Question 1

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 2

How will a favourable supply shock shift the short-run Phillips curve,and how does unemployment change?

Accepted Answer

A)  It will shift the short-run Phillips curve right, and unemployment will rise.
B)  It will shift the short-run Phillips curve right, and unemployment will fall.
C)  It will shift the short-run Phillips curve left, and unemployment will rise.
D)  It will shift the short-run Phillips curve left, and unemployment will fall.E) A) and D)
F) B) and C)

Question 3

How will an adverse supply shock shift the short-run aggregate-supply curve,and what will be the effect on prices?

Accepted Answer

A)  It will shift the short-run aggregate-supply curve right, making prices rise.
B)  It will shift the short-run aggregate-supply curve left, making prices rise.
C)  It will shift the short-run aggregate-supply curve right, making prices fall.
D)  It will shift the short-run aggregate-supply curve left, making prices fall.E) None of the above
F) B) and C)

Question 4

Figure 16-1
 
-Refer to the Figure 16-1.If the economy starts at c and 1,then in the short run,an increase in taxes moves the economy to where?

Accepted Answer

A)  b and 2
B)  d and 3
C)  e and 2
D)  b and 3E) A) and D)
F) All of the above

Question 5

Suppose a policy lowers the natural rate of unemployment.What is the effect of such a policy change?

Accepted Answer

A)  an upward movement along the long-run Phillips curve
B)  a downward movement along the long-run Phillips curve
C)  a rightward shift of the long-run Phillips curve
D)  a leftward shift of the long-run Phillips curveE) None of the above
F) A) and B)

Question 6

How was the Phillips curve for most of the 1990s and why?

Accepted Answer

A)  It was fairly far to the right partly because of lower inflation expectations.
B)  It was fairly far to the left partly because of lower inflation expectations.
C)  It was fairly far to the right partly because of adverse supply shocks.
D)  It was fairly far to the left partly because of adverse supply shocks.E) A) and D)
F) A) and B)

Question 7

Which of the following is one determinant of the natural rate of unemployment?

Accepted Answer

A)  the rate of growth of the money supply
B)  the minimum wage rate
C)  the expected inflation rate
D)  the exchange rateE) None of the above
F) B) and D)

Question 8

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

Question 9

How is the misery index calculated?

Accepted Answer

A)  It is the inflation rate plus the unemployment rate.
B)  It is the unemployment rate minus the inflation rate.
C)  It is the actual inflation rate minus the expected inflation rate.
D)  It is the natural unemployment rate plus the long-run inflation rate.E) C) and D)
F) All of the above

Question 10

Which of the following equations summarize the analysis of Friedman and Phelps (where a is a positive number) ?

Accepted Answer

A)  unemployment rate = natural rate of unemployment - a(actual inflation - expected inflation) 
B)  unemployment rate = natural rate of unemployment - a(expected inflation - actual inflation) 
C)  unemployment rate = expected rate of inflation - a(actual inflation - expected inflation) 
D)  unemployment rate = actual rate of inflation - a(actual unemployment - expected unemployment) E) None of the above
F) B) and D)

Question 11

Suppose the government decides to decrease the income tax.What is the primary effect of this decision?

Accepted Answer

A)  it decreases unemployment in the long-run
B)  it increases output in the long-run
C)  it decreases the price level in the short-run
D)  it increases inflation in the short-runE) A) and B)
F) A) and C)

Question 12

In 1968,economist Milton Friedman published a paper that was critical of the Phillips curve.On what grounds did Friedman criticize the Phillips curve?

Accepted Answer

A)  It seemed to work for wages but not for inflation.
B)  Monetary policy was ineffective in combating inflation.
C)  The Phillips curve did not apply in the long run.
D)  Phillips had made errors in collecting his data.E) B) and D)
F) B) and C)

Question 13

In the long run,the natural rate of unemployment depends primarily on the growth rate of the money supply.

Accepted Answer

A) True 
 B)False

Question 14

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 C)
F) A) and D)

Question 15

How could we transform the AD-AS model such that,instead of the price level and output it would show the relationship between the inflation rate (p)and the rate of output growth (g)?

Accepted Answer

One can start from the AD-AS model in th...

Question 16

Although monetary policy cannot reduce the natural rate of unemployment,other types of policies can.

Accepted Answer

A) True 
 B)False

Question 17

In the long run,which of the following does the inflation rate primarily depend on?

Accepted Answer

A)  the ability of unions to raise wages
B)  government spending
C)  the money supply growth rate
D)  the monopoly power of firmsE) None of the above
F) All of the above

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

In which of the following situations will the economy move to a point on the Phillips curve where unemployment is higher?

Accepted Answer

A)  if the inflation rate increases
B)  if the government increases its expenditures
C)  if the Bank of Canada decreases the money supply
D)  if expected inflation increasesE) A) and D)
F) B) and D)

Question 20

Which of the following would NOT be associated with a favourable supply shock?

Accepted Answer

A)  The short-run Phillips curve shifts left.
B)  Unemployment falls.
C)  The price level rises.
D)  Output rises.E) A) and B)
F) A) and C)

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

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Correct AnswerverifiedShow Answer

In the long run,which of the following does the inflation rate primarily depend on?

Correct AnswerverifiedShow Answer

Which of the following equations summarize the analysis of Friedman and Phelps (where a is a positive number) ?

Correct AnswerverifiedShow Answer

In which of the following situations will the economy move to a point on the Phillips curve where unemployment is higher?

Correct AnswerverifiedShow Answer

Suppose a policy lowers the natural rate of unemployment.What is the effect of such a policy change?

Correct AnswerverifiedShow Answer

Although monetary policy cannot reduce the natural rate of unemployment,other types of policies can.

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

Which of the following would NOT be associated with a favourable supply shock?

Correct AnswerverifiedShow Answer

How was the Phillips curve for most of the 1990s and why?

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Which of the following is one determinant of the natural rate of unemployment?

Correct AnswerverifiedShow Answer

In 1968,economist Milton Friedman published a paper that was critical of the Phillips curve.On what grounds did Friedman criticize the Phillips curve?

Correct AnswerverifiedShow Answer

How will an adverse supply shock shift the short-run aggregate-supply curve,and what will be the effect on prices?

Correct AnswerverifiedShow Answer

In the long run,the natural rate of unemployment depends primarily on the growth rate of the money supply.

Correct AnswerverifiedShow Answer

Suppose the government decides to decrease the income tax.What is the primary effect of this decision?

Correct AnswerverifiedShow Answer

How is the misery index calculated?

Correct AnswerverifiedShow Answer

How will a favourable supply shock shift the short-run Phillips curve,and how does unemployment change?

Correct AnswerverifiedShow 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

Figure 16-1 -Refer to the Figure 16-1.If the economy starts at c and 1,then in the short run,an increase in taxes moves the economy to where?

Correct AnswerverifiedShow Answer

How could we transform the AD-AS model such that,instead of the price level and output it would show the relationship between the inflation rate (p)and the rate of output growth (g)?

Correct AnswerverifiedOne can start from the AD-AS model in th...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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One can start from the AD-AS model in th...
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Correct Answer
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