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Review Quiz 17


Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

 1. 
The short-run relationship between inflation and unemployment is often called
a.
the Classical Dichotomy.
b.
Money Neutrality.
c.
the Phillips curve.
d.
the Keynesian cross.
 

 2. 
Suppose that the money supply increases. In the short run, this increases prices according to
a.
both the short-run Phillips curve and the aggregate demand and aggregate supply model.
b.
neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
c.
the short-run Phillips curve, but not the aggregate demand and aggregate supply model.
d.
the aggregate demand and aggregate supply model but not the short-run Phillips curve.
 
 
Use the pair of diagrams below to answer the following questions.

Figure 35-1
quiz17_files/i0040000.jpg
 

 3. 
Refer to Figure 35-1. If the economy starts at c and 1, then in the short run, a decrease in government expenditures moves the economy to
a.
d and 2
b.
d and 3.
c.
e and 3.
d.
None of the above is correct.
 

 4. 
Refer to Figure 35-1. If the economy starts at c and 1, then in the short run, an increase in taxes moves the economy to
a.
b and 2.
b.
d and 3.
c.
e and 2.
d.
None of the above is correct.
 

 5. 
If efficiency wages became more common,
a.
both the long-run Phillips curve and the long-run aggregate supply curve would shift right.
b.
both the long-run Phillips curve and the long-run aggregate supply curve would shift left.
c.
the long-run Phillips curve would shift right, and the long-run aggregate supply curve would shift left.
d.
the long-run Phillips curve would shift left, and the long-run aggregate supply curve would shift right.
 
 
Use the two graphs in the diagram to answer the following questions.

Figure 35-3
quiz17_files/i0080000.jpg
 

 6. 
Refer to Figure 35-3. Starting from c and 3, in the short run an unexpected increase in money supply growth moves the economy to
a.
a and 1.
b.
b and 2.
c.
back to c and 3.
d.
d and 4.
 

 7. 
The analysis of Friedman and Phelps can be summarized in the following equation where a is positive number:
a.
Unemployment Rate = Natural Rate of Unemployment - a(Actual Inflation - Expected Inflation).
b.
Unemployment Rate = Natural Rate of Unemployment - a(Expected Inflation - Actual Inflation).
c.
Unemployment Rate = Expected Rate of Inflation - a(Actual Inflation - Expected Inflation).
d.
Unemployment Rate = Actual Rate of Inflation - a(Actual Unemployment - Expected Unemployment).
 

 8. 
A policy intended to take reduce unemployment by taking advantage of a tradeoff between inflation and unemployment leads to
a.
both higher inflation and higher unemployment in the long run.
b.
higher inflation and no reduction in unemployment in the long run.
c.
the same inflation rate and lower unemployment in the long run.
d.
higher inflation and lower unemployment in the long run
 

 9. 
In the long run, an increase in the money supply growth rate
a.
increases inflation and shifts the short-run Phillips curve right.
b.
increases inflation and shifts the short-run Phillips curve left.
c.
decreases inflation and shifts the short-run Philips curve right.
d.
decreases inflation and shifts the short-run Phillips curve left.
 

 10. 
In the long run, an increase in the money supply growth rate
a.
shifts both the long-run and the short-run Phillips curves right.
b.
shifts the long-run Phillips curve left and the short-run Phillips curve right.
c.
shifts the long-run Phillips curve right and the short-run Phillips curve left.
d.
None of the above is correct.
 

 11. 
Suppose the Fed increased the growth rate of the money supply. Which of the following would be higher in the long run?
a.
both the natural rate of unemployment and the inflation rate
b.
the natural rate of unemployment, but not the inflation rate
c.
the inflation rate, but not the natural rate of unemployment
d.
neither the natural unemployment rate nor the inflation rate
 

 12. 
a In the nineteenth century, some countries were on a gold standard so that on average the money supply growth rate was close to zero and expected inflation was more or less constant. For these countries during this time period, we find that increases in actual inflation were generally associated with falling unemployment. These findings
a.
are consistent with Friedman and Phelps’ theories, because they argued that when inflation was higher than expected, unemployment would fall.
b.
are consistent with Friedman and Phelps' theories, because they argued that when prices rose unemployment would fall whether actual inflation was higher than expected or not.
c.
are inconsistent with Friedman and Phelps' theories, because they argued that higher inflation would increase unemployment.
d.
are inconsistent with Friedman and Phelps' theories, because they argued that inflation and unemployment are unrelated.
 

 13. 
If a central bank reduced inflation by 2 percentage points and that made output fall by 3 percentage points for 2 years and the unemployment rate rises from 3 percent to 5 percent for 2 years, the sacrifice ratio is
a.
1.
b.
2.
c.
3.
d.
None of the above is correct.
 

 14. 
Which of the following would tend to shorten recessions associated with anti-inflation policies of the Federal Reserve?
a.
People adjust their expectations of inflation slowly.
b.
People believe policy announcements made by Fed officials.
c.
The short-run Phillips curve does not shift immediately.
d.
All of the above are correct.
 

 15. 
In Fall of 2004 the unemployment rate was about 5.4% and the inflation rate was about 2.5%. Compared to other points of the Greenspan era
a.
The inflation rate and unemployment rate were much higher than their averages.
b.
The inflation rate and unemployment rate were much lower than their averages.
c.
The unemployment rate was much higher and the inflation rate was much lower than their averages.
d.
The unemployment rate and the inflation rate were not too far from their averages.
 



 
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