Reading Quiz Chapter 22

An event that directly affects firms' costs of production and thus the prices they charge is called A. a supply shock. B. a demand shock. C. an inflationary spiral. D. a Phillips contraction.

A. a supply shock.

In the late 1960s, Milton Friedman and Edmund Phelps argued that A. the trade-off between inflation and unemployment did not apply in the long run This claim is consistent with monetary neutrality in the long run. B. the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is consistent with monetary neutrality in the long run. C. the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is inconsistent with monetary neutrality in the long run. D. the trade-off between inflation and unemployment did not apply in the long run. This claim is inconsistent with monetary neutrality in the long run.

A. the trade-off between inflation and unemployment did not apply in the long run This claim is consistent with monetary neutrality in the long run.

The misery index is calculated as the A. natural unemployment rate times the inflation rate B. inflation rate plus the unemployment rate. C. unemployment rate minus the inflation rate. D. actual inflation rate minus the expected inflation rate.

B. inflation rate plus the unemployment rate.

Economist A.W. Phillips found a negative correlation between A. output and the interest rate. B. wage inflation and unemployment. C. output and unemployment. D. unemployment and the interest rate.

B. wage inflation and unemployment.

Which of the following is an example of an adverse supply shock? A. a decrease in the money supply B. a tax cut C. a worldwide drought D. decreased government spending

C. a worldwide drought.

In 1979, Fed chair Paul Volcker decided to pursue a policy A. that maintained money growth at its current level. B. that would create falling prices. C. that would lead to disinflation. D. to accommodate continuing adverse supply shocks.

C. that would lead to disinflation.

The short-run relationship between inflation and unemployment is often called A. Money Neutrality. B. the Classical Dichotomy. C. the Phillips curve. D. None of the above is correct.

C. the Phillips curve.

Disinflation is defined as a A. negative rate of inflation. B. constant rate of inflation. C. zero rate of inflation. D. reduction in the rate of inflation.

D. reduction in the rate of inflation.

In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that A. monetary policy was ineffective in combating inflation. B. Phillips had made errors in collecting his data. C. it seemed to work for wages but not for inflation. D. the Phillips curve did not apply in the long run.

D. the Phillips curve did not apply in the long run

In the long run, the inflation rate depends primarily on the growth rate of the money supply. a. TRUE b. FALSE

a. TRUE

Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run. a. TRUE b. FALSE

a. TRUE

In the long run, the natural rate of unemployment depends primarily on the growth rate of the money supply. a. TRUE b. FALSE

b. FALSE