Question 1

-Refer to Exhibit 6 above.Suppose the economy is operating in long run equilibrium at point E.In the long run, a monetary contraction will move the economy in the direction of point

Accepted Answer

A)  A.
B)  B.
C)  F.
D)  H.
E)  I.F) C) and D)
G) D) and E)

Question 2

A policy of inflation targeting generally involves targeting the future rate of inflation because

Accepted Answer

A)  monetary policy changes made today will take time to have an effect on the economy.
B)  monetary policy involves changing interest rates and interest is paid annually.
C)  economists are only ever interested in the future.
D)  workers and their unions consider future inflation in their negotiations with employers.E) B) and D)
F) A) and D)

Question 3

Which of the following would tend to shorten recessions associated with the use of anti-inflation policies?

Accepted Answer

A)  People adjust their expectations of inflation slowly.
B)  People believe policy announcements made by economic policy makers.
C)  The short run Phillips curve does not shift immediately.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 4

According to the Phillips curve, in the short run, if policy makers choose an expansionary policy to lower the rate of unemployment,

Accepted Answer

A)  the economy will experience an increase in inflation.
B)  the economy will experience a decrease in inflation.
C)  inflation will be unaffected if price expectations are unchanging.
D)  None of these answers.E) None of the above
F) All of the above

Question 5

Suppose that a central bank unexpectedly pursues contractionary monetary policy.What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Accepted Answer

In the short run, unemployment will rise...

Question 6

If a country's policy makers were to continuously use expansionary monetary policy in an attempt to hold unemployment below the natural rate, the long run result would be

Accepted Answer

A)  an increase in the level of output.
B)  a decrease in the unemployment rate.
C)  an increase in the rate of inflation.
D)  all of these answers.E) None of the above
F) All of the above

Question 7

When actual inflation exceeds expected inflation, unemployment exceeds the natural rate.

Accepted Answer

A) True 
 B)False

Question 8

When unemployment is below the natural rate the labour market is unusually tight, putting pressure on wages and prices to rise.

Accepted Answer

A) True 
 B)False

Question 9

An increase in expected inflation will shift

Accepted Answer

A)  both the short run and the long run Phillips curves to the right.
B)  only the short run Phillips curve to the right.
C)  only the long run Phillips curve to the right.
D)  the short run Phillips curve to the right and increase the slope of the long-run Phillips curve.E) B) and C)
F) A) and B)

Question 10

The Phillips curve is an extension of the model of aggregate supply and aggregate demand because, in the short run, an increase in aggregate demand increases prices and

Accepted Answer

A)  decreases growth.
B)  decreases unemployment.
C)  increases unemployment.
D)  decreases inflation.E) None of the above
F) B) and C)

Question 11

The original Phillips curve illustrates the

Accepted Answer

A)  trade-off between inflation and unemployment.
B)  trade-off between output and unemployment.
C)  positive relationship between output and unemployment.
D)  positive relationship between inflation and unemployment.E) A) and C)
F) A) and B)

Question 12

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate.How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky wage theory to explain your answer.

Accepted Answer

If unemployment is above its natural rat...

Question 13

The natural rate hypothesis suggests that, in the long run, unemployment returns to its natural rate, regardless of inflation.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would shift the long run Phillips curve to the right?

Accepted Answer

A)  An increase in the minimum wage.
B)  An increase in expected inflation.
C)  An increase in the price of foreign oil.
D)  An increase in aggregate demand.E) B) and D)
F) B) and C)

Question 15

What did Milton Friedman and Edmund Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behaviour of the economy in the late 1960s and the 1970s prove them wrong?

Accepted Answer

Friedman and Phelps predicted that, over...

Question 16

An increase in price expectations shifts the Phillips curve upward and makes the inflation unemployment trade-off less favourable.

Accepted Answer

A) True 
 B)False

Question 17

The natural rate hypothesis argues that

Accepted Answer

A)  in the long run, the unemployment rate returns to the natural rate, regardless of inflation.
B)  unemployment is always below the natural rate.
C)  unemployment is always above the natural rate.
D)  unemployment is always equal to the natural rate.E) A) and C)
F) C) and D)

Question 18

A sudden monetary contraction moves the economy up a short run Phillips curve, reducing unemployment and increasing inflation.

Accepted Answer

A) True 
 B)False

Question 19

One explanation that economists offer to explain why a decline in the unemployment rate can raise the rate of inflation is that

Accepted Answer

A)  firms will be put in a position of competing more intensely for scarce resources.
B)  people will pay higher prices because competition among suppliers intensifies.
C)  workers will focus more directly on protecting their jobs.
D)  firms will refuse to shift higher labour costs along to consumers for fear of losing their markets.E) A) and B)
F) A) and C)

Question 20

In moving along a short run Phillips curve we are holding which of the following constant?

Accepted Answer

A)  The level of GDP.
B)  The actual inflation rate.
C)  The expected inflation rate.
D)  Employment.E) None of the above
F) A) and D)

Exam 17: The Short Run Trade-Off Between Inflation and Unemployment

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate.How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky wage theory to explain your answer.

Correct AnswerverifiedIf unemployment is above its natural rat...View AnswerShow Answer

A sudden monetary contraction moves the economy up a short run Phillips curve, reducing unemployment and increasing inflation.

Correct AnswerverifiedShow Answer

A policy of inflation targeting generally involves targeting the future rate of inflation because

Correct AnswerverifiedShow Answer

Which of the following would tend to shorten recessions associated with the use of anti-inflation policies?

Correct AnswerverifiedShow Answer

One explanation that economists offer to explain why a decline in the unemployment rate can raise the rate of inflation is that

Correct AnswerverifiedShow Answer

An increase in price expectations shifts the Phillips curve upward and makes the inflation unemployment trade-off less favourable.

Correct AnswerverifiedShow Answer

The natural rate hypothesis argues that

Correct AnswerverifiedShow Answer

The natural rate hypothesis suggests that, in the long run, unemployment returns to its natural rate, regardless of inflation.

Correct AnswerverifiedShow Answer

What did Milton Friedman and Edmund Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behaviour of the economy in the late 1960s and the 1970s prove them wrong?

Correct AnswerverifiedFriedman and Phelps predicted that, over...View AnswerShow Answer

The Phillips curve is an extension of the model of aggregate supply and aggregate demand because, in the short run, an increase in aggregate demand increases prices and

Correct AnswerverifiedShow Answer

Which of the following would shift the long run Phillips curve to the right?

Correct AnswerverifiedShow Answer

If a country's policy makers were to continuously use expansionary monetary policy in an attempt to hold unemployment below the natural rate, the long run result would be

Correct AnswerverifiedShow Answer

-Refer to Exhibit 6 above.Suppose the economy is operating in long run equilibrium at point E.In the long run, a monetary contraction will move the economy in the direction of point

Correct AnswerverifiedShow Answer

When actual inflation exceeds expected inflation, unemployment exceeds the natural rate.

Correct AnswerverifiedShow Answer

According to the Phillips curve, in the short run, if policy makers choose an expansionary policy to lower the rate of unemployment,

Correct AnswerverifiedShow Answer

The original Phillips curve illustrates the

Correct AnswerverifiedShow Answer

An increase in expected inflation will shift

Correct AnswerverifiedShow Answer

In moving along a short run Phillips curve we are holding which of the following constant?

Correct AnswerverifiedShow Answer

When unemployment is below the natural rate the labour market is unusually tight, putting pressure on wages and prices to rise.

Correct AnswerverifiedShow Answer

Suppose that a central bank unexpectedly pursues contractionary monetary policy.What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Correct AnswerverifiedIn the short run, unemployment will rise...View AnswerShow Answer

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If unemployment is above its natural rat...
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Friedman and Phelps predicted that, over...
View Answer

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In the short run, unemployment will rise...
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