ECON202 Ch. 22

Which of the following would cause the price level to fall and output to rise in the short run?

A favorable supply shock.

If the short-run Phillips curve were stable, which of the following would be unusual?

An increase in inflation and a decrease in output.

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

-People adjust their expectations of inflation rapidly. -People believe policy announcements made by central bank officials. -The short-run Phillips shifts rapidly.

Unemployment would decrease and prices would increase if...

Aggregate demand shifted right.

Which of the following would cause the price level to rise and output to fall in the short run?

An adverse supply shock.

Proponents of rational expectations argued that the sacrifice ratio...

Could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.

If the economy starts at C and 1, then in the short run, a decrease in aggregate demand moves the economy to...

D and 3.

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run?

Expected inflation would exceed actual inflation, and unemployment would exceed its natural rate.

Starting from C and 3, in the long run, an increase in money supply growth moves the economy to...

F and 5.

In the long run...

Inflation depends primarily upon the money supply growth rate.

If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?

Inflation expectations fall which shifts the short-run Phillips curve to the left.

In the long run, inflation...

Is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors.

If a central bank decreases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?

The price level but not output.

If people correctly anticipate that inflation will fall by 1%, then...

The short-run Phillips curve shifts left and unemployment is unchanged.

In the long run, if there is an increase in the money supply growth rate, which of the following curves shifts right?

The short-run but not the long-run Phillips curve.

In the late 1960s, Milton Friedman and Edmund Phelps argued that...

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.

According to Friedman and Phelps's analysis of the Phillips Curve...

The unemployment rate will be below its natural rate only if inflation is greater than expected.

The arguments of Friedman and Phelps would suggest that other things the same, a country that pursues a disinflationary policy that the public does not find completely credible...

Will have rising unemployment for a while, but then return to the natural rate of unemployment.

A central bank sets out to reduce unemployment by changing the money supply growth rate. The long-run Phillips curve shows that in comparison to their original rates, this policy will eventually lead to...

An increase in the inflation rate and no change in the unemployment rate.

If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to...

B and 2.

France has a higher natural rate of unemployment than the US. This suggests that...

France's Phillips curve is to the right of that of the US, possibly because they have more generous unemployment compensation.

For a number of years, Canada and many European countries have had higher average unemployment rates than the US. The Phillips curve suggests that these countries...

Have long-run Phillips curves to the right of the US.

Suppose that the central bank unexpectedly increases the growth rate of the money supply. In the short run, the effects of this are shown by...

Moving to the left along the short-run Phillips curve.

Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run, the effects of this are shown by...

Moving to the right along the short-run Phillips curve.

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

Susan reduces prices at her pizza restaurant.