Chapter 22 Quiz Answers

The economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's argument

is true for the short run but not the long run

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

long run, and the natural rate is constant over time

Proponents of rational expectations theory argues that, in the most extreme case, if policymakers are credibly committed to reducing inflation and rational people understand that commitment and quickly lower their inflation expectations, the sacrifice ratio could be as small as

0

If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

2 percent of annual output

The short-run Phillips curve intersects the long-run Phillips curve where

Both A and B are correct

Any policy change that reduced the natural rate of unemployment would

all of the above are correct

Friedman and Phelps argued that

any change in unemployment created by making aggregate demand increase more rapidly is temporary because apple eventually revise their inflation expectations

In 2007 and 2008 households and firms reduced desire expenditures. During the same period inflation fell and unemployment rose,

both the change in inflation and the change in unemployment are consistent with what a given short-run Phillips curve implies

Which of the following statements is correct

in the short-run, unemployment and inflation are negatively related. In the long run they are unrelated problems

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

inflation expectations fall which shifts the short-run Phillips curve left

In responding to the Phillips curve hypothesis, Friedman argued that the Fed can peg the

inflation rate

According to Friedman and Phelps, the unemployment rate is above the natural rate when actual inflation

is less than expected inflation

If policymakers expand aggregate demand, then in the long run

prices will be higher and unemployment will be unchanged

If there is an adverse supply shock and the Federal Reserve responds by the increasing growth rate of the money supply, then in the short run the Federal Revere's action

raises inflation but lowers unemployment

An increase in expected inflation shifts

the short-run Phillips curve right

If people anticipate higher inflation, but inflation remains the same then

the short-run Phillips curve would shift right and unemployment would rise

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 having rising unemployment for a while, but then return to the natural rate of unemployment