Unit 5

Structural unemployment occurs because

structural shifts in the economy eliminate certain jobs from declining sectors.

Which of the following is downward-sloping?

the short-run Phillips curve, but not the long-run Phillips curve

As the aggregate demand curve shifts leftward along a given aggregate supply curve,

unemployment is higher and inflation is lower.

The long run Phillips curve ________.

All of the above are correct.

Which of the following increases the amount of aggregate supply at all price levels?

All of the above are correct. older labor force, technology, a decline..

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

A policy change that changes the natural rate of unemployment changes

both the long-run Phillips curve and the long-run aggregate supply curve.

In the long run, an economy's inflation rate is determined almost solely by

both the rate of money growth and the rate of real GDP growth.

A decrease in government spending

decreases the interest rate and so investment spending increases.

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

downward pressures on prices and wage

In the short run, we observe an increase in inflation and employment. Which of the following could be the cause?

either an increase in government expenditures by itself or an increase in the money supply growth rate by itself

In the long run, an increase in the money supply growth rate

expansionary monetary policy, but not a reduction in the natural rate of unemployment

A policy intended to reduce unemployment by taking advantage of a tradeoff between inflation and unemployment leads to

higher inflation and no change in unemployment in the long run

Frictional unemployment occurs because

it takes time for people seeking jobs and employers seeking workers to find each other.

Contractionary monetary policy

leads to disinflation and makes the short-run Phillips curve shift left.

If taxes rise, then aggregate demand shifts

left, making unemployment higher than otherwise.

Mokania has had inflation of 15% for many years. As a result, Mokania established a new central bank, the Bank of Mokania, with the hopes of reducing the inflation rate. The Bank of Mokania reduced inflation to its announced goal of 5%. However, people were expecting inflation to fall to 7% and there was a favorable supply shock (one that has the opposite effect of that of an adverse supply shock). In the short run which of the following made unemployment lower than otherwise?

only the favorable supply shock

fill in the blanks.

phillips, stagflation, recovery

In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run this change should have

raised inflation and reduced unemployment.

In the early 1970s, the short-run Phillips curve shifted

rightward as inflation expectations rose.

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

rises so unemployment falls.

If the Federal Reserve decided to raise interest rates, it could

sell bonds to lower the money supply.

Which of the following statements is incorrect?

The LRPC shifts when there is a change in inflation expectations.

Most of the times when an economy grows normally, it is good to have

low unemployment and low inflation.

There are two possible outcomes about the economy next year. We will have outcome A if there is a small increase in AD. We will have outcome B if there is a large increase in AD. Comparing the two outcomes, inflation in outcome A is ________ than that in outcome B; unemployment in outcome A is ________ than that in outcome B.

lower; higher

As real GDP falls,

money demand falls, so the interest rate falls

In the first half of June 2008, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. The short-run effects of rising world commodity prices are shown by

shifting the short-run Phillips curve right.

According to the equation of exchange, rapid increases in money supply almost always lead to rapid increases in

the price level.

According to the equation of exchange, if real GDP and money supply stays the same,

the rate of inflation equals the rate of change in money velocity