Question 1

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 run

Question 2

Which statement best characterizes the theory of rational expectations?

Accepted Answer

A)   It suggests that estimates of the sacrifice ratio should be used to guide policy.
B)   It concerns how people use information to predict the future.
C)   It explains why the long-run Phillips curve is vertical.
D)   It explains how people act when there is unemployment and workers must be rationed.

Question 3

How does the short-run Phillips curve reflect a financial crisis such as the one in 2008-2009?

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 curve

Question 4

Economists generally agree that there is a short-run Phillips curve. However, some economists believe that the short-run Phillips curve is steep and that inflation expectations adjust quickly so the long run is short-lived. What do such beliefs imply about the benefits of using policy to reduce unemployment? What do such beliefs imply about the costs of using policy to reduce inflation?

Accepted Answer

If the Phillips curve is steep, then an ...

Question 5

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. Change the expected inflation to 3 percent and draw the new Phillips curve. How did it change?

Accepted Answer

The 3 percent expected inflation SRPC is...

Question 6

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.

Question 7

When aggregate demand increases, what happens to prices and employment?

Accepted Answer

A)   Prices will fall and unemployment will rise.
B)   Prices and unemployment fall.
C)   Prices and unemployment rise.
D)   Prices will rise and unemployment will fall.

Question 8

In the long run, what does the inflation rate primarily depend on?

Accepted Answer

A)   the ability of unions to raise wages
B)   government spending
C)   the money supply growth rate
D)   tax rates

Question 9

Friedman argued that a central bank could use monetary policy to peg which of the following?

Accepted Answer

A)   the nominal exchange rate
B)   the real GDP growth rate
C)   the unemployment rate
D)   the interest rate

Question 10

According to Phillips, which set of two items have a negative relation?

Accepted Answer

A)   output and unemployment
B)   output and employment
C)   wage inflation and output
D)   wage inflation and unemployment

Question 11

In which situation will the economy move to a point on the Phillips curve where unemployment is higher?

Accepted Answer

A)   if the inflation rate increases
B)   if the government increases its expenditures
C)   if the Bank of Canada decreases the money supply
D)   if expected inflation increases

Question 12

If there is a favourable supply shock, what will most likely happen?

Accepted Answer

A)   The aggregate supply curve and the short-run Phillips curve will both shift right.
B)   The aggregate supply curve and the short-run Phillips curve will both shift left.
C)   The aggregate supply curve will shift right, and the short-run Phillips curve will shift left.
D)   The aggregate supply curve will shift left, and the short-run Phillips curve will shift right.

Question 13

Are the effects of an increase in aggregate demand in the AD-AS model consistent with the Phillips curve? Explain.

Accepted Answer

Consider what happens when the aggregate...

Question 14

Who is a leading economist in the theory of rational expectations?

Accepted Answer

A)   Adam Smith
B)   Richard Lipsey
C)   William Phillips
D)   Thomas Sargent

Question 15

If policymakers accommodate an adverse supply shock, what will happen to the unemployment rate and inflation?

Accepted Answer

A)   The unemployment rate and the inflation rate will rise.
B)   The unemployment rate and the inflation rate will fall.
C)   The unemployment rate will rise and the inflation rate will fall.
D)   The unemployment rate will fall and the inflation rate will rise.

Question 16

In the short run, policy that decreases the aggregate demand also decreases which of the following?

Accepted Answer

A)   the price level
B)   the unemployment rate
C)   the aggregate supply
D)   the natural rate of unemployment

Question 17

Figure 16-4
 
-Refer to the Figure 16-4. 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 and long run?

Accepted Answer

A)   point d in the short run and point c in the long run
B)   point b in the short run and point c in the long run
C)   point c in the long-run and point a in the long run
D)   point m in the short run and point c in the long run

Question 18

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.

Question 19

In the nineteenth century, some countries were on gold standards so that on average the money supply growth rate was close to zero and expected inflation was more or less constant. For these countries during this time period, we find that increases in inflation were generally associated with falling unemployment. Are these findings consistent with Friedman and Phelps's theories, and why?

Accepted Answer

A)   Yes, because they argued that when inflation was higher than expected, unemployment would fall.
B)   Yes, because they argued that when prices rose unemployment would fall, whether actual inflation was higher than expected or not.
C)   No, because they argued that inflation and unemployment are negatively correlated.
D)   No, because they argued that inflation and unemployment were unrelated.

Question 20

Which of the following data supported A.W. Phillips' findings?

Accepted Answer

A)   data from 1861-1957 for the United Kingdom
B)   data from 1861-1957 for the United States
C)   data mostly from the post-World War II period in the United Kingdom
D)   data mostly from the post-World War II period in the United States

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

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 Answer
verified

Who is a leading economist in the theory of rational expectations?

Correct Answer
verified

If there is a favourable supply shock, what will most likely happen?

Correct Answer
verified

Figure 16-4 -Refer to the Figure 16-4. 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 and long run?

Correct Answer
verified

In which situation will the economy move to a point on the Phillips curve where unemployment is higher?

Correct Answer
verified

Correct Answer
verified

In the long run, what does the inflation rate primarily depend on?

Correct Answer
verified

When aggregate demand increases, what happens to prices and employment?

Correct Answer
verified

In the short run, policy that decreases the aggregate demand also decreases which of the following?

Correct Answer
verified

Friedman argued that a central bank could use monetary policy to peg which of the following?

Correct Answer
verified

If policymakers accommodate an adverse supply shock, what will happen to the unemployment rate and inflation?

Correct Answer
verified

How does the short-run Phillips curve reflect a financial crisis such as the one in 2008-2009?

Correct Answer
verified

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

Correct Answer
verified

Which statement best characterizes the theory of rational expectations?

Correct Answer
verified

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 Answer
verified

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. Change the expected inflation to 3 percent and draw the new Phillips curve. How did it change?

Correct Answer
verified
The 3 percent expected inflation SRPC is...
View Answer

According to Phillips, which set of two items have a negative relation?

Correct Answer
verified

Which of the following data supported A.W. Phillips' findings?

Correct Answer
verified

Are the effects of an increase in aggregate demand in the AD-AS model consistent with the Phillips curve? Explain.

Correct Answer
verified
Consider what happens when the aggregate...
View Answer

Correct Answer
verified
If the Phillips curve is steep, then an ...
View Answer

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

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

Who is a leading economist in the theory of rational expectations?

Correct AnswerverifiedShow Answer

If there is a favourable supply shock, what will most likely happen?

Correct AnswerverifiedShow Answer

Figure 16-4 -Refer to the Figure 16-4. 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 and long run?

Correct AnswerverifiedShow Answer

In which situation will the economy move to a point on the Phillips curve where unemployment is higher?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the long run, what does the inflation rate primarily depend on?

Correct AnswerverifiedShow Answer

When aggregate demand increases, what happens to prices and employment?

Correct AnswerverifiedShow Answer

In the short run, policy that decreases the aggregate demand also decreases which of the following?

Correct AnswerverifiedShow Answer

Friedman argued that a central bank could use monetary policy to peg which of the following?

Correct AnswerverifiedShow Answer

If policymakers accommodate an adverse supply shock, what will happen to the unemployment rate and inflation?

Correct AnswerverifiedShow Answer

How does the short-run Phillips curve reflect a financial crisis such as the one in 2008-2009?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which statement best characterizes the theory of rational expectations?

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

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. Change the expected inflation to 3 percent and draw the new Phillips curve. How did it change?

Correct AnswerverifiedThe 3 percent expected inflation SRPC is...View AnswerShow Answer

According to Phillips, which set of two items have a negative relation?

Correct AnswerverifiedShow Answer

Which of the following data supported A.W. Phillips' findings?

Correct AnswerverifiedShow Answer

Are the effects of an increase in aggregate demand in the AD-AS model consistent with the Phillips curve? Explain.

Correct AnswerverifiedConsider what happens when the aggregate...View AnswerShow Answer

Correct AnswerverifiedIf the Phillips curve is steep, then an ...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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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The 3 percent expected inflation SRPC is...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Consider what happens when the aggregate...
View Answer

Correct Answer
verified
If the Phillips curve is steep, then an ...
View Answer