Question 1

Use the two graphs in the diagram to answer the following questions.
Figure 35-3
 
-Refer to Figure 35-3.Starting from c and 3,in the short run,an unexpected decrease in money supply growth moves the economy to

Accepted Answer

A)  a and 1.
B)  b and 2.
C)  back to c and 3.
D)  d and 4.E) A) and C)
F) A) and B)

Question 2

As an economist working for a U.S.government agency you determine that a particular country has a sacrifice ratio of 7.Policy-makers in that country are thinking of lowering the inflation rate from 10% to 5%.Is this sacrifice ratio higher or lower than the typical estimate? From your numbers,what is the amount of output that will be lost for this country to reduce its inflation rate?

Accepted Answer

A)  The sacrifice ratio is higher than the typical estimate.It will cost 70% of annual output to reach the new inflation target.
B)  The sacrifice ratio is higher than the typical estimate.It will cost 35% of annual output to reach the new inflation target.
C)  The sacrifice ratio is lower than the typical estimate.It will cost 70% of annual output to reach the new inflation target.
D)  The sacrifice ratio is lower than the typical estimate.It will cost 35% of annual output to reach the new inflation target.E) B) and C)
F) A) and B)

Question 3

Disinflation is defined as a

Accepted Answer

A)  zero rate of inflation.
B)  constant rate of inflation.
C)  reduction in the rate of inflation.
D)  negative rate of inflation.E) None of the above
F) A) and D)

Question 4

In the late 1970s,proponents of rational expectations argued that

Accepted Answer

A)  the Fed should not attempt to aggressively fight inflation.
B)  the sacrifice ratio was smaller than previously thought.
C)  the short run was relatively long.
D)  None of the above is correct.E) A) and C)
F) B) and D)

Question 5

In 1979,Fed chair Paul Volcker decided to pursue a policy

Accepted Answer

A)  that would lead to disinflation.
B)  that would create falling prices.
C)  to accommodate continuing adverse supply shocks.
D)  that maintained money growth at its current level.E) A) and B)
F) A) and D)

Question 6

If policymakers accommodate an adverse supply shock,the unemployment rate

Accepted Answer

A)  and the inflation rate will rise.
B)  and the inflation rate will fall.
C)  will rise and the inflation rate will fall.
D)  will fall and the inflation rate will rise.E) B) and C)
F) A) and B)

Question 7

Monetary Policy in Hyperion
In Hyperion the Department of Finance is responsible for monetary policy. Hyperion has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Hyperion.Suppose Hyperion has had the same inflation rate for a long time.Which,if either,of the following ideas imply that the unemployment rate in Hyperion would be above the natural rate.

Accepted Answer

A)  both the Classical dichotomy and the long-run Phillips curve
B)  the Classical dichotomy, but not the long run Phillips curve
C)  the long-run Phillips curve, but not the Classical dichotomy
D)  neither the long-run Phillips curve nor the Classical dichotomyE) None of the above
F) A) and C)

Question 8

A policy change that reduced the natural rate of unemployment would shift both the long-run aggregate-supply curve and the long-run Phillips curve left.

Accepted Answer

A) True 
 B)False

Question 9

In the United States during the 1970s,expected inflation

Accepted Answer

A)  rose substantially.
B)  rose slightly.
C)  fell slightly.
D)  fell substantially.E) A) and B)
F) All of the above

Question 10

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

Question 11

Use the pair of diagrams below to answer the following questions.
Figure 35-1
 
-Refer to Figure 35-1.If the economy starts at c and 1,then in the short run,a decrease in taxes moves the economy to

Accepted Answer

A)  d and 2.
B)  d and 3.
C)  back to c and 1.
D)  None of the above is correct.E) B) and C)
F) A) and D)

Question 12

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

Accepted Answer

A) True 
 B)False

Question 13

A country is likely to have a lower sacrifice ratio if

Accepted Answer

A)  contracts are shorter, and the Central Bank is credible.
B)  contracts are shorter, and the Central Bank has a poor reputation.
C)  contracts are longer, and the Central Bank is credible.
D)  contracts are longer, and the Central Bank has a poor reputation.E) A) and D)
F) C) and D)

Question 14

Suppose that the money supply increases.In the short run this increases employment according to

Accepted Answer

A)  both the short-run Phillips curve and the aggregate demand and aggregate supply model.
B)  neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
C)  the short-run Phillips curve, but not the aggregate demand and supply model.
D)  the aggregate demand and aggregate supply model, but not the short-run Phillips curve.E) A) and B)
F) None of the above

Question 15

Monetary Policy in Hyperion
In Hyperion the Department of Finance is responsible for monetary policy. Hyperion has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Hyperion.Suppose that the Hyperion Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% and that it actually reduces inflation to that level.Suppose that the public was very skeptical and in fact thought the Hyperion Department of Finance was going to raise inflation to 30% so it could increase its expenditures.Then

Accepted Answer

A)  unemployment falls, but it would have fallen less if people had been expecting 25% inflation.
B)  unemployment falls, but it would have fallen less if people had been expecting 35% inflation.
C)  unemployment rises, but it would have risen less if people had been expecting 25% inflation.
D)  unemployment rises, but it would have risen less if people had been expecting 35% inflation.E) All of the above
F) A) and B)

Question 16

The long-run response to a decrease in the money supply growth rate is shown by shifting

Accepted Answer

A)  the short-run and long-run Phillips curves left.
B)  the short-run and long-run Phillips curves right.
C)  only the short-run Phillips curve left.
D)  only the short-run Phillips curve right.E) All of the above
F) A) and B)

Question 17

Refer to Figure 35-1.If the economy starts at c and 1,then in the short run,an increase in taxes moves the economy to

Accepted Answer

A)  b and 2.
B)  d and 3.
C)  e and 2.
D)  None of the above is correct.E) All of the above
F) A) and B)

Question 18

Which of the following would cause the price level to fall and output to rise in the short run?

Accepted Answer

A)  an increase in the money supply
B)  a decrease in the money supply
C)  an adverse supply shock
D)  a favorable supply shockE) All of the above
F) B) and D)

Question 19

One determinant of the natural rate of unemployment is the

Accepted Answer

A)  rate of growth of the money supply.
B)  minimum wage rate.
C)  expected inflation rate.
D)  All of the above are correct.E) B) and C)
F) A) and D)

Question 20

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Accepted Answer

A) True 
 B)False

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

Disinflation is defined as a

Correct Answer
verified

If policymakers accommodate an adverse supply shock,the unemployment rate

Correct Answer
verified

In the late 1970s,proponents of rational expectations argued that

Correct Answer
verified

A country is likely to have a lower sacrifice ratio if

Correct Answer
verified

Correct Answer
verified

One determinant of the natural rate of unemployment is the

Correct Answer
verified

The long-run response to a decrease in the money supply growth rate is shown by shifting

Correct Answer
verified

In 1979,Fed chair Paul Volcker decided to pursue a policy

Correct Answer
verified

Use the two graphs in the diagram to answer the following questions. Figure 35-3 -Refer to Figure 35-3.Starting from c and 3,in the short run,an unexpected decrease in money supply growth moves the economy to

Correct Answer
verified

Which of the following would cause the price level to fall and output to rise in the short run?

Correct Answer
verified

Refer to Figure 35-1.If the economy starts at c and 1,then in the short run,an increase in taxes moves the economy to

Correct Answer
verified

Suppose that the money supply increases.In the short run this increases employment according to

Correct Answer
verified

Correct Answer
verified

Use the pair of diagrams below to answer the following questions. Figure 35-1 -Refer to Figure 35-1.If the economy starts at c and 1,then in the short run,a decrease in taxes moves the economy to

Correct Answer
verified

In the United States during the 1970s,expected inflation

Correct Answer
verified

Correct Answer
verified

A policy change that reduced the natural rate of unemployment would shift both the long-run aggregate-supply curve and the long-run Phillips curve left.

Correct Answer
verified

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

Correct Answer
verified

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Correct Answer
verified

If efficiency wages became more common,

Correct Answer
verified

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

Disinflation is defined as a

Correct AnswerverifiedShow Answer

If policymakers accommodate an adverse supply shock,the unemployment rate

Correct AnswerverifiedShow Answer

In the late 1970s,proponents of rational expectations argued that

Correct AnswerverifiedShow Answer

A country is likely to have a lower sacrifice ratio if

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

One determinant of the natural rate of unemployment is the

Correct AnswerverifiedShow Answer

The long-run response to a decrease in the money supply growth rate is shown by shifting

Correct AnswerverifiedShow Answer

In 1979,Fed chair Paul Volcker decided to pursue a policy

Correct AnswerverifiedShow Answer

Use the two graphs in the diagram to answer the following questions. Figure 35-3 -Refer to Figure 35-3.Starting from c and 3,in the short run,an unexpected decrease in money supply growth moves the economy to

Correct AnswerverifiedShow Answer

Which of the following would cause the price level to fall and output to rise in the short run?

Correct AnswerverifiedShow Answer

Refer to Figure 35-1.If the economy starts at c and 1,then in the short run,an increase in taxes moves the economy to

Correct AnswerverifiedShow Answer

Suppose that the money supply increases.In the short run this increases employment according to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Use the pair of diagrams below to answer the following questions. Figure 35-1 -Refer to Figure 35-1.If the economy starts at c and 1,then in the short run,a decrease in taxes moves the economy to

Correct AnswerverifiedShow Answer

In the United States during the 1970s,expected inflation

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A policy change that reduced the natural rate of unemployment would shift both the long-run aggregate-supply curve and the long-run Phillips curve left.

Correct AnswerverifiedShow Answer

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

Correct AnswerverifiedShow Answer

The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.

Correct AnswerverifiedShow Answer

If efficiency wages became more common,

Correct AnswerverifiedShow Answer

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