Question 1

A central bank announces it will decrease the inflation rate by 10 percentage points. People are skeptical of the announcement, but do expect the central bank will reduce inflation by 5 percentage points and so expected inflation falls by 5 percentage points. If the central bank decreases inflation by only 3 percentage points then the unemployment rate will fall.

Accepted Answer

A) True 
 B)False

Question 2

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

Accepted Answer

A) True 
 B)False

Question 3

Monetary Policy in Highland
Highland has had inflation of 15% for many years. Highland establishes a new central bank, the Bank of Highland, with the hopes of reducing the inflation rate.
-Refer to Monetary Policy in Highland. The Bank of Highland publicizes that it intends to reduce the inflation rate to 5%. If it is successful in doing so but people had expected inflation to fall only to 10%, then

Accepted Answer

A)  unemployment rises but it would have risen by more if people had expected inflation to be 6%.
B)  unemployment rises but it would have risen by less if people had expected inflation to be 6%.
C)  unemployment falls but it would have fallen by more if people had expected inflation to be 6%.
D)  unemployment falls but it would have fallen by less if people had expected inflation to be 6%.E) A) and D)
F) A) and C)

Question 4

If the short-run Phillips curve were stable, which of the following 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 the money supply and a rise in the unemployment rate.E) All of the above
F) C) and D)

Question 5

If the sacrifice ratio is 2, reducing the inflation rate from 10 percent to 6 percent would require sacrificing

Accepted Answer

A)  2 percent of annual output.
B)  6 percent of annual output.
C)  8 percent of annual output.
D)  12 percent of annual output.E) All of the above
F) A) and B)

Question 6

Figure 22-8. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." 1 to AS2 could be a consequence of A) an increase in the money supply. B) an adverse supply shock. C) a decrease of output from Y1 to Y2. D) a slow adjustment of people's expectation of the inflation rate." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 22-8. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

Accepted Answer

A)  an increase in the money supply.
B)  an adverse supply shock.
C)  a decrease of output from Y1 to Y2.
D)  a slow adjustment of people's expectation of the inflation rate.E) None of the above
F) All of the above

Question 7

Figure 22-5
Use the graph below to answer the following questions. 
-Refer to Figure 22-5. If the economy starts at C and the money supply growth rate decreases, in the short run the economy moves to

Accepted Answer

A)  B.
B)  C.
C)  F.
D)  None of the above is consistent with a decrease in the money supply growth rate.E) A) and B)
F) A) and C)

Question 8

If policymakers accommodate an adverse supply shock, then in the short run the unemployment rate

Accepted Answer

A)  and the inflation rate rise.
B)  and the inflation rate fall.
C)  rises and the inflation rate falls.
D)  falls and the inflation rate rises.E) None of the above
F) All of the above

Question 9

As the aggregate demand curve shifts leftward along a given aggregate supply curve,

Accepted Answer

A)  unemployment and inflation are higher.
B)  unemployment and inflation are lower.
C)  unemployment is higher and inflation is lower.
D)  unemployment is lower and inflation is higher.E) C) and D)
F) None of the above

Question 10

Samuelson and Solow argued that a combination of low unemployment and low inflation

Accepted Answer

A)  was impossible given the historical data as summarized by the Phillips curve.
B)  could be achieved with an "appropriate" fiscal policy.
C)  could be achieved with an "appropriate" monetary policy.
D)  could be achieved with an "appropriate" mix of monetary and fiscal policies.E) A) and B)
F) A) and C)

Question 11

In the short run,

Accepted Answer

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

Question 12

Figure 22-6
Use the two graphs in the diagram to answer the following questions. 
-Refer to Figure 22-6. Starting from C and 3, in the long run, a decrease in money supply growth moves the economy to

Accepted Answer

A)  A and 1.
B)  back to C and 3.
C)  D and 4.
D)  F and 5.E) A) and B)
F) B) and D)

Question 13

Figure 22-8. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." 1 to AS2? A) a reduction in firms' costs of production B) a reduction in taxes on consumers C) an increase in the price level D) an increase in the world price of oil" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 22-8. Which of the following events could explain the shift of the aggregate-supply curve from AS1 to AS2?

Accepted Answer

A)  a reduction in firms' costs of production
B)  a reduction in taxes on consumers
C)  an increase in the price level
D)  an increase in the world price of oilE) B) and D)
F) B) and C)

Question 14

If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has

Accepted Answer

A)  higher unemployment and lower output.
B)  higher unemployment and higher output.
C)  lower unemployment and lower output.
D)  lower unemployment and higher output.E) None of the above
F) All of the above

Question 15

If the minimum wage increased, then at any given rate of inflation

Accepted Answer

A)  both output and employment would be higher.
B)  neither output nor employment would be higher.
C)  output would be higher and unemployment would be lower.
D)  output would be lower and unemployment would be higher.E) C) and D)
F) A) and C)

Question 16

By raising aggregate demand more than anticipated, policymakers

Accepted Answer

A)  reduce unemployment for awhile.
B)  raise unemployment for awhile.
C)  reduce unemployment permanently.
D)  None of the above is correct.E) C) and D)
F) A) and B)

Question 17

Figure 22-5
Use the graph below to answer the following questions. 
-Refer to Figure 22-5. The money supply growth rate is greatest at

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  F.E) A) and B)
F) A) and C)

Question 18

There is a

Accepted Answer

A)  short-run tradeoff between inflation and unemployment.
B)  short-run tradeoff between the actual unemployment rate and the natural rate of unemployment.
C)  long-run tradeoff between inflation and unemployment.
D)  long-run tradeoff between the actual unemployment rate and the natural rate of unemployment.E) A) and B)
F) A) and C)

Question 19

Samuelson and Solow believed that the Phillips curve

Accepted Answer

A)  implied that low unemployment was associated with low inflation.
B)  indicated that the aggregate supply and aggregate demand model was incorrect.
C)  offered policymakers a menu of possible economic outcomes from which to choose.
D)  All of the above are correct.E) A) and D)
F) B) and D)

Question 20

If the natural rate of unemployment falls,

Accepted Answer

A)  both the short-run and long-run Phillips curves shift left.
B)  the short-run Phillips curve shifts left, the long-run Phillips curve is unchanged.
C)  the short-run Phillips curve is unchanged, the long-run Phillips curve shifts right.
D)  the short-run and the long-run Phillips curves shift right.E) B) and C)
F) A) and D)

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

Samuelson and Solow argued that a combination of low unemployment and low inflation

Correct Answer
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As the aggregate demand curve shifts leftward along a given aggregate supply curve,

Correct Answer
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Figure 22-8. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 22-8. The shift of the aggregate-supply curve from AS₁ to AS₂ could be a consequence of

Correct Answer
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Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

Correct Answer
verified

Figure 22-5 Use the graph below to answer the following questions. -Refer to Figure 22-5. If the economy starts at C and the money supply growth rate decreases, in the short run the economy moves to

Correct Answer
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There is a

Correct Answer
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If policymakers accommodate an adverse supply shock, then in the short run the unemployment rate

Correct Answer
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Figure 22-5 Use the graph below to answer the following questions. -Refer to Figure 22-5. The money supply growth rate is greatest at

Correct Answer
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If the natural rate of unemployment falls,

Correct Answer
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Samuelson and Solow believed that the Phillips curve

Correct Answer
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If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has

Correct Answer
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If the minimum wage increased, then at any given rate of inflation

Correct Answer
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Figure 22-6 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 22-6. Starting from C and 3, in the long run, a decrease in money supply growth moves the economy to

Correct Answer
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If the short-run Phillips curve were stable, which of the following would be unusual?

Correct Answer
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If the sacrifice ratio is 2, reducing the inflation rate from 10 percent to 6 percent would require sacrificing

Correct Answer
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By raising aggregate demand more than anticipated, policymakers

Correct Answer
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In the short run,

Correct Answer
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Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

Samuelson and Solow argued that a combination of low unemployment and low inflation

Correct AnswerverifiedShow Answer

As the aggregate demand curve shifts leftward along a given aggregate supply curve,

Correct AnswerverifiedShow Answer

Figure 22-8. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 22-8. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

Correct AnswerverifiedShow Answer

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

Correct AnswerverifiedShow Answer

Figure 22-5 Use the graph below to answer the following questions. -Refer to Figure 22-5. If the economy starts at C and the money supply growth rate decreases, in the short run the economy moves to

Correct AnswerverifiedShow Answer

There is a

Correct AnswerverifiedShow Answer

If policymakers accommodate an adverse supply shock, then in the short run the unemployment rate

Correct AnswerverifiedShow Answer

Figure 22-5 Use the graph below to answer the following questions. -Refer to Figure 22-5. The money supply growth rate is greatest at

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the natural rate of unemployment falls,

Correct AnswerverifiedShow Answer

Samuelson and Solow believed that the Phillips curve

Correct AnswerverifiedShow Answer

If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the minimum wage increased, then at any given rate of inflation

Correct AnswerverifiedShow Answer

Figure 22-6 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 22-6. Starting from C and 3, in the long run, a decrease in money supply growth moves the economy to

Correct AnswerverifiedShow Answer

If the short-run Phillips curve were stable, which of the following would be unusual?

Correct AnswerverifiedShow Answer

If the sacrifice ratio is 2, reducing the inflation rate from 10 percent to 6 percent would require sacrificing

Correct AnswerverifiedShow Answer

By raising aggregate demand more than anticipated, policymakers

Correct AnswerverifiedShow Answer

In the short run,

Correct AnswerverifiedShow Answer

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Figure 22-8. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 22-8. The shift of the aggregate-supply curve from AS₁ to AS₂ could be a consequence of

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