Question 1

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Accepted Answer

A)  the level or growth rate of a nominal variable, but not the level or growth rate of a real variable.
B)  the level of a nominal or real variable, but not the growth rate of a real or nominal variable.
C)  the level or growth rate of a real variable, but not the level or growth rate of a nominal variable.
D)  both levels and growth rates of both real and nominal variables.E) None of the above
F) A) and D)

Question 2

In the late 1960s, Milton Friedman and Edmund Phelps argued that

Accepted Answer

A)  the trade-off between inflation and unemployment did not apply in the long run This claim is consistent with monetary neutrality in the long run.
B)  the trade-off between inflation and unemployment did not apply in the long run. This claim is inconsistent with monetary neutrality in the long run.
C)  the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is consistent with monetary neutrality in the long run.
D)  the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is inconsistent with monetary neutrality in the long run.E) A) and B)
F) All of the above

Question 3

According to the long-run Phillips curve, if the Fed increases the growth rate of the money supply, what happens to the inflation rate and the unemployment rate in the long run?

Accepted Answer

The inflation rate r...

Question 4

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 C)
F) A) and D)

Question 5

In the long run, a decrease in the money supply growth rate

Accepted Answer

A)  reduces expected inflation so the long-run Phillips curve shifts left.
B)  reduces expected inflation so the short-run Phillips curve shifts left.
C)  Both A and B are correct.
D)  None of the above is correct.E) B) and C)
F) B) and D)

Question 6

Neither monetary policy nor any government policy can change the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 7

If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run.

Accepted Answer

A) True 
 B)False

Question 8

If a central bank decreases 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 9

Suppose the economy is currently experiencing 6% inflation per year. If the Fed wants to reduce inflation to 2% and the sacrifice ratio is 5, then how much annual output must be sacrificed in the transition?

Accepted Answer

A)  5%
B)  10%
C)  15%
D)  20%E) A) and C)
F) A) and B)

Question 10

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,

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 greater than actual inflation.
D)  None of the above is necessarily correct.E) All of the above
F) B) and C)

Question 11

There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

Accepted Answer

A)  raise the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve right.
B)  raise the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve left.
C)  reduce the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve right.
D)  reduce the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve left.E) All of the above
F) A) and B)

Question 12

Refer to Monetary Policy in Flosserland. Suppose that the Flosserland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% but it actually raises inflation to 30%. Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%. Then

Accepted Answer

A)  unemployment falls, but it would have fallen less if people had been expecting 12.5% inflation.
B)  unemployment falls, but it would have fallen less if people had been expecting 25% inflation.
C)  unemployment rises, but it would have risen less if people had been expecting 12.5% inflation.
D)  unemployment rises, but it would have risen less if people had been expecting 25% inflation.E) None of the above
F) A) and B)

Question 13

Which of the following implies that an increase in the money supply growth rate permanently changes the unemployment rate?

Accepted Answer

A)  both the long-run aggregate supply curve and the long-run Phillips curve
B)  the long-run aggregate supply curve, but not the long-run Phillips curve
C)  the long-run Phillips curve, but not the long-run aggregate supply curve
D)  neither the long-run Phillips curve nor the long-run aggregate supply curveE) A) and D)
F) C) and D)

Question 14

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Accepted Answer

It would shift right...

Question 15

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on

Accepted Answer

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

Question 16

Suppose the Federal Reserve pursues contractionary monetary policy. In the long run

Accepted Answer

A)  both inflation and the unemployment rate are higher than they were prior to the change in policy.
B)  inflation is higher and the unemployment rate is the same as it was prior to the change in policy.
C)  inflation is lower and the unemployment rate is lower than it was prior to the change in policy.
D)  inflation is lower and unemployment is the same as it was prior to the change in policy.E) A) and D)
F) None of the above

Question 17

Which of the following statements is correct?

Accepted Answer

A)  In the short run, unemployment and inflation are positively related. In the long run they are largely unrelated problems.
B)  Inflation and unemployment are positively related in the short run and in the long run.
C)  In the short run, unemployment and inflation are negatively related. In the long run they are largely unrelated problems.
D)  Inflation and unemployment are negatively related in the short run and in the long run.E) B) and D)
F) A) and B)

Question 18

Refer to The Economy in 2008. The effects of the housing and financial crises could be shown by shifting

Accepted Answer

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

Question 19

Refer to Monetary Policy in Mokania. The Bank of Mokania publicizes that it intends to reduce the inflation rate to 5%. If it actually reduces inflation to 3% and people were expecting inflation to fall only to 8%, then

Accepted Answer

A)  unemployment falls but it would have fallen by more if the Bank of Mokania had reduced inflation to 5% rather than 3%.
B)  unemployment falls but it would have fallen by less if the Bank of Mokania had reduced inflation to 5% rather than 3%.
C)  unemployment rises but it would have risen by more if the Bank of Mokania had reduced inflation to 5% rather than 3%.
D)  unemployment rises but it would have risen by less if the Bank of Mokania had reduced inflation to 5% rather than 3%.E) A) and D)
F) A) and C)

Question 20

According to Friedman and Phelps, policymakers face a tradeoff between inflation and unemployment

Accepted Answer

A)  only in the long run.
B)  only in the short run.
C)  in neither the long run nor short run.
D)  in both the short run and long run.E) A) and B)
F) A) and C)

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

Which of the following statements is correct?

Correct Answer
verified

In the late 1960s, Milton Friedman and Edmund Phelps argued that

Correct Answer
verified

Suppose the Federal Reserve pursues contractionary monetary policy. In the long run

Correct Answer
verified

According to the long-run Phillips curve, if the Fed increases the growth rate of the money supply, what happens to the inflation rate and the unemployment rate in the long run?

Correct Answer
verified
The inflation rate r...
View Answer

According to Friedman and Phelps, policymakers face a tradeoff between inflation and unemployment

Correct Answer
verified

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

Correct Answer
verified

Which of the following implies that an increase in the money supply growth rate permanently changes the unemployment rate?

Correct Answer
verified

Correct Answer
verified

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on

Correct Answer
verified

In the long run, a decrease in the money supply growth rate

Correct Answer
verified

Suppose the economy is currently experiencing 6% inflation per year. If the Fed wants to reduce inflation to 2% and the sacrifice ratio is 5, then how much annual output must be sacrificed in the transition?

Correct Answer
verified

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,

Correct Answer
verified

Refer to The Economy in 2008. The effects of the housing and financial crises could be shown by shifting

Correct Answer
verified

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Correct Answer
verified
It would shift right...
View Answer

Refer to Monetary Policy in Mokania. The Bank of Mokania publicizes that it intends to reduce the inflation rate to 5%. If it actually reduces inflation to 3% and people were expecting inflation to fall only to 8%, then

Correct Answer
verified

Neither monetary policy nor any government policy can change the natural rate of unemployment.

Correct Answer
verified

If a central bank decreases 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 Answer
verified

If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run.

Correct Answer
verified

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Correct Answer
verified

There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

Correct Answer
verified

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

In the late 1960s, Milton Friedman and Edmund Phelps argued that

Correct AnswerverifiedShow Answer

Suppose the Federal Reserve pursues contractionary monetary policy. In the long run

Correct AnswerverifiedShow Answer

According to the long-run Phillips curve, if the Fed increases the growth rate of the money supply, what happens to the inflation rate and the unemployment rate in the long run?

Correct AnswerverifiedThe inflation rate r...View AnswerShow Answer

According to Friedman and Phelps, policymakers face a tradeoff between inflation and unemployment

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following implies that an increase in the money supply growth rate permanently changes the unemployment rate?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on

Correct AnswerverifiedShow Answer

In the long run, a decrease in the money supply growth rate

Correct AnswerverifiedShow Answer

Suppose the economy is currently experiencing 6% inflation per year. If the Fed wants to reduce inflation to 2% and the sacrifice ratio is 5, then how much annual output must be sacrificed in the transition?

Correct AnswerverifiedShow Answer

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,

Correct AnswerverifiedShow Answer

Refer to The Economy in 2008. The effects of the housing and financial crises could be shown by shifting

Correct AnswerverifiedShow Answer

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Correct AnswerverifiedIt would shift right...View AnswerShow Answer

Refer to Monetary Policy in Mokania. The Bank of Mokania publicizes that it intends to reduce the inflation rate to 5%. If it actually reduces inflation to 3% and people were expecting inflation to fall only to 8%, then

Correct AnswerverifiedShow Answer

Neither monetary policy nor any government policy can change the natural rate of unemployment.

Correct AnswerverifiedShow Answer

If a central bank decreases 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

If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run.

Correct AnswerverifiedShow Answer

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Correct AnswerverifiedShow Answer

There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The inflation rate r...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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It would shift right...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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