Question 1

At points along the long-run Phillips curve:

Accepted Answer

A)   the economy is at full employment
B)   the economy is below full employment
C)   expected inflation equals actual inflation
D)   both A and CE) A) and C)
F) A) and B)

Question 2

The sacrifice ratio is:

Accepted Answer

A)   the sum of the inflation and unemployment rates
B)   the percentage by which actual output falls below full employment output for every one percentage point that actual unemployment is above the natural rate of unemployment
C)   the inflation rate divided by the unemployment rate
D)   the number of percentage points of annual output that are lost in the process of reducing inflation by one percentage pointE) B) and D)
F) All of the above

Question 3

The natural rate of unemployment is:

Accepted Answer

A)   the socially desirable unemployment rate
B)   beyond the influence of monetary policy
C)   constant over time
D)   all of the aboveE) A) and D)
F) A) and C)

Question 4

The increase in oil prices in the 2000s was caused primarily by:

Accepted Answer

A)   an increase in demand for oil
B)   an increase in supply of oil
C)   a decrease in supply of oil
D)   a decrease in demand for oilE) All of the above
F) None of the above

Question 5

Proponents of rational expectations theory argue that the sacrifice ratio could be as small as:

Accepted Answer

A)   4 per cent
B)   3 per cent
C)   2 per cent
D)   1 per cent
E)   0 per centF) B) and C)
G) C) and E)

Question 6

What is the lesser of two evils - high unemployment or high inflation? Do policy makers have to make this choice all the time? If so, what is the correct choice, according to this chapter?

Accepted Answer

In the short-run, there is a trade-off b...

Question 7

If the sacrifice ratio is 6 per cent, then reducing the inflation rate from 10 per cent to 4 per cent would require sacrificing _____ per cent of annual output.

Accepted Answer

A)   6
B)   36
C)   13
D)   40E) C) and D)
F) A) and D) B

Question 8

According to rational expectations theory, a credible commitment to low inflation increases the cost of disinflation, because people are rational.

Accepted Answer

A) True 
 B)False

Question 9

If macroeconomic policy expands aggregate demand, unemployment and inflation will both decline in the short run.

Accepted Answer

A) True 
 B)False

Question 10

Faced with an adverse supply shock, the economy experiences an aggregate-supply curve shift to the:

Accepted Answer

A)   left, and this shift is associated with a shift in the short-run Phillips curve to the left
B)   left, and this shift is associated with a shift in the short-run Phillips curve to the right
C)   right, and this shift is associated with a shift in the short-run Phillips curve to the right
D)   right, and this shift is associated with a shift in the short-run Phillips curve to the leftE) C) and D)
F) A) and D)

Question 11

Most economists believe that:
Most economists believe that:

Accepted Answer

A)   there is no short-run trade-off between inflation and unemployment
B)   there is a temporary trade-off between inflation and unemployment
C)   there is no long-run trade-off between inflation and unemployment
D)   both A and B
E)   both B and CF) C) and E)
G) A) and E)

Question 12

If a hurricane hit an oil refinery and drove up the oil price, what would be the effect on the short-run trade-off between inflation and unemployment?

Accepted Answer

If a hurricane hit an oil refinery and d...

Question 13

If decreases in money supply or cuts in government contract aggregate demand, they can lower inflation in the short run, but only at the expense of higher unemployment.

Accepted Answer

A) True 
 B)False

Question 14

A typical estimate of the sacrifice ratio is five. According to Sargent, the sacrifice ratio could be much smaller than suggested by previous estimates.

Accepted Answer

A) True 
 B)False  True

Question 15

The Phillips curve is:

Accepted Answer

A)   a negative association between the inflation rate and the unemployment rate
B)   a negative association between the interest rate and the unemployment rate
C)   a positive association between the inflation rate and the unemployment rate
D)   a positive association between the growth rate and the unemployment rateE) A) and B)
F) B) and C)

Question 16

Contractionary monetary policy contracts aggregate demand, reduces employment and inflation, and eventually reduces expected inflation, causing the short-run Phillips curve to shift downwards.

Accepted Answer

A) True 
 B)False

Question 17

Suppose a country is experiencing a hyperinflation. Even a small sacrifice ratio would suggest that it would be incredibly costly for such a country to eliminate inflation. For example, suppose the sacrifice ratio is one, but inflation is running at 5000 per cent per year. Then the sacrifice ratio suggests that it would cost 50 years worth of output to get inflation to zero! This is obviously not right. Why does the sacrifice ratio not provide a good way of measuring the cost of ending a hyperinflation?

Accepted Answer

Hyperinflations are usually ended only with a radical reform of monetary and fiscal policy. When such a reform takes place, however, it is possible to convince people that they should revise their expectations of inflation substantially downwards.

Question 18

If the long-run Phillips curve shifts to the right, the economy will have _____ for any given rate of money growth and inflation.

Accepted Answer

A)   lower unemployment and lower output
B)   lower unemployment and higher output
C)   higher unemployment and lower output
D)   higher unemployment and higher outputE) C) and D)
F) None of the above

Question 19

Friedman and Phelps argued:

Accepted Answer

A)   that there is never a trade-off between inflation and unemployment
B)   that there is always a trade-off between inflation and unemployment in the long run
C)   that the long-run Phillips curve is vertical
D)   all of the aboveE) A) and B)
F) All of the above

Question 20

Samuelson and Solow reasoned that the trade-off between inflation and unemployment arose because low unemployment was associated with high aggregate demand, and because high demand puts upward pressure on wages and prices throughout the economy.

Accepted Answer

A) True 
 B)False

Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

At points along the long-run Phillips curve:

Correct Answer
verified

The sacrifice ratio is:

Correct Answer
verified

The natural rate of unemployment is:

Correct Answer
verified

The increase in oil prices in the 2000s was caused primarily by:

Correct Answer
verified

Proponents of rational expectations theory argue that the sacrifice ratio could be as small as:

Correct Answer
verified

What is the lesser of two evils - high unemployment or high inflation? Do policy makers have to make this choice all the time? If so, what is the correct choice, according to this chapter?

Correct Answer
verified
In the short-run, there is a trade-off b...
View Answer

If the sacrifice ratio is 6 per cent, then reducing the inflation rate from 10 per cent to 4 per cent would require sacrificing _____ per cent of annual output.

Correct Answer
verified
B

According to rational expectations theory, a credible commitment to low inflation increases the cost of disinflation, because people are rational.

Correct Answer
verified

If macroeconomic policy expands aggregate demand, unemployment and inflation will both decline in the short run.

Correct Answer
verified

Faced with an adverse supply shock, the economy experiences an aggregate-supply curve shift to the:

Correct Answer
verified

Most economists believe that: Most economists believe that:

Correct Answer
verified

If a hurricane hit an oil refinery and drove up the oil price, what would be the effect on the short-run trade-off between inflation and unemployment?

Correct Answer
verified
If a hurricane hit an oil refinery and d...
View Answer

If decreases in money supply or cuts in government contract aggregate demand, they can lower inflation in the short run, but only at the expense of higher unemployment.

Correct Answer
verified

A typical estimate of the sacrifice ratio is five. According to Sargent, the sacrifice ratio could be much smaller than suggested by previous estimates.

Correct Answer
verified
True

The Phillips curve is:

Correct Answer
verified

Contractionary monetary policy contracts aggregate demand, reduces employment and inflation, and eventually reduces expected inflation, causing the short-run Phillips curve to shift downwards.

Correct Answer
verified

Correct Answer
verified
Hyperinflations are usually ended only with a radical reform of monetary and fiscal policy. When such a reform takes place, however, it is possible to convince people that they should revise their expectations of inflation substantially downwards.

If the long-run Phillips curve shifts to the right, the economy will have _____ for any given rate of money growth and inflation.

Correct Answer
verified

Friedman and Phelps argued:

Correct Answer
verified

Samuelson and Solow reasoned that the trade-off between inflation and unemployment arose because low unemployment was associated with high aggregate demand, and because high demand puts upward pressure on wages and prices throughout the economy.

Correct Answer
verified

Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

At points along the long-run Phillips curve:

Correct AnswerverifiedShow Answer

The sacrifice ratio is:

Correct AnswerverifiedShow Answer

The natural rate of unemployment is:

Correct AnswerverifiedShow Answer

The increase in oil prices in the 2000s was caused primarily by:

Correct AnswerverifiedShow Answer

Proponents of rational expectations theory argue that the sacrifice ratio could be as small as:

Correct AnswerverifiedShow Answer

What is the lesser of two evils - high unemployment or high inflation? Do policy makers have to make this choice all the time? If so, what is the correct choice, according to this chapter?

Correct AnswerverifiedIn the short-run, there is a trade-off b...View AnswerShow Answer

If the sacrifice ratio is 6 per cent, then reducing the inflation rate from 10 per cent to 4 per cent would require sacrificing _____ per cent of annual output.

Correct AnswerverifiedB

According to rational expectations theory, a credible commitment to low inflation increases the cost of disinflation, because people are rational.

Correct AnswerverifiedShow Answer

If macroeconomic policy expands aggregate demand, unemployment and inflation will both decline in the short run.

Correct AnswerverifiedShow Answer

Faced with an adverse supply shock, the economy experiences an aggregate-supply curve shift to the:

Correct AnswerverifiedShow Answer

Most economists believe that: Most economists believe that:

Correct AnswerverifiedShow Answer

If a hurricane hit an oil refinery and drove up the oil price, what would be the effect on the short-run trade-off between inflation and unemployment?

Correct AnswerverifiedIf a hurricane hit an oil refinery and d...View AnswerShow Answer

If decreases in money supply or cuts in government contract aggregate demand, they can lower inflation in the short run, but only at the expense of higher unemployment.

Correct AnswerverifiedShow Answer

A typical estimate of the sacrifice ratio is five. According to Sargent, the sacrifice ratio could be much smaller than suggested by previous estimates.

Correct AnswerverifiedTrue

The Phillips curve is:

Correct AnswerverifiedShow Answer

Contractionary monetary policy contracts aggregate demand, reduces employment and inflation, and eventually reduces expected inflation, causing the short-run Phillips curve to shift downwards.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedHyperinflations are usually ended only with a radical reform of monetary and fiscal policy. When such a reform takes place, however, it is possible to convince people that they should revise their expectations of inflation substantially downwards.

If the long-run Phillips curve shifts to the right, the economy will have _____ for any given rate of money growth and inflation.

Correct AnswerverifiedShow Answer

Friedman and Phelps argued:

Correct AnswerverifiedShow Answer

Samuelson and Solow reasoned that the trade-off between inflation and unemployment arose because low unemployment was associated with high aggregate demand, and because high demand puts upward pressure on wages and prices throughout the economy.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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In the short-run, there is a trade-off b...
View Answer

Correct Answer
verified
B

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
If a hurricane hit an oil refinery and d...
View Answer

Correct Answer
verified

Correct Answer
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True

Correct Answer
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Correct Answer
verified

Correct Answer
verified
Hyperinflations are usually ended only with a radical reform of monetary and fiscal policy. When such a reform takes place, however, it is possible to convince people that they should revise their expectations of inflation substantially downwards.

Correct Answer
verified

Correct Answer
verified

Correct Answer
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