Question 1

Which of the following best defines the sacrifice ratio?

Accepted Answer

A)   the sum of the inflation and unemployment rates
B)   the inflation rate divided by the change in output
C)   the number of percentage points annual output falls for each percentage point reduction in inflation
D)   the number of percentage points unemployment rises for each percentage point reduction in inflation

Question 2

Figure 17-2 
-Refer to Figure 17-2. What is Curve 1?

Accepted Answer

A)   the long-run aggregate-supply curve
B)   the short-run aggregate-supply curve
C)   the long-run Phillips curve
D)   the short-run Phillips curve C

Question 3

Suppose that in response to an adverse aggregate supply shock, the Bank of Canada increased the money supply. What would happen to unemployment and inflation?

Accepted Answer

A)   Unemployment and inflation would both rise.
B)   Unemployment and inflation would both fall.
C)   Unemployment would rise and inflation would fall.
D)   Unemployment would fall and inflation would rise.

Question 4

In the long run, if the Bank of Canada decreases the rate at which it increases the money supply, what will happen to inflation and unemployment?

Accepted Answer

A)   Inflation and unemployment will be higher.
B)   Inflation will be higher and unemployment will be lower.
C)   Inflation will be lower and unemployment will be higher.
D)   Inflation will be lower and unemployment will stay the same.

Question 5

Which change will move the economy to a point on the Phillips curve where unemployment is lower?

Accepted Answer

A)   lower inflation
B)   increased government spending
C)   a decrease the money supply
D)   increased tax rates B

Question 6

How much was the unemployment rate in Canada in 1983?

Accepted Answer

A)   about 4 percent
B)   about 6 percent
C)   about 8 percent
D)   more than 10 percent

Question 7

In the late 1960s, which of the following was published by economist Edmund Phelps?

Accepted Answer

A)   a paper that argued that there was no long-run tradeoff between inflation and unemployment
B)   a paper that disproved Friedman's claim that monetary policy was ineffective in controlling inflation
C)   a paper that showed the optimal point on the Phillips curve was at an unemployment rate of 5 percent and an inflation rate of 2 percent
D)   a paper that argued that the Phillips curve was stable and that it would not shift

Question 8

What will an adverse supply shock cause output and prices to do?

Accepted Answer

A)   It will cause output and prices to rise.
B)   It will cause output and prices to fall.
C)   It will cause output to rise and prices to fall.
D)   It will cause output to fall and prices to rise.

Question 9

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops. What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?

Accepted Answer

A)   It would shift both the short-run aggregate-supply curve and the short-run Phillips curve right.
B)   It would shift both the short-run aggregate-supply curve and the short-run Phillips curve left.
C)   It would shift the short-run aggregate-supply curve to the right, and the short-run Phillips curve to the left.
D)   It would shift the short-run aggregate-supply curve to the left, and the short-run Phillips curve to the right. C

Question 10

Figure 17-3 
-Refer to Figure 17-3. Starting from c and 3, where does an increase in aggregate demand move the economy to, in the short run and the long run?

Accepted Answer

A)   a and 1 in the short run, b and 2 in the long run
B)   b and 2 in the short run, a and 1 in the long run
C)   d and 4 in the short run, e and 5 in the long run
D)   d and 2 in the short run, a and 5 in the long run

Question 11

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Accepted Answer

A downward-sloping Phillips curve implie...

Question 12

Use the AD/AS model and the Phillips curve to analyze the short-run and long-run effects of devaluating the home currency under a fixed exchange rate regime.

Accepted Answer

With perfect capital mobility, the centr...

Question 13

What do the data for the period of 1968 through 1973 demonstrate?

Accepted Answer

A)   that there is a short-run tradeoff between inflation and unemployment
B)   that a supply shock can disrupt the short-run tradeoff between inflation and unemployment
C)   that there is a long-run tradeoff between inflation and unemployment
D)   that a demand shock can disrupt the short-run tradeoff between inflation and unemployment

Question 14

Figure 17-4 
-Refer to Figure 17-4. Along LRPC, what is the expected rate of inflation?

Accepted Answer

A)   0 percent
B)   the actual rate of inflation
C)   3 percent
D)   the natural rate of inflation

Question 15

What happened to aggregate supply and the Phillips curve in the mid- and late 1990s?

Accepted Answer

A)   Aggregate supply and the Phillips curve shifted right.
B)   Aggregate supply and the Phillips curve shifted left.
C)   Aggregate supply shifted right and the Phillips curve shifted left.
D)   Aggregate supply shifted left and the Phillips curve shifted right.

Question 16

Figure 17-2 
-Refer to Figure 17-2. What is Curve 2?

Accepted Answer

A)   the long-run Phillips curve
B)   the short-run Phillips curve
C)   the long-run aggregate-demand curve
D)   the short-run aggregate-demand curve

Question 17

According to Samuelson and Solow, when aggregate demand is low, how are unemployment, wages, and prices affected?

Accepted Answer

A)   Unemployment is high, so there is upward pressure on wages and prices.
B)   Unemployment is high, so there is downward pressure on wages and prices.
C)   Unemployment is low, so there is upward pressure on wages and prices.
D)   Unemployment is low, so there is downward pressure on wages and prices.

Question 18

Suppose the natural rate of unemployment is 6 percent, the expected inflation is 2 percent, and the constant "a" in the short-run Phillips curve equation is 0.8. Draw the long-run and short-run Phillips curves. What is the inflation rate corresponding to the intersection of the two curves?

Accepted Answer

The short-run Phillips curve is describe...

Question 19

How will a favourable supply shock shift the short-run Phillips curve and how does it change inflation?

Accepted Answer

A)   It will shift the short-run Phillips curve right and raise inflation.
B)   It will shift the short-run Phillips curve right and lower inflation.
C)   It will shift the short-run Phillips curve left and raise inflation.
D)   It will shift the short-run Phillips curve left and lower inflation.

Question 20

In which situation will the economy move to a point on the Phillips curve where unemployment is higher?

Accepted Answer

A)   if the inflation rate increases
B)   if the government increases its expenditures
C)   if the Bank of Canada decreases the money supply
D)   if expected inflation increases

Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

Which of the following best defines the sacrifice ratio?

Correct AnswerverifiedShow Answer

Figure 17-2 -Refer to Figure 17-2. What is Curve 1?

Correct AnswerverifiedC

Suppose that in response to an adverse aggregate supply shock, the Bank of Canada increased the money supply. What would happen to unemployment and inflation?

Correct AnswerverifiedShow Answer

In the long run, if the Bank of Canada decreases the rate at which it increases the money supply, what will happen to inflation and unemployment?

Correct AnswerverifiedShow Answer

Which change will move the economy to a point on the Phillips curve where unemployment is lower?

Correct AnswerverifiedB

How much was the unemployment rate in Canada in 1983?

Correct AnswerverifiedShow Answer

In the late 1960s, which of the following was published by economist Edmund Phelps?

Correct AnswerverifiedShow Answer

What will an adverse supply shock cause output and prices to do?

Correct AnswerverifiedShow Answer

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops. What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?

Correct AnswerverifiedC

Figure 17-3 -Refer to Figure 17-3. Starting from c and 3, where does an increase in aggregate demand move the economy to, in the short run and the long run?

Correct AnswerverifiedShow Answer

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Correct AnswerverifiedA downward-sloping Phillips curve implie...View AnswerShow Answer

Use the AD/AS model and the Phillips curve to analyze the short-run and long-run effects of devaluating the home currency under a fixed exchange rate regime.

Correct AnswerverifiedWith perfect capital mobility, the centr...View AnswerShow Answer

What do the data for the period of 1968 through 1973 demonstrate?

Correct AnswerverifiedShow Answer

Figure 17-4 -Refer to Figure 17-4. Along LRPC, what is the expected rate of inflation?

Correct AnswerverifiedShow Answer

What happened to aggregate supply and the Phillips curve in the mid- and late 1990s?

Correct AnswerverifiedShow Answer

Figure 17-2 -Refer to Figure 17-2. What is Curve 2?

Correct AnswerverifiedShow Answer

According to Samuelson and Solow, when aggregate demand is low, how are unemployment, wages, and prices affected?

Correct AnswerverifiedShow Answer

Suppose the natural rate of unemployment is 6 percent, the expected inflation is 2 percent, and the constant "a" in the short-run Phillips curve equation is 0.8. Draw the long-run and short-run Phillips curves. What is the inflation rate corresponding to the intersection of the two curves?

Correct AnswerverifiedThe short-run Phillips curve is describe...View AnswerShow Answer

How will a favourable supply shock shift the short-run Phillips curve and how does it change inflation?

Correct AnswerverifiedShow Answer

In which situation will the economy move to a point on the Phillips curve where unemployment is higher?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified
A downward-sloping Phillips curve implie...
View Answer

Correct Answer
verified
With perfect capital mobility, the centr...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The short-run Phillips curve is describe...
View Answer

Correct Answer
verified

Correct Answer
verified