B)

Question 8

In the long run, the inflation rate depends primarily on money supply growth.

Accepted Answer

A) True 
 B)False

Question 9

If efficiency wages became more common, where would the long-run Phillips curve and the long-run aggregate-supply curve shift?

Accepted Answer

A)   Both the long-run Phillips curve and the long-run aggregate-supply curve would shift right.
B)   Both the long-run Phillips curve and the long-run aggregate-supply curve would shift left.
C)   The long-run Phillips curve would shift right, and the long-run aggregate-supply curve would shift left.
D)   The long-run Phillips curve would shift left, and the long-run aggregate-supply curve would shift right.E) B) and D)
F) C) and D)

Question 10

According to classical macroeconomic theory, what does money growth influence in the long run?

Accepted Answer

A)   both real and nominal variables
B)   the unemployment rate and output
C)   only real variables
D)   only nominal variablesE) None of the above
F) All of the above

Question 11

The vertical long-run Phillips curve is an exception to monetary neutrality implied by the classical dichotomy.

Accepted Answer

A) True 
 B)False

Question 12

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve, what are the values of unemployment and inflation?

Accepted Answer

A)   Unemployment equals the natural rate, and expected inflation equals actual inflation.
B)   Unemployment is above the natural rate, and expected inflation equals actual inflation.
C)   Unemployment equals the natural rate, and expected inflation is lower than actual inflation.
D)   Unemployment is below the natural rate, and inflation is greater than the expected rate.E) B) and C)
F) None of the above

Question 13

Which term refers to the short-run relationship between inflation and unemployment?

Accepted Answer

A)   equity-efficiency tradeoff
B)   money neutrality
C)   the Phillips curve
D)   the Keynesian crossE) B) and D)
F) None of the above

Question 14

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

Accepted Answer

A) True 
 B)False

Question 15

Which hypothesis is supported by the economic experience of Canada during the late 1960s and early 1970s?

Accepted Answer

A)   Inflation and unemployment are negatively correlated.
B)   Inflation and unemployment are related in the short run.
C)   Inflation and unemployment are related in the long run.
D)   Inflation and unemployment are positively correlated.E) None of the above
F) B) and C)

Question 16

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 17

Figure 16-4
 
-Refer to the Figure 16-4. If the economy is at point c and the Bank of Canada pursues an expansionary monetary policy, then the economy will move to which point in the short run?

Accepted Answer

A)   point b
B)   point c
C)   point d
D)   point hE) B) and C)
F) None of the above

Question 18

If inflation expectations rise, how do the short-run Phillips curve and unemployment change?

Accepted Answer

A)   The short-run Phillips curve shifts right, so that at any inflation rate unemployment is higher.
B)   The short-run Phillips curve shifts left, so that at any inflation rate unemployment is higher.
C)   The short-run Phillips curve shifts right, so that at any inflation rate unemployment is lower.
D)   The short-run Phillips curve shifts left, so that at any inflation rate unemployment is lower.E) A) and B)
F) None of the above

Question 19

Use the AD/AS model and the Phillips curve to analyze the short-run and long-run effects of devaluating the home currency under a fixed exchange rate regime.

Accepted Answer

With perfect capital mobility, the centr...

Question 20

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Accepted Answer

A downward-sloping Phillips curve implie...

Exam 16: The Short-Run Tradeoff Between Inflation and Unemployment

Ultimately, what causes the short-run reduction in unemployment associated with an increase in inflation?

Correct AnswerverifiedShow Answer

Which term refers to the short-run relationship between inflation and unemployment?

Correct AnswerverifiedShow Answer

In the long run, the inflation rate depends primarily on money supply growth.

Correct AnswerverifiedShow Answer

Suppose the Bank of Canada decreased the growth rate of the money supply. What would permanently decrease?

Correct AnswerverifiedShow Answer

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

Correct AnswerverifiedShow Answer

Use the AD/AS model and the Phillips curve to analyze the short-run and long-run effects of devaluating the home currency under a fixed exchange rate regime.

Correct AnswerverifiedWith perfect capital mobility, the centr...View AnswerShow Answer

If efficiency wages became more common, where would the long-run Phillips curve and the long-run aggregate-supply curve shift?

Correct AnswerverifiedShow Answer

Proponents of rational expectations theory have argued that the sacrifice ratio could be as small as what?

Correct AnswerverifiedShow Answer

If inflation expectations rise, how do the short-run Phillips curve and unemployment change?

Correct AnswerverifiedShow Answer

Suppose that a central bank increases the money supply. According to the Phillips curve, what should happen to prices, output, and employment?

Correct AnswerverifiedShow Answer

Figure 16-4 -Refer to the Figure 16-4. If the economy is at point c and the Bank of Canada pursues an expansionary monetary policy, then the economy will move to which point in the short run?

Correct AnswerverifiedShow Answer

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

Correct AnswerverifiedShow Answer

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve, what are the values of unemployment and inflation?

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory, what does money growth influence in the long run?

Correct AnswerverifiedShow Answer

How will an adverse supply shock shift the short-run Phillips curve, and how will it change unemployment?

Correct AnswerverifiedShow Answer

The vertical long-run Phillips curve is an exception to monetary neutrality implied by the classical dichotomy.

Correct AnswerverifiedShow Answer

Suppose that in response to an adverse aggregate supply shock, the Bank of Canada increased the money supply. What would happen to unemployment and inflation?

Correct AnswerverifiedShow Answer

Figure 16-3 -Refer to the Figure 16-3. When would the economy move from c and 3 to e and 5?

Correct AnswerverifiedShow Answer

Which hypothesis is supported by the economic experience of Canada during the late 1960s and early 1970s?

Correct AnswerverifiedShow Answer

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Correct AnswerverifiedA downward-sloping Phillips curve implie...View AnswerShow Answer

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With perfect capital mobility, the centr...
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A downward-sloping Phillips curve implie...
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