Econ Quiz 22

Which of the following would not tend to shorten recessions associated with anti-inflation policies by central banks?

The long-run Phillips curve shifts to the right.

Which of the following is the socially optimal rate of unemployment?

The socially optimal rate of unemployment is determined by society's values and is not necessarily the natural rate or full-employment rate of unemployment nor is it zero.

Fiscal policy can be used to move the economy along the short-run Phillips curve.

True

Which of the following is correct?

Unemployment can be changed by the use of government policy, but other sources of change are possible.

In the equation for the short-run Phillips curve, the parameter that measures how much actual unemployment responds to unexpected inflation is a.u

a

In 2001, Congress and President Bush instituted a change in tax policy. According to the short-run Phillips curve, this change should have raised inflation and reduced unemployment. The change in tax policy must have been

a cut

Which of the following would shift the long-run Phillips curve left?

a decrease in the natural rate of unemployment

According to the natural-rate hypothesis, the expansionary policies of the 1960s would result in ____ in the 1970s.

a return to higher unemployment

Which of the following is an example of an adverse supply shock?

a worldwide blight that damages grain crops

If the response to an adverse supply shock leads to an increase in the money supply and a rise in inflation, the central bank is said to

accommodate the adverse supply shock.

The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right when there is a(n)

adverse supply shock.

For much of the 1960s, data for the United States traced out a(n)

almost perfect downward-sloping Phillips curve.

If money were not neutral and the long-run Phillips curve sloped downward, then

an increase in inflation would permanently reduce unemployment.

In the long run, which of the following would shift the long-run Phillips curve to the left?

an increase in right-to-work laws that limit collective bargaining

If there is an adverse supply shock and the Federal Reserve takes action that raises inflation but lowers unemployment in the short run, the action must have been

an increase in the growth rate of the money supply.

Which of the following policies increases inflation and shifts the short-run Phillips curve right?

an increase in the money supply growth rate

Refer to the Figure. A significant worldwide drought could explain

both the shift of the aggregate-supply curve from AS1 to AS2 and the shift of the Phillips curve from PC1 to PC2.

Suppose that the money supply increases. In the short run, this increases prices according to

both the short-run Phillips curve and the aggregate demand and aggregate supply model.

Which of the following did not play a role in depressing aggregate demand in 2001?

collapse of housing prices

If the sacrifice ratio is 2, reducing the inflation rate from 3 percent to 1 percent would

cost 4 percent of annual output.

If the Fed wants to reverse the effects of an adverse supply shock on inflation, it should

decrease the money supply growth rate which raises the unemployment rate.

When aggregate demand shifts leftward along the short-run aggregate-supply curve, inflation

decreases and unemployment increases.

A reduction in the rate of inflation is

disinflation

Output fell, but by less than the typical estimate of the sacrifice ratio suggested, during the Volcker

disinflation

Slowing a car down is like ________, whereas putting the car into reverse gear is like ________.

disinflation; deflation

Refer to the Figure. If the economy starts at C and 1, then in the short run, a decrease in taxes moves the economy to

B and 2

An increase in government expenditures serves as an example of an adverse supply shock.

False

A decrease in the natural rate of unemployment shifts the long-run Phillips curve to the left.

True

Unemployment would increase and prices would decrease if

aggregate demand shifts left.

According to ________ macroeconomic theory, in the long run monetary growth affects nominal but not real variables.

classical

Because people might adjust their expectations quickly if they found anti-inflation policy credible, the sacrifice ratio could be low according to proponents of

rational expectations.

According to Friedman and Phelps, when actual inflation is less than expected inflation, the

unemployment rate is above the natural rate.

According to the short-run Phillips curve, inflation

would rise and unemployment would fall if policymakers increased the money supply.

The long-run Phillips curve would shift to the right if

effective job-training programs were eliminated, but not if the money supply growth rate increased.

A key to supporting the Friedman and Phelps hypothesis regarding the short-run and long-run relationships between inflation and unemployment was the role of ____

expected inflation

If the government cuts government expenditures, then in the short run prices

fall and unemployment rises.

A given short-run Phillips curve shows that a decrease in the inflation rate will be accompanied by a lower unemployment rate in the short run.

false

Long-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation.

false

The long-run Phillips curve is not consistent with monetary neutrality implied by the classical dichotomy.

false

The proliferation of Internet usage serves as an example of an adverse supply shock.

false

A rightward shift in short-run aggregate supply results from a(n)

favorable supply shock.

The central bank would decrease the money supply to counter rising output in response to a(n)

favorable supply shock.

Other things the same, a country that decides to increase inflation will

have a lower unemployment rate only in the short run.

Samuelson and Solow argued that there is downward pressure on wages and prices when unemployment is

high

From 2006 to 2009, aggregate demand shifted to the left because of a crisis in the

housing market

Policymakers prefer both low inflation and low unemployment. The historical data summarized by the Phillips curve indicate that this combination of:

impossible

Refer to the Figure. The economy would move from C to F

in the long run if money supply growth increases.

If output rises and unemployment falls, the central bank must have done what to the money supply?

increased

The Federal Reserve might move unemployment lower in the short run but not the long run by ________ the rate at which it increases the money supply.

increasing

Prime Minister Emma Bigshot urges passage of a bill to increase unemployment benefits to very generous levels in her country. She also urges her country's central bank to raise the rate at which the money supply is increasing. In the long run which, if either, of these policies will increase the unemployment rate?

increasing the generosity of unemployment benefits but not raising the rate at which the money supply is increasing

If the unemployment rate is above the natural rate, then

inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift left.

An increase in inflation expectations shifts the short-run Phillips curve right while the long-run Phillips curve

is not affected

If inflation expectations fall, the short-run Phillips curve shifts

left. If inflation remains the same, unemployment falls.

Monetary policy cannot change the natural rate of unemployment, but other government policies can. To which of the following curves does this statement apply?

long-run Phillips

Consider two countries: Eastland and Westland. Eastland's long run Phillips curve sits further to the right than does Westland's long run Phillips curve. Eastland and Westland are identical in all other ways. In particular, they have the same money supply growth rates. In the long run, compared to Eastland, which of the following will we observe in Westland?

lower unemployment and the same rate of inflation

In the long run, a decrease in the money supply

lowers prices and leaves unemployment unchanged.

Favorable supply shocks that shifted the short-run Phillips curve left and kept both inflation and unemployment low occurred in the

mid and last part of the 1990s.

If expected inflation decreases, which of the following shifts right?

neither the long-run nor the short-run Phillips curve

In which case, if any, will inflation not remain higher after a temporary adverse supply shock?

only if the central bank does nothing

According to the theory of rational expectations, people ____

optimally use all the information they have when forecasting the future.

Refer to the Figure. Stagflation would be represented by a movement of the economy from

point A to point B, and at the same time a movement from point C to point D.

An adverse supply shock

raises unemployment and the inflation rate.

The sacrifice ratio could be as small as zero according to proponents of

rational expectations theory.

There is a temporary favorable supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

reduce the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve left.

In the short run, an adverse supply shock would cause the price level to

rise and output to fall.

The number of percentage points annual output falls for each percentage point reduction in inflation is the

sacrifice ratio

Suppose that a small economy that produces mostly agricultural goods experiences a year with exceptionally bad conditions for growing crops. The bad weather would

shift the short-run aggregate-supply curve to the left, and the short-run Phillips curve to the right.

Unemployment is higher and inflation is lower as the aggregate-demand curve ________ a given aggregate supply curve.

shifts leftward along

The Greenspan era can be characterized as being one that ____

the Federal Reserve was careful to avoid the policy mistakes of the 1960s.

Which of the following periods of U.S. economic history featured the short-run Phillips curve shifting to the left, but not the long-run Phillips curve?

the Volcker disinflation

It is unanticipated inflation, not inflation per se, that causes

the change in unemployment associated with a change in inflation.

The economy will move to a point on the short-run Phillips curve where unemployment is lower if

the inflation rate increases.

According to the Phillips curve, unemployment and inflation are not related at all in

the long run, but not in the short run.

If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities does not move closer to its pre-shock value as a result?

the price level but not output

Refer to the Figure. What is measured along the horizontal axis of the left-hand graph?

the quantity of output

Refer to the Figure . Which curve offers policymakers a "menu" of combinations of inflation and unemployment?

the right-hand graph

Refer to the Figure. Which graph measures the inflation rate along its vertical axis?

the right-hand graph

Refer to the Figure. Which graph measures the unemployment rate along its horizontal axis?

the right-hand graph

Which of the following is not associated with an adverse supply shock?

the short-run aggregate-supply curve shifts right

Refer to the Figure. What is measured along the horizontal axis of the right-hand graph?

the unemployment rate

Other things the same, if there is a decrease in the money supply growth rate that is larger than expected, then in the short run

the unemployment rate will be above its natural rate.

In which of the following periods of U.S. economic history did expected inflation appear not to fall and the short-run Phillips curve remained relatively stable as a result?

the very low inflation in 2009 and 2010

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift left.

true

A low sacrifice ratio would make a central bank more willing to reduce the inflation rate.

true

If prices and wages adjusted rapidly and producers could quickly distinguish the difference between a change in the price level and a change in the relative price of their products, then a decrease in the money supply growth rate would have at most a very short-lived effect on unemployment.

true

The sacrifice ratio of the Volcker disinflation was smaller than previous estimates had predicted.

true

If there is a decrease in the price of oil, then

unemployment falls. If the central bank tries to counter this decrease, inflation falls.

Over the course of 2 years, if a central bank reduced inflation by 4 percentage points and that made output fall by 2 percentage points for 2 years and the unemployment rate rise from 3 percent to 5 percent for 2 years, the sacrifice ratio is

1

Refer to the Figure. The long-run Phillips curve is Curve

1

In the United States, expected inflation rose substantially during the

1970s

The U.S. economy had an inflation rate of more than 9 percent and an unemployment rate of about 7 percent in

1980

Refer to the Figure. The short-run Phillips curve is Curve

2

Suppose that an economy is currently experiencing 10 percent unemployment and 15 percent inflation. If in the process of bringing inflation down by 2 percentage points, real GDP falls by 6 percent for a year, the sacrifice ratio is

3

If a central bank reduces inflation 2 percentage points and this makes output fall 5 percentage points and unemployment rise 3 percentage points for one year, the sacrifice ratio is

5/2.

A negative correlation between wage inflation and unemployment was found by economist

A. W. Phillips.

Refer to the Figure. If the economy starts at C and 1, then in the short run, an increase in aggregate demand moves the economy to

B and 2

Which of the following Scenarios is consistent with typical estimates of the sacrifice ratio?

Inflation is reduced from 2 percent to 1 percent, and annual output falls by 5 percent.

Which of the following would we not expect if government policy moved the economy down along a given short-run Phillips curve?

Jackie gets more job offers.

Samuelson and Solow believed that policymakers could find a menu of possible economic outcomes from which to choose by using the ________ curve.

Phillips

Which of the following would cause a move to the right along the short-run Phillips curve?

The central bank pursues an unexpectedly tight monetary policy.