Question 1

Which statement best describes how the natural rate of unemployment changes?

Accepted Answer

A)   It cannot change; it is constant over time.
B)   It does not change by any actions of the government.
C)   It changes if the maximum legal number of work hours a week changes.
D)   It changes if the rate at which the Bank of Canada increases the money supply changes.E) None of the above
F) B) and D)

Question 2

In the long run, what will happen if the Bank of Canada increases the rate at which it increases the money supply?

Accepted Answer

A)   Inflation will be higher.
B)   Unemployment will be lower.
C)   Real GDP will be higher.
D)   Unemployment will be higher.E) B) and C)
F) C) and D)

Question 3

What would we NOT expect to happen if government policy moved the economy up along a given short-run Phillips curve?

Accepted Answer

A)   Ravi reads in the newspaper that the central bank decreased the money supply.
B)   Tony gets more job offers.
C)   Louis makes larger increases in the prices at his health food store.
D)   Jessica's nominal wage increases at a faster rate.E) A) and B)
F) A) and C)

Question 4

More flexible labour markets will shift the long-run Phillips curve and the long-run aggregate-supply curve in which direction?

Accepted Answer

A)   They will shift both the long-run Phillips curve and the long-run aggregate-supply curve to the right.
B)   They will shift both the long-run Phillips curve and the long-run aggregate-supply curve to the left.
C)   They will shift the long-run Phillips curve to the right and the long-run aggregate-supply curve to the left.
D)   They will shift the long-run Phillips curve to the left and the long-run aggregate-supply curve to the right.E) B) and D)
F) All of the above

Question 5

Who releases the closely watched indicators such as the inflation rate and unemployment each month?

Accepted Answer

A)   Department for Business, Innovation, and Skills
B)   Ministry of Finance
C)   Department of the Treasury
D)   Statistics CanadaE) None of the above
F) B) and C)

Question 6

Figure 16-2
 
-Refer to the Figure 16-2. What is Curve 1?

Accepted Answer

A)   the long-run aggregate-supply curve
B)   the short-run aggregate-supply curve
C)   the long-run Phillips curve
D)   the short-run Phillips curveE) None of the above
F) A) and B)

Question 7

Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 5 percentage points for four years, and it made the unemployment rate rise from 3 percent to 9 percent for three years. What is the sacrifice ratio?

Accepted Answer

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

Question 8

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

Although monetary policy cannot reduce the natural rate of unemployment, other types of policies can.

Accepted Answer

A) True 
 B)False

Question 11

What does the position of the long-run Phillips curve depend on?

Accepted Answer

A)   the natural rate of unemployment
B)   the actual rate of unemployment
C)   the actual inflation rate
D)   the expected inflation rateE) A) and B)
F) B) and D)

Question 12

Which equation summarize the analysis of Friedman and Phelps (where a is a positive number) ?

Accepted Answer

A)   unemployment rate = natural rate of unemployment - a(actual inflation - expected inflation) 
B)   unemployment rate = natural rate of unemployment - a(expected inflation - actual inflation) 
C)   unemployment rate = expected rate of inflation - a(actual inflation - expected inflation) 
D)   unemployment rate = actual rate of inflation - a(actual unemployment - expected unemployment) E) A) and C)
F) A) and D)

Question 13

Which of the following is an adverse supply shock?

Accepted Answer

A)   a decrease in the money supply
B)   a tax cut
C)   a worldwide drought
D)   decreased government spendingE) B) and C)
F) A) and D)

Question 14

In the Friedman-Phelps analysis, when inflation is less than expected, unemployment is greater than the natural rate.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)   a and 1
B)   b and 2
C)   e and 5
D)   d and 4E) B) and C)
F) C) and D)

Question 16

In the long run, what are the effects of a decrease in the rate of growth of the money supply?

Accepted Answer

A)   It will increase inflation and shift the short-run Phillips curve right.
B)   It will increase inflation and shift the short-run Phillips curve left.
C)   It will decrease inflation and shift the short-run Philips curve right.
D)   It will decrease inflation and shift the short-run Phillips curve left.E) B) and D)
F) A) and B)

Question 17

What happened to expected inflation in Canada during the 1970s?

Accepted Answer

A)   It increased substantially.
B)   It increased slightly.
C)   It decreased slightly.
D)   It decreased substantially.E) A) and B)
F) C) and D)

Question 18

According to Phelps and Friedman, in the short run, what effect does an increase in the money supply have on prices and unemployment?

Accepted Answer

A)   It raises prices and unemployment.
B)   It raises prices and reduces unemployment.
C)   It reduces prices and raises unemployment.
D)   It reduces prices and leaves unemployment unchanged.E) All of the above
F) C) and D)

Question 19

Some countries have inflation in excess of 20 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 20 percent to 6 percent?

Accepted Answer

The sacrifice ratio gives the annual per...

Question 20

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

Accepted Answer

A) True 
 B)False

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

What does the position of the long-run Phillips curve depend on?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Who releases the closely watched indicators such as the inflation rate and unemployment each month?

Correct AnswerverifiedShow Answer

Which of the following is an adverse supply shock?

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What would we NOT expect to happen if government policy moved the economy up along a given short-run Phillips curve?

Correct AnswerverifiedShow Answer

In the Friedman-Phelps analysis, when inflation is less than expected, unemployment is greater than the natural rate.

Correct AnswerverifiedShow Answer

What happened to expected inflation in Canada during the 1970s?

Correct AnswerverifiedShow Answer

Which statement best describes how the natural rate of unemployment changes?

Correct AnswerverifiedShow Answer

More flexible labour markets will shift the long-run Phillips curve and the long-run aggregate-supply curve in which direction?

Correct AnswerverifiedShow Answer

Which equation summarize the analysis of Friedman and Phelps (where a is a positive number) ?

Correct AnswerverifiedShow Answer

Some countries have inflation in excess of 20 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 20 percent to 6 percent?

Correct AnswerverifiedThe sacrifice ratio gives the annual per...View AnswerShow Answer

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long run, what will happen if the Bank of Canada increases the rate at which it increases the money supply?

Correct AnswerverifiedShow Answer

Although monetary policy cannot reduce the natural rate of unemployment, other types of policies can.

Correct AnswerverifiedShow Answer

According to Phelps and Friedman, in the short run, what effect does an increase in the money supply have on prices and unemployment?

Correct AnswerverifiedShow Answer

In the long run, what are the effects of a decrease in the rate of growth of the money supply?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 5 percentage points for four years, and it made the unemployment rate rise from 3 percent to 9 percent for three years. What is the sacrifice ratio?

Correct AnswerverifiedShow Answer

Figure 16-2 -Refer to the Figure 16-2. What is Curve 1?

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The sacrifice ratio gives the annual per...
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