Econ Ch. 17 Quiz

Refer to Figure 35-6. If the economy starts at C and the money supply growth rate increases, in the long run the economy

c. moves to F.

As aggregate demand shifts left along the short-run aggregate supply curve,

c. unemployment is higher and inflation is lower.

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

d. None of the above is correct.

An increase in expected inflation shifts the

NOT b. short-run Phillips curve left.

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action will raise inflation and lower unemployment.

a. True

In the long run, the inflation rate depends primarily on the growth rate of the money supply.

a. True

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

a. True

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

a. True

​In a famous article published in 1958, A.W. Phillips used data for the United Kingdom to show a negative relationship between the rate of change of wages in the U.K. and the U.K. unemployment rate.

a. True

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.

According to the Philips curve diagram, if a central bank takes action to reduce the inflation rate, unemployment is

b. higher in the short-run only.

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

b. inflation rate.

An economy has a current inflation rate of 7%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, then how much annual output must be sacrificed in the transition?

c. 6%

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

c. a worldwide drought

Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the Phillips curve is

c. vertical, which implies that monetary and fiscal policies cannot influence the level of unemployment in the long run.

Which of the following played a role in depressing aggregate demand in 2001?

d. All of the above are correct.

A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician's argument is

d. inconsistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would increase inflation.

A.W. Phillips found a

d. negative relation between unemployment and inflation in the United Kingdom.

The long-run response to an increase in the growth rate of the money supply is shown by shifting

d. only the short-run Phillips curve right.

If people believe that the central bank is going to reduce inflation, then

d. the short-run Phillips curve shifts left and the sacrifice ratio will fall.