1. In the long run, the natural rate of unemployment depends primarily on the growth rate of the money supply.
a.
True
b.
False
2. In the long run, the inflation rate depends primarily on the growth rate of the money supply.
a.
True
b.
False
3. Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of
unemployment and inflation.
a.
True
b.
False
4. Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run.
a.
True
b.
False
5. Other things the same, a decrease in aggregate demand decreases both inflation and unemployment.
a.
True
b.
False
6. A given short-run Phillips curve shows that an increase in the inflation rate will be accompanied by a lower
unemployment rate in the short run.
a.
True
b.
False
7. The short-run Phillips curve is based on the classical dichotomy.
a.
True
b.
False
8. The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate
above its natural rate.
a.
True
b.
False
9. The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure
on wages and prices while raising output.
a.
True
b.
False
10. Fiscal policy cannot be used to move the economy along the short-run Phillips curve.
a.
True
b.
False
11. If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short
run.
a.
True
b.
False
12. Samuelson and Solow believed that the Phillips curve offered policymakers a menu of possible economic outcomes.
a.
True
b.
False
13. Friedman and Phelps believed that the natural rate of unemployment was constant.
a.
True
b.
False
14. The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.
a.
True
b.
False
15. The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with
a vertical long-run Phillips curve.
a.
True
b.
False
16. Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the
unemployment rate returns to its natural rate.
a.
True
b.
False
17. Although monetary policy cannot reduce the natural rate of unemployment, other types of government policies can.
a.
True
b.
False
18. If monetary policy moves unemployment below its natural rate, both expected and actual inflation will rise.
a.
True
b.
False
19. Neither monetary policy nor any government policy can change the natural rate of unemployment.
a.
True
b.
False
20. A policy change that reduces the natural rate of unemployment shifts both the long-run aggregate-supply curve and the
long-run Phillips curve left.
a.
True
b.
False
21. An increase in the inflation rate permanently reduces the natural rate of unemployment.
a.
True
b.
False
22. An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.
a.
True
b.
False
23. In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to
its natural rate.
a.
True
b.
False
24. Just as the aggregate-supply curve slopes upward only in the short run, the trade-off between inflation and
unemployment holds only in the short run.
a.
True
b.
False
25. Just as the aggregate-demand curve slopes downward only in the short run, the trade-off between inflation and
unemployment holds only in the long run.
a.
True
b.
False
26. The natural rate of unemployment is the same as the socially optimal rate of unemployment.
a.
True
b.
False
27. The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment
rate.
a.
True
b.
False
28. In the Friedman-Phelps analysis, when inflation is less than expected, the unemployment rate is less than the natural
rate.
a.
True
b.
False
29. According to the Friedman-Phelps analysis, in the long run actual inflation equals expected inflation and
unemployment is at its natural rate.
a.
True
b.
False
30. An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips
curve.
a.
True
b.
False
31. A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and
unemployment.
a.
True
b.
False
32. A decrease in government expenditures serves as an example of an adverse supply shock.
a.
True
b.
False
33. An adverse supply shock shifts the short-run Phillips curve to the left.
a.
True
b.
False
34. Other things the same, if the Fed increases the rate at which it increases the money supply then the short-run Phillips
curve shifts right in the long run.
a.
True
b.
False
35. If prices and wages adjusted rapidly and producers could quickly distinguish the difference between a change in the
price level and a change in the relative price of their products, then an increase in the money supply growth rate would
have at most a very short-lived affect on unemployment.
a.
True
b.
False
36. A central bank announces it will decrease the inflation rate by 10 percentage points. People are skeptical of the
announcement, but do expect the central bank will reduce inflation by 5 percentage points and so expected inflation falls
by 5 percentage points. If the central bank decreases inflation by only 3 percentage points then the unemployment rate
will fall.
a.
True
b.
False
37. The proliferation of Internet usage serves as an example of a favorable supply shock.
a.
True
b.
False
38. An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.
a.
True
b.
False
39. An adverse supply shock shifts the short-run Phillips curve right. If people raise their inflation expectations, the short-
run Phillips curve shifts farther right.
a.
True
b.
False
40. In most of the 1970s, the Fed’s policy created expectations of high inflation.
a.
True
b.
False
41. A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.
a.
True
b.
False
42. The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing
inflation by one percentage point.
a.
True
b.
False
43. A low sacrifice ratio would make a central bank less willing to reduce the inflation rate.
a.
True
b.
False
44. Proponents of rational expectations argue that failing to account for peoples’ revised inflation expectations led to
estimates of the sacrifice ratio that were too high.
a.
True
b.
False
45. The sacrifice ratio of the Volcker disinflation was larger than previous estimates had predicted.
a.
True
b.
False
46. U.S. monetary policy in the early 1980s reduced the inflation rate by more than half.
a.
True
b.
False
47. A central bank can reduce inflation by reducing money supply growth, but it necessarily does so at the cost of
permanently raising the unemployment rate.
a.
True
b.
False
48. In a famous article published in 1958, A.W. Phillips used data for the United Kingdom to show a negative relationship
between the rate of change of wages in the U.K. and the U.K. unemployment rate.
a.
True
b.
False
49. According to the Phillips curve, policymakers can reduce both inflation and unemployment by increasing the money
supply.
a.
True
b.
False
50. If expected inflation increases, the short-run Phillips curve will shift to the left so that inflation will be higher at any
given unemployment rate.
a.
True
b.
False
51. If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money
supply, then in the short run the Federal Reserve’s action will raise inflation and lower unemployment.
a.
True
b.
False
52. If the Fed reduces inflation by 2 percentage points and this results in a 6 percentage-point increase in unemployment,
then the sacrifice ratio is equal to 3.
a.
True
b.
False