Question 1

An estimate of the short-run Phillips curve for a hypothetical economy is u = 12 - 1.5ð, where u is the unemployment rate and ð is the inflation rate.
a. If the natural rate of unemployment is 8 percent, what is the expected inflation rate that is consistent with this short-run Phillips curve?
b. Suppose the government passes legislation that decreases the natural rate of unemployment by two percentage points. What is the new long-term inflation rate?

Accepted Answer

a. The general equation of the short-run...

Question 2

If the short-run Phillips curve were stable, what would be unusual?

Accepted Answer

A)   an increase in government spending and a fall in unemployment
B)   an increase in inflation and a decrease in output
C)   a decrease in the inflation rate and a rise in the unemployment rate
D)   a decrease in output and an increase in unemploymentE) A) and B)
F) A) and C)

Question 3

What do the data for the period of 1973 through 1980 demonstrate?

Accepted Answer

A)   that there is a short-run tradeoff between inflation and unemployment in a stable economy
B)   that a supply shock changes the natural rate of unemployment
C)   that there is no long-run tradeoff between inflation and unemployment
D)   that a supply shock increases both inflation and unemploymentE) All of the above
F) C) and D)

Question 4

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

Accepted Answer

A)   point a
B)   point b
C)   point c
D)   point mE) A) and B)
F) All of the above

Question 5

According to Friedman and Phelps, when is the unemployment rate below the natural rate?

Accepted Answer

A)   when actual inflation is greater than expected inflation
B)   when actual inflation is less than expected inflation
C)   when actual inflation equals expected inflation
D)   when actual inflation is lowE) B) and C)
F) B) and D)

Question 6

Compared to the 1970s, how did the Canadian short-run Phillips curve move in recent years and why?

Accepted Answer

A)   It has moved further right as inflation expectations have risen.
B)   It has moved further right as inflation expectations have fallen.
C)   It has moved further left as inflation expectations have risen.
D)   It has moved further left as inflation expectations have fallen.E) A) and B)
F) A) and C)

Question 7

According to the Friedman-Phelps analysis, in the long run, actual inflation equals expected inflation, and unemployment is at its natural rate.

Accepted Answer

A) True 
 B)False

Question 8

Suppose that the money supply increases. According to the Phillips curve model, what are the effects of this policy change?

Accepted Answer

A)   It decreases unemployment in the short run.
B)   It decreases inflation in the long run.
C)   It decreases unemployment in the long run.
D)   It decreases inflation in the short run.E) A) and B)
F) A) and C)

Question 9

According to Friedman and Phelps, no matter what a central bank does to the money supply, what will happen in the long run?

Accepted Answer

A)   The economy will have a zero inflation rate.
B)   The unemployment rate will tend toward the natural rate of unemployment.
C)   The inflation rate will tend to the natural rate of inflation.
D)   The economy will have a zero unemployment rate.E) None of the above
F) A) and D)

Question 10

In responding to the Phillips curve hypothesis, what did Friedman argue that a central bank can peg?

Accepted Answer

A)   the unemployment rate
B)   the price level
C)   the growth rate of real GDP
D)   the real exchange rateE) A) and D)
F) B) and C)

Question 11

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) None of the above
F) All of the above

Question 12

If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 7 percent would require sacrificing how much annual output?

Accepted Answer

A)   2 percent of annual output
B)   7 percent of annual output
C)   9 percent of annual output
D)   10 percent of annual outputE) A) and C)
F) A) and B)

Question 13

Figure 16-3
 
-Refer to the Figure 16-3. Starting from c and 3, in the long run, where does an increase in money supply growth move the economy to?

Accepted Answer

A)   a and 1
B)   e and 4
C)   d and 4
D)   e and 5E) A) and D)
F) A) and C)

Question 14

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-run.E) C) and D)
F) A) and C)

Question 15

Discuss the advantages and disadvantages of drawing the AD-AS model in terms of inflation (ð) and rate of growth (g).

Accepted Answer

The AD-AS model in terms of ð and g is m...

Question 16

What happened to aggregate supply and the Phillips curve in the mid- and late 1990s?

Accepted Answer

A)   Aggregate supply and the Phillips curve shifted right.
B)   Aggregate supply and the Phillips curve shifted left.
C)   Aggregate supply shifted right and the Phillips curve shifted left.
D)   Aggregate supply shifted left and the Phillips curve shifted right.E) C) and D)
F) All of the above

Question 17

Which Canadian economist confirmed the theory of an inflation-unemployment tradeoff?

Accepted Answer

A)   R. Lipsey
B)   A.W. Phillips
C)   P. Samuelson
D)   J. KeynesE) B) and C)
F) A) and B)

Question 18

Figure 16-1
 
-Refer to the Figure 16-1. If the economy starts at c and 1, then in the short run, where does an increase in government expenditures move the economy?

Accepted Answer

A)   b and 2
B)   e and 3
C)   d and 3
D)   c and 2E) C) and D)
F) None of the above

Question 19

Figure 16-1
 
-Refer to the Figure 16-1. If the economy starts at c and 1, then in the short run, where does a decrease in the money supply growth rate move the economy?

Accepted Answer

A)   e and 1
B)   d and 2
C)   d and 3
D)   a and 3E) A) and B)
F) A) and C)

Question 20

How does the short-run Phillips curve model reflect an increase in the natural rate of unemployment?

Accepted Answer

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

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

If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 7 percent would require sacrificing how much annual output?

Correct Answer
verified

According to Friedman and Phelps, no matter what a central bank does to the money supply, what will happen in the long run?

Correct Answer
verified

What happened to aggregate supply and the Phillips curve in the mid- and late 1990s?

Correct Answer
verified

Suppose that the money supply increases. According to the Phillips curve model, what are the effects of this policy change?

Correct Answer
verified

If the short-run Phillips curve were stable, what would be unusual?

Correct Answer
verified

In responding to the Phillips curve hypothesis, what did Friedman argue that a central bank can peg?

Correct Answer
verified

Figure 16-1 -Refer to the Figure 16-1. If the economy starts at c and 1, then in the short run, where does an increase in government expenditures move the economy?

Correct Answer
verified

Correct Answer
verified
a. The general equation of the short-run...
View Answer

Figure 16-3 -Refer to the Figure 16-3. Starting from c and 3, in the long run, where does an increase in money supply growth move the economy to?

Correct Answer
verified

According to Friedman and Phelps, when is the unemployment rate below the natural rate?

Correct Answer
verified

Which Canadian economist confirmed the theory of an inflation-unemployment tradeoff?

Correct Answer
verified

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

Correct Answer
verified

According to the Friedman-Phelps analysis, in the long run, actual inflation equals expected inflation, and unemployment is at its natural rate.

Correct Answer
verified

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

Correct Answer
verified

What do the data for the period of 1973 through 1980 demonstrate?

Correct Answer
verified

How does the short-run Phillips curve model reflect an increase in the natural rate of unemployment?

Correct Answer
verified

Figure 16-1 -Refer to the Figure 16-1. If the economy starts at c and 1, then in the short run, where does a decrease in the money supply growth rate move the economy?

Correct Answer
verified

Compared to the 1970s, how did the Canadian short-run Phillips curve move in recent years and why?

Correct Answer
verified

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

Correct Answer
verified

Discuss the advantages and disadvantages of drawing the AD-AS model in terms of inflation (ð) and rate of growth (g).

Correct Answer
verified
The AD-AS model in terms of ð and g is m...
View Answer

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

If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 7 percent would require sacrificing how much annual output?

Correct AnswerverifiedShow Answer

According to Friedman and Phelps, no matter what a central bank does to the money supply, what will happen in the long run?

Correct AnswerverifiedShow Answer

What happened to aggregate supply and the Phillips curve in the mid- and late 1990s?

Correct AnswerverifiedShow Answer

Suppose that the money supply increases. According to the Phillips curve model, what are the effects of this policy change?

Correct AnswerverifiedShow Answer

If the short-run Phillips curve were stable, what would be unusual?

Correct AnswerverifiedShow Answer

In responding to the Phillips curve hypothesis, what did Friedman argue that a central bank can peg?

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, where does an increase in government expenditures move the economy?

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The general equation of the short-run...View AnswerShow Answer

Figure 16-3 -Refer to the Figure 16-3. Starting from c and 3, in the long run, where does an increase in money supply growth move the economy to?

Correct AnswerverifiedShow Answer

According to Friedman and Phelps, when is the unemployment rate below the natural rate?

Correct AnswerverifiedShow Answer

Which Canadian economist confirmed the theory of an inflation-unemployment tradeoff?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the Friedman-Phelps analysis, in the long run, actual inflation equals expected inflation, and unemployment is at its natural rate.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What do the data for the period of 1973 through 1980 demonstrate?

Correct AnswerverifiedShow Answer

How does the short-run Phillips curve model reflect an increase in the natural rate of unemployment?

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, where does a decrease in the money supply growth rate move the economy?

Correct AnswerverifiedShow Answer

Compared to the 1970s, how did the Canadian short-run Phillips curve move in recent years and why?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Discuss the advantages and disadvantages of drawing the AD-AS model in terms of inflation (ð) and rate of growth (g).

Correct AnswerverifiedThe AD-AS model in terms of ð and g is m...View AnswerShow 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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a. The general equation of the short-run...
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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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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
verified
The AD-AS model in terms of ð and g is m...
View Answer