macroeconomics quiz 22 and 23

A vertical long-run Phillips curve is consistent with

both the conclusion of Friedman and Phelps and the classical idea of monetary neutrality.

A law that requires the money supply to grow by a fixed percentage each year would eliminate

both the time inconsistency problem and political business cycles.

The short-run relationship between inflation and unemployment is often called

The Phillips curve.

Suppose Congress decides to reduce government expenditures by reducing its purchases of weapons systems. Which of the following would you expect to occur as a result of this change?

The economy will move down and to the right along the short-run Phillips Curve.

Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust economic growth.

True

An economy has a current inflation rate of 9%. If the central bank wants to reduce inflation to 3% and the sacrifice ratio is 2, then how much annual output must be sacrificed in the transition?

(9-3)x2

President Barack Obama and Congress cut taxes and raised government expenditures during the 2008 financial crisis. According to the aggregate supply and aggregate demand model, which of these policies would tend to reduce unemployment?

Both the tax cut and the increase in government expenditures

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

False

Tax cuts affect only aggregate demand not aggregate supply.

False

If the central bank decreases the money supply, in the short run, output

falls so unemployment rises.

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

false

The Fed lowered interest rates in 2007 and 2008. This implies, other things the same, that the Fed

increased the money supply because it was concerned about unemployment.

The Federal Reserve will tend to tighten monetary policy with the goal is to stabilize the economy when

it thinks inflation is too high today, or will become too high in the future.

A consumption tax that replaces an income tax

only taxes a household on the money it spends.

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

rise and unemployment falls.

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

true

Social Security transfers wealth from younger generations to older generations.

true