14) If the Fed tries to lower the unemployment rate so it is lower than the natural
unemployment rate, in the short run before the expected inlation rate changes, the SRPC
________ and the LRPC ________.
A) does not change; does not change
B) shifts downward; shifts leftward
C) shifts upward; does not change
D) shifts downward; does not change
E) does not change; shifts rightward
Skill: Level 2: Using deinitions
Section: Checkpoint 15.3
Status: Old
AACSB: Analytical thinking
15) If the Fed tries to lower the unemployment rate so it is lower than the natural
unemployment rate, in the long run the SRPC ________ and the LRPC ________.
A) does not change; does not change
B) shifts downward; shifts leftward
C) shifts upward; does not change
D) shifts downward; does not change
E) does not change; shifts rightward
Skill: Level 2: Using deinitions
Section: Checkpoint 15.3
Status: Old
AACSB: Analytical thinking
16) In 1981, the Fed
A) created an unexpected inlation reduction policy and created an expansion.
B) created an unexpected inlation reduction policy and created a recession.
C) publicly announced an inlation reduction policy and created a recession.
D) publicly announced an inlation reduction policy and created an expansion.
E) took no action so that the inlation rate skyrocketed.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.3
Status: Old
AACSB: Relective thinking
51
15.4 Chapter Figures
The igure above shows some Phillips curves for an economy.
1) The short-run Phillips curve shifts from SRPC0 to SRPC1 as a result of
A) an increase in the natural unemployment rate.
B) a decrease in the natural unemployment rate.
C) a rise in the expected inlation rate.
D) a fall in the expected inlation rate.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
52
2) Along the short-run Phillips curve SRPC0 the expected inlation rate is
A) 3 percent.
B) 6 percent.
C) 7 percent.
D) an amount that can be determined from the igure, but none of the above answers is
correct.
E) an amount that cannot be determined from the igure.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
3) Along the short-run Phillips curve SRPC0 the natural unemployment rate is
A) 3 percent.
B) 6 percent.
C) 7 percent.
D) an amount that can be determined from the igure, but none of the above answers is
correct.
E) an amount that cannot be determined from the igure.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
53
The igure above shows some Phillips curves for an economy.
4) Along the short-run Phillips curve SRPC0 the natural unemployment rate is
A) 3 percent.
B) 6 percent.
C) 4 percent.
D) 8 percent.
E) an amount that can be determined from the igure but none of the above answers is
correct.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
5) Along the short-run Phillips curve SRPC2 the natural unemployment rate is
A) 3 percent.
B) 6 percent.
C) 4 percent.
D) 8 percent.
E) an amount that can be determined from the igure but none of the above answers is
correct.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
6) In the igure above, the shift from the short-run Phillips curve SRPC0 and the long-run
Phillips curve LRPC0 to the short-run Phillips curve SRPC1 and the long-run Phillips curve
54
LRPC1 is the result of ________ in the expected inlation rate and ________ in the natural
unemployment rate.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) an increase; no change
E) a decrease; no change
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
7) In the igure above, the shift from the short-run Phillips curve SRPC0 and the long-run
Phillips curve LRPC0 to the short-run Phillips curve SRPC2 and the long-run Phillips curve
LRPC2 is the result of ________ in the expected inlation rate and ________ in the natural
unemployment rate.
A) an increase; an increase
B) a decrease; a decrease
C) no change; a decrease
D) an increase; no change
E) a decrease; an increase
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
15.5 Integrative Questions
1) Moving along a short-run Phillips curve, a reduction in the unemployment rate is
achieved by
A) shifting the aggregate supply curve leftward.
B) running a federal budget deicit.
C) reducing the size of the labor force.
D) increasing the inlation rate.
E) increasing potential GDP.
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
55
2) Along a short-run Phillips curve when the inlation rate rises,
A) the real wage rate falls and more labor is hired.
B) the money wage rate falls because the labor market becomes less tight.
C) potential GDP decreases.
D) the expected inlation rate rises.
E) the expected inlation rate falls.
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
3) The long-run Phillips curve shows the relationship between the ________ and the ________
when there is no ________ unemployment.
A) inlation rate; unemployment rate; cyclical
B) inlation rate; unemployment rate; structural
C) inlation rate; employment rate; seasonal
D) nominal interest rate; real interest rate; frictional
E) nominal interest rate; unemployment rate; cyclical
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
4) The long-run Phillips curve represents the relationship between the inlation rate and
the unemployment rate when there is no ________ unemployment.
A) cyclical
B) structural
C) seasonal
D) frictional
E) natural
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
56
5) In 1981 Fed policy created a severe recession because the Fed
A) increased aggregate supply to reduce the inlation rate.
B) undertook an unexpected reduction in the inlation rate.
C) publicly announced an inlation reduction program.
D) undertook an unexpected increase in the inlation rate.
E) publicly announced an inlation increase program.
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Relective thinking
6) In the United States during the 1970s, the unemployment rate rose from previous years,
and the inlation rate increased rapidly. This set of events is best described by saying that
the
A) economy moved to a lower point on its short-run Phillips curve but the short-run Phillips
curve did not shift.
B) short-run Phillips curve shifted downward.
C) short-run Phillips curve shifted upward.
D) economy moved to a higher point on its short-run Phillips curve but the short-run
Phillips curve did not shift.
E) the long-run Phillips curve shifted leftward.
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Relective thinking
7) In the United States during the late 1990s, the unemployment rate fell from previous
years and the inlation rate was lower than in previous years. This set of events is best
described by saying that the
A) economy moved to a lower point on its short-run Phillips curve but the short-run Phillips
curve did not shift.
B) short-run Phillips curve shifted downward.
C) short-run Phillips curve shifted upward.
D) economy moved to a higher point on its short-run Phillips curve but the short-run
Phillips curve did not shift.
E) long-run Phillips curve shifted rightward.
Skill: Level 4: Applying models
Section: Integrative
Status: Old
AACSB: Relective thinking
57
8) Which of the following could create a movement along the short-run Phillips curve so
that the unemployment rate temporarily falls below the natural unemployment rate?
A) an increase in aggregate demand and a sticky wage rate
B) a decrease in aggregate demand and a sticky wage rate
C) an increase in aggregate demand and a quickly responsive wage rate
D) a decrease in aggregate demand and a quickly responsive wage rate
E) an increase in aggregate supply and a sticky wage rate
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Analytical thinking
9) Along a given ________ Phillips curve, a lower unemployment rate can be achieved only
by paying the cost of a ________ inlation rate, and a lower inlation rate can be achieved
only by paying the cost of a ________ unemployment rate.
A) short-run; higher; higher
B) short-run; higher; lower
C) short-run; lower; higher
D) long-run; higher; higher
E) long-run; higher; lower
Skill: Level 4: Applying models
Section: Integrative
Status: New
AACSB: Relective thinking
10) If ________ GDP exceeds ________ GDP, employment exceeds its full-employment level
and the unemployment rate is ________ the natural unemployment rate.
A) real; potential; below
B) real; potential; above
C) nominal; potential; below
D) nominal; potential; above
E) real; nominal; below
Skill: Level 4: Applying models
Section: Integrative
Status: New
AACSB: Relective thinking
58
11) If real GDP is ________ than potential GDP, employment is ________ than its full-
employment level and the unemployment rate rises ________ the natural unemployment
rate.
A) less; more; above
B) more; more; above
C) less; less; above
D) less; less; below
E) more; less; above
Skill: Level 4: Applying models
Section: Integrative
Status: New
AACSB: Relective thinking
12) The natural rate hypothesis asserts that in the ________, the money wage rate is ixed
and the ________ in the inlation rate brings a(n) ________ in the unemployment rate.
A) short-run; decrease; increase
B) short-run; decrease; decrease
C) long-run; increase; decrease
D) short-run; increase; decrease
E) short-run; increase; increase
Skill: Level 5: Critical thinking
Section: Integrative
Status: New
AACSB: Analytical thinking
13) If the inlation that results from targeting unemployment becomes unacceptably high,
low inlation can be restored. Lower inlation can be obtained by ________ the growth rate of
aggregate demand, by ________ money growth, and by________ interest rates.
A) lowering; slowing; lowering
B) lowering; accelerating; raising
C) lowering; accelerating; lowering
D) raising; slowing; raising
E) lowering; slowing; raising
Skill: Level 4: Applying models
Section: Integrative
Status: New
AACSB: Relective thinking
59
14) If the Fed can ________ inlation expectations, it might achieve ________ inlation without
________ the unemployment rate.
A) raise; higher; lowering
B) lower; lower; lowering
C) lower; lower; raising
D) lower; higher; lowering
E) raise; lower; raising
Skill: Level 5: Critical thinking
Section: Integrative
Status: New
AACSB: Analytical thinking
15) If the Fed decides that it wants to lower the unemployment rate, it ________ the growth
rate of aggregate demand by ________ the growth rate of money and ________ interest rates.
A) reduces; accelerates, lowering
B) accelerates; reducing; lowering
C) accelerates; reducing; raising
D) accelerates; accelerating; lowering
E) accelerates; accelerating; raising
Skill: Level 5: Critical thinking
Section: Integrative
Status: New
AACSB: Analytical thinking
15.6 Essay: The Short-Run Phillips Curve
1) Deine the short-run Phillips curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
60