Question 1

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

Question 2

A favorable supply shock causes output to

Accepted Answer

A)   rise. To counter this a central bank would increase the money supply.
B)   rise. To counter this a central bank would decrease the money supply.
C)   fall. To counter this a central bank would increase the money supply.
D)   fall. To counter this a central bank would decrease the money supply.E) C) and D)
F) A) and D)

Question 3

If a central bank decreases the money supply, then

Accepted Answer

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

Question 4

Some countries have inflation around or in excess of 8 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent? In your answer, define the sacrifice ratio and explain how you found the cost of inflation reduction.

Accepted Answer

The sacrifice ratio gives the annual per...

Question 5

If a government redesigned its unemployment insurance programs so that the unemployed had greater incentives to quickly find appropriate jobs, then which of the following curves would shift right?

Accepted Answer

A)   the long-run Phillips curve and the long-run aggregate supply curve
B)   the long-run Phillips curve but not the long-run aggregate supply curve
C)   the long-run aggregate supply curve but not the long-run Phillips curve
D)   neither the long-run Phillips curve nor the long-run aggregate supply curveE) All of the above
F) None of the above

Question 6

Unemployment would decrease and prices increase if

Accepted Answer

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

Question 7

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate =  Natural rate of unemployment - a  ×	imes×  (A ctual inflation - x) .
In this equation,

Accepted Answer

A)   a is a parameter that measures how much actual inflation responds to expected inflation.
B)   a = 0 at the point of intersection of the short-run and long-run Phillips curves.
C)   x is the expected rate of inflation.
D)   All of the above are correct. E) B) and D)
F) A) and D)

Question 8

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 9

In the long run, if the Fed increases the rate at which it increases the money supply,

Accepted Answer

A)   inflation will be higher.
B)   unemployment will be lower.
C)   real GDP will be higher.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 10

Samuelson and Solow argued that when unemployment is high, there is

Accepted Answer

A)   upward pressures on wages and prices.
B)   upward pressures on wages and downward pressures on prices.
C)   upward pressures on prices and downward pressures on wages.
D)   downward pressures on wages and prices.E) A) and D)
F) B) and D)

Question 11

If inflation expectations rise, the short-run Phillips curve shifts

Accepted Answer

A)   right, so that at any unemployment rate inflation is higher in the short run than before.
B)   left, so that at any unemployment rate inflation is higher in the short run the before.
C)   right, so that at any unemployment rate inflation is lower in the short run than before.
D)   left, so that at any unemployment rate inflation is lower in the short run than before.E) C) and D)
F) B) and D) A

Question 12

An event that directly affects firms' costs of production and thus the prices they charge is called

Accepted Answer

A)   a Phillips contraction.
B)   an inflationary spiral.
C)   a demand shock.
D)   a supply shock.E) None of the above
F) B) and C)

Question 13

In 1980, the U.S. misery index was

Accepted Answer

A)   much higher than average.
B)   slightly higher than average.
C)   about average.
D)   below average.E) None of the above
F) A) and B)

Question 14

In the long run a reduction in the money supply growth rate affects

Accepted Answer

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

Question 15

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 C)
F) A) and C)

Question 16

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

Accepted Answer

A) True 
 B)False

Question 17

Other things the same, a country that decides to reduce inflation will

Accepted Answer

A)   have a higher unemployment rate in the short run and the long run.
B)   have a higher unemployment rate only in the long run.
C)   have a higher unemployment rate only in the short run.
D)   not have a higher unemployment rate in either the short run or the long run.E) A) and B)
F) A) and C)

Question 18

Samuelson and Solow reasoned that when aggregate demand was high, unemployment was

Accepted Answer

A)   low, so there was upward pressure on wages and prices.
B)   low, so there was downward pressure on wages and prices.
C)   high, so there was upward pressure on wages and prices.
D)   high, so there was downward pressure on wages and prices.E) All of the above
F) A) and B)

Question 19

If efficiency wages became more common,

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 C)
F) A) and B)

Question 20

France has a higher natural rate of unemployment than the United States. This suggests that

Accepted Answer

A)   France is at a higher point on its long-run Phillips curve and so has higher inflation than the United States.
B)   France is at a lower point on its long-run Phillips curve and so has lower inflation than the United States.
C)   France's Phillips curve is to the left of that of the United States, possibly because they have higher inflation.
D)   France's Phillips curve is to the right of that of the United States, possibly because they have more generous unemployment compensation.E) B) and C)
F) A) and B) D

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

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

Correct AnswerverifiedShow Answer

A favorable supply shock causes output to

Correct AnswerverifiedShow Answer

If a central bank decreases the money supply, then

Correct AnswerverifiedD

Some countries have inflation around or in excess of 8 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent? In your answer, define the sacrifice ratio and explain how you found the cost of inflation reduction.

Correct AnswerverifiedThe sacrifice ratio gives the annual per...View AnswerShow Answer

If a government redesigned its unemployment insurance programs so that the unemployed had greater incentives to quickly find appropriate jobs, then which of the following curves would shift right?

Correct AnswerverifiedShow Answer

Unemployment would decrease and prices increase if

Correct AnswerverifiedShow Answer

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a ×\times× (A ctual inflation - x) . In this equation,

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

In the long run, if the Fed increases the rate at which it increases the money supply,

Correct AnswerverifiedShow Answer

Samuelson and Solow argued that when unemployment is high, there is

Correct AnswerverifiedShow Answer

If inflation expectations rise, the short-run Phillips curve shifts

Correct AnswerverifiedA

An event that directly affects firms' costs of production and thus the prices they charge is called

Correct AnswerverifiedShow Answer

In 1980, the U.S. misery index was

Correct AnswerverifiedShow Answer

In the long run a reduction in the money supply growth rate affects

Correct AnswerverifiedShow Answer

An adverse supply shock will cause output

Correct AnswerverifiedShow Answer

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

Correct AnswerverifiedShow Answer

Other things the same, a country that decides to reduce inflation will

Correct AnswerverifiedShow Answer

Samuelson and Solow reasoned that when aggregate demand was high, unemployment was

Correct AnswerverifiedShow Answer

If efficiency wages became more common,

Correct AnswerverifiedShow Answer

France has a higher natural rate of unemployment than the United States. This suggests that

Correct AnswerverifiedD

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The sacrifice ratio gives the annual per...
View Answer

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Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a $\times$ (A ctual inflation - x) . In this equation,

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A

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D