Question 1

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) A) and C)
F) All of the above

Question 2

Suppose the natural rate of unemployment is 6 percent,the expected inflation is 2 percent,and the constant "a" in the short-run Phillips curve equation is 0.8.Draw the long-run and short-run Phillips curves.What is the inflation rate corresponding to the intersection of the two curves?

Accepted Answer

The short-run Phillips curve is describe...

Question 3

What did Samuelson and Solow believe about the Phillips curve?

Accepted Answer

A)   It implied that low unemployment was associated with low inflation.
B)   It indicated that the aggregate supply and aggregate demand model was incorrect.
C)   It illustrated that policymakers face a tradeoff between inflation and unemployment.
D)   It demonstrated that fiscal policies were ineffective in reducing unemployment.E) All of the above
F) A) and B)

Question 4

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 B)
F) A) and C)

Question 5

Which hypothesis is supported by the economic experience of Canada during the late 1960s and early 1970s?

Accepted Answer

A)   Inflation and unemployment are negatively correlated.
B)   Inflation and unemployment are related in the short run.
C)   Inflation and unemployment are related in the long run.
D)   Inflation and unemployment are positively correlated.E) A) and B)
F) C) and D) B

Question 6

Which statement best defines disinflation?

Accepted Answer

A)   It is a zero rate of inflation.
B)   It is a constant rate of inflation.
C)   It is a reduction in the rate of inflation.
D)   It is a negative rate of inflation.E) A) and B)
F) A) and C)

Question 7

What is the effect of an adverse supply shock?

Accepted Answer

A)   The long-run aggregate supply curve shifts to the left.
B)   The short-run aggregate supply curve shifts to the right.
C)   The long-run Phillips curve shifts to the left.
D)   The short-run Phillips curve shifts to the right.E) A) and B)
F) A) and C) D

Question 8

In the late 1960s,which of the following was published by economist Edmund Phelps?

Accepted Answer

A)   a paper that argued that there was no long-run tradeoff between inflation and unemployment
B)   a paper that disproved Friedman's claim that monetary policy was ineffective in controlling inflation
C)   a paper that showed the optimal point on the Phillips curve was at an unemployment rate of 5 percent and an inflation rate of 2 percent
D)   a paper that argued that the Phillips curve was stable and that it would not shiftE) A) and B)
F) A) and C)

Question 9

Friedman and Phelps believed that the natural rate of unemployment was constant.

Accepted Answer

A) True 
 B)False

Question 10

In the long run,how does an increase in the rate of growth of the money supply shift the Phillips curves?

Accepted Answer

A)   It shifts both the short-run and long-run Phillips curves to the right.
B)   It shifts the long-run Phillips curve right and the short-run Phillips curve left.
C)   It shifts only the short-run Phillips curve to the right.
D)   It shifts only the short-run Phillips curve to the left.E) A) and C)
F) A) and B)

Question 11

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 12

Suppose that weather around the world is especially good next year,so farmers have unusually good crops.What might we expect that this will do to the short-run and long-run Phillips curves?

Accepted Answer

A)   This will shift both the short-run and long-run Phillips curves to the right.
B)   This will shift both the short-run and long-run Phillips curves to the left.
C)   This will shift the short-run Phillips curve to the left,but not affect the long-run Phillips curve.
D)   This will shift the long-run Phillips curve to the left,but not affect the short-run Phillips curve.E) None of the above
F) All of the above

Question 13

What did Friedman and Phelps argue about the effectiveness of monetary policies?

Accepted Answer

A)   As long as people's inflation expectations were fixed,an increase in the money supply growth rate could not change output in the short or long run.
B)   If people's inflation expectations were fixed,in the short run,a decrease in the money supply growth rate could raise output and unemployment.
C)   When the money supply growth rate changed,people would eventually revise their inflation expectations so that any change in unemployment created by an increase in the money supply growth rate would be temporary.
D)   When the money supply growth rate changes,people slowly adjust their inflation expectations; therefore,the unemployment rate changes only in the long run but not in the short run.E) All of the above
F) A) and B)

Question 14

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) All of the above
F) A) and D) B

Question 15

If technological change shifts the long-run aggregate-supply curve to the right,it will also do which of the following?

Accepted Answer

A)   It shifts both the short-run and long-run Phillips curves to the right.
B)   It shifts both the short-run and long-run Phillips curves to the left.
C)   It will shift the short-run aggregate-supply curve to the right and the long-run Phillips curve to the left.
D)   It will shift the short-run aggregate-supply curve to the right and leave the long-run Phillips curve unaffected.E) A) and B)
F) A) and C)

Question 16

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 aggregate demand move the economy?

Accepted Answer

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

Question 17

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) A) and B)
F) None of the above

Question 18

In 1980,how did the Canadian misery index compare to the average?

Accepted Answer

A)   It was much higher than average.
B)   It was slightly higher than average.
C)   It was just below average.
D)   It was well below average.E) A) and B)
F) A) and C)

Question 19

Figure 16-2 
-Refer to the Figure 16-2.If the economy starts at c and the money supply growth rate increases,where does the economy move to in the long run?

Accepted Answer

A)   b
B)   d
C)   e
D)   aE) A) and C)
F) A) and D)

Question 20

Figure 16-4 
-Refer to the Figure 16-4.If the economy is at point c and the Bank of Canada pursues an expansionary monetary policy,then the economy will move to which point in the short and long run?

Accepted Answer

A)   point b in the short run and point c in the long run
B)   point m in the short run and point c in the long run
C)   point d in the short run and point h in the long run
D)   point h in the short run and point d in the long runE) None of the above
F) A) and B)

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

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

Suppose the natural rate of unemployment is 6 percent,the expected inflation is 2 percent,and the constant "a" in the short-run Phillips curve equation is 0.8.Draw the long-run and short-run Phillips curves.What is the inflation rate corresponding to the intersection of the two curves?

Correct AnswerverifiedThe short-run Phillips curve is describe...View AnswerShow Answer

What did Samuelson and Solow believe about the Phillips curve?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which hypothesis is supported by the economic experience of Canada during the late 1960s and early 1970s?

Correct AnswerverifiedB

Which statement best defines disinflation?

Correct AnswerverifiedShow Answer

What is the effect of an adverse supply shock?

Correct AnswerverifiedD

In the late 1960s,which of the following was published by economist Edmund Phelps?

Correct AnswerverifiedShow Answer

Friedman and Phelps believed that the natural rate of unemployment was constant.

Correct AnswerverifiedShow Answer

In the long run,how does an increase in the rate of growth of the money supply shift the Phillips curves?

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

Suppose that weather around the world is especially good next year,so farmers have unusually good crops.What might we expect that this will do to the short-run and long-run Phillips curves?

Correct AnswerverifiedShow Answer

What did Friedman and Phelps argue about the effectiveness of monetary policies?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

If technological change shifts the long-run aggregate-supply curve to the right,it will also do which of the following?

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 aggregate demand move the economy?

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

In 1980,how did the Canadian misery index compare to the average?

Correct AnswerverifiedShow Answer

Figure 16-2 -Refer to the Figure 16-2.If the economy starts at c and the money supply growth rate increases,where does the economy move to in the long run?

Correct AnswerverifiedShow Answer

Figure 16-4 -Refer to the Figure 16-4.If the economy is at point c and the Bank of Canada pursues an expansionary monetary policy,then the economy will move to which point in the short and long run?

Correct AnswerverifiedShow Answer

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