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c.
reduces expected inflation so the short-run Phillips curve shifts left.
d.
None of the above is correct.
115. In the long run, a decrease in the money supply growth rate
a.
reduces expected inflation so the long-run Phillips curve shifts left.
b.
reduces expected inflation so the short-run Phillips curve shifts left.
c.
Both A and B are correct.
d.
None of the above is correct.
116. In the long run, a decrease in the money supply growth rate
a.
shifts the short-run Phillips curve left so inflation returns to its original rate.
b.
shifts the short-run Phillips curve left so unemployment returns to its natural rate.
c.
Both A and B are correct.
d.
None of the above is correct.
117. In the long run a reduction in the money supply growth rate affects
a.
the inflation rate and the natural rate of unemployment.
b.
the inflation rate but not the natural rate of unemployment.
c.
neither the inflation rate nor the natural rate of unemployment.
d.
the natural rate of unemployment, but not the inflation rate.
118. In the long run an increase in the money supply growth rate affects
a.
the inflation rate and the natural rate of unemployment.
b.
the inflation rate, but not the natural rate of unemployment.
c.
neither the inflation rate nor the natural rate of unemployment.
d.
the natural rate of unemployment, but not the inflation rate.
119. Suppose the Fed decreased the growth rate of the money supply. Which of the following would be lower 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
120. 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
121. Other things the same, if there is an increase in the money supply growth rate that is larger than expected, then in the
short run
a.
the natural rate of unemployment rises.
b.
the natural rate of unemployment falls.
c.
the unemployment rate will be above its natural rate.
d.
the unemployment rate will be below its natural rate.
122. Suppose the Federal Reserve pursues contractionary monetary policy. In the long run
a.
both inflation and the unemployment rate are higher than they were prior to the change in policy.
b.
inflation is higher and the unemployment rate is the same as it was prior to the change in policy.
c.
inflation is lower and the unemployment rate is lower than it was prior to the change in policy.
d.
inflation is lower and unemployment is the same as it was prior to the change in policy.
123. Suppose the Federal Reserve makes monetary policy more expansionary. In the long run
a.
both inflation and the unemployment rate are higher than they were prior to the change in policy.
b.
inflation is higher and the unemployment rate is the same as it was prior to the change in policy.
c.
inflation is lower and the unemployment rate is lower than it was prior to the change in policy.
d.
inflation is lower and unemployment is the same as it was prior to the change in policy.
124. If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run
a.
both the unemployment rate and the inflation rate would be lower.
b.
the unemployment rate would be lower and the inflation rate would be higher.
c.
the unemployment rate would be higher and the inflation rate would be lower.
d.
the unemployment rate and the inflation rate would be higher.
125. If the government reduced the minimum wage and pursued expansionary monetary policy, then in the long run
a.
both the unemployment rate and the inflation rate would be higher.
b.
both the unemployment rate and the inflation rate would be lower.
c.
the unemployment rate would be higher and the inflation rate would be lower.
d.
the unemployment rate would be lower and the inflation rate would be higher.
126. The economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight
unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's
argument
a.
is completely correct.
b.
is completely wrong.
c.
is true for the short run but not the long run.
d.
is true for the long run but not the short run.
127. 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’s theories, because they argued that when inflation was higher than
expected, unemployment would fall.
b.
are consistent with Friedman and Phelps's 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's theories, because they argued that higher inflation would increase
unemployment.
d.
are inconsistent with Friedman and Phelps's theories, because they argued that inflation and unemployment are
unrelated.
128. Data for the United States traced out an almost perfect Phillips curve for much of the
a.
1960s.
b.
1970s.
c.
1980s.
d.
1990s.
129. In the early 1970s, the short-run Phillips curve shifted
a.
rightward as inflation expectations rose.
b.
rightward as inflation expectations fell.
c.
leftward as inflation expectations rose.
d.
leftward as inflation expectations fell.
130. Moving from the late 1960s to 1970-1973,
a.
inflation remained high while the unemployment rate was lower than in the late 1960s.
b.
inflation remained high while the unemployment rate was higher than in the late 1960s.
c.
inflation remained low while the unemployment rate was lower than in the late 1960s.
d.
inflation remained low while the unemployment rate was higher than in the late 1960s.
131. By about 1973, U.S. policymakers had learned that
a.
there is no trade-off between inflation and unemployment in the short run.
b.
there is no trade-off between inflation and unemployment in the long run.
c.
Friedman’s analysis of inflation and unemployment had been correct, and Phelps’s analysis of inflation and
unemployment had been incorrect.
d.
Phelps’s analysis of inflation and unemployment had been correct, and Friedman’s analysis of inflation and
unemployment had been incorrect.
132. By about 1973, U.S. policymakers had learned that
a.
Friedman and Phelps’s analysis of inflation and unemployment had been correct.
b.
the short-run Phillips curve shifts when expectations of inflation change.
c.
there is no long-run trade-off between inflation and unemployment.
d.
All of the above are correct.
133. If an increase in inflation permanently reduced unemployment, then
a.
money would not be neutral and the long-run Phillips curve would slope upward.
b.
money would not be neutral and the long-run Phillips curve would slope downward.
c.
money would be neutral and the long-run Phillips curve would slope upward.
d.
money would be neutral and the long-run Phillips curve would slope downward.
134. An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the
following points on the estimated curve.
actual inflation rate
unemployment rate
5%
4%
4%
4.5%
3%
5%
2%
5.5%
Which of the following statements is correct?
a.
These points are consistent with the theoretical long-run Phillips curve, but not with the short-run Phillips
curve.
b.
These points are consistent with the theoretical short-run Phillips curve, but not with the long-run Phillips
curve.
c.
These points are consistent with both the theoretical short-run and long-run Phillips curves.
d.
These points are not consistent with either the theoretical short-run or long-run Phillips curves.
135. A politician blames the Federal Reserve for being “soft on unemployment” and claims that a permanently higher
money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician’s argument is
a.
consistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy
would not increase inflation.
b.
consistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy
would increase inflation.
c.
inconsistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy
would not increase inflation.
d.
inconsistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy
would increase inflation.
136. If a government redesigned its unemployment insurance programs so that the unemployed had greater incentives to
quickly find appropriate jobs, then which of the following curves would shift right?
a.
the long-run Phillips curve and the long-run aggregate supply curve
b.
the long-run Phillips curve but not the long-run aggregate supply curve
c.
the long-run aggregate supply curve but not the long-run Phillips curve
d.
neither the long-run Phillips curve nor the long-run aggregate supply curve
137. Which of the following shifts the long-run Phillips curve left?
a.
both an increase in the inflation rate and a decrease in the minimum wage rate
b.
an increase in the inflation rate, but not a decrease in the minimum wage rate
c.
a decrease in the minimum wage rate, but not an increase in the inflation rate
d.
neither a decrease in the minimum wage rate nor an increase in the inflation rate
138. Which of the following implies that an increase in the money supply growth rate permanently changes the
unemployment rate?
a.
both the long-run aggregate supply curve and the long-run Phillips curve
b.
the long-run aggregate supply curve, but not the long-run Phillips curve
c.
the long-run Phillips curve, but not the long-run aggregate supply curve
d.
neither the long-run Phillips curve nor the long-run aggregate supply curve
139. If people correctly anticipate that inflation will fall by 1%, then
a.
the short-run Phillips curve shifts right and unemployment is unchanged.
b.
the short-run Phillips curve shifts right and unemployment rises.
c.
the short-run Phillips curve shifts left and unemployment is unchanged.
d.
the short-run Phillips curve would shift left and unemployment falls.
140. If people anticipate higher inflation, but inflation remains the same then
a.
the short-run Phillips curve would shift right and unemployment would rise.
b.
the short-run Phillips curve would shift right and unemployment would fall.
c.
the short-run Phillips curve would shift left and unemployment would rise.
d.
the short-run Phillips curve would shift left and unemployment would fall.
141. If the unemployment rate is below the natural rate, then
a.
inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift right.
b.
inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift left.
c.
inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift
left.
d.
inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift
right.
142. According to the long-run Phillips curve, in the long run monetary policy influences
a.
inflation but not the unemployment rate; this is consistent with classical theory.
b.
inflation but not the unemployment rate; this is inconsistent with classical theory.
c.
the unemployment rate but not inflation; this is consistent with classical theory.
d.
the unemployment rate but not inflation; this is inconsistent with classical theory.
143. Suppose the central bank decreases the growth rate of the money supply. In the short run, this policy change will
affect
a.
both the unemployment rate and the inflation rate.
b.
the unemployment rate but not the inflation rate.
c.
the inflation rate but not the unemployment rate.
d.
neither the inflation rate nor the unemployment rate.
144. Suppose the central bank increases the growth rate of the money supply. In the long run, which of the following is
unaffected by this change in policy?
a.
the unemployment rate and the inflation rate
b.
the unemployment rate but not the inflation rate
c.
the inflation rate but not the unemployment rate
d.
neither the inflation rate nor the unemployment rate
145. Consider two countries: Eastland and Westland. Eastland’s long-run Phillips curve sits further to the right than does
Westland’s long-run Phillips curve. Eastland and Westland are identical in all other ways. In particular, they have the
same money supply growth rates. In the long run, compared to Westland, which of the following will we observe in
Eastland?
a.
higher unemployment and higher inflation.
b.
higher unemployment and the same rate of inflation.
c.
lower unemployment and higher inflation.
d.
None of the above is correct.
146. Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country
B’s. In the long run as compared to country B, country A will have
a.
lower unemployment and higher inflation
b.
higher unemployment and higher inflation
c.
lower unemployment and lower inflation
d.
None of the above is necessarily correct.
147. For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips
curve which of the following could explain this? Country A has
a.
maintained a higher money supply growth rate.
b.
maintained a lower money supply growth rate.
c.
a higher minimum wage than country B.
d.
a lower minimum wage than country B.
148. Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but
not permanently?
a.
both the long-run Phillips curve and the aggregate supply and aggregate demand model.
b.
the aggregate demand and aggregate supply model, but not the long-run Phillips curve.
c.
the long-run Phillips curve, but not the aggregate demand and aggregate supply model.
d.
neither the long-run Phillips curve nor the aggregate supply and aggregate demand model.
149. If inflation is less than expected, then the unemployment rate is
a.
greater than the natural rate. In the long run the short-run Phillips curve will shift right.
b.
greater than the natural rate. In the long run the short-run Phillips curve will shift left.
c.
less than the natural rate. In the long run the short-run Phillips curve will shift right.
d.
less than the natural rate. In the long run the short-run Phillips curve will shift left.
150. If inflation is greater than expected, then the unemployment rate is
a.
above the natural rate. In the long run the short-run Phillips curve will shift right.
b.
above the natural rate. In the long run the short-run Phillips curve will shift left.
c.
below the natural rate. In the long run the short-run Phillips curve will shift right.
d.
below the natural rate. In the long run the short-run Phillips curve will shift left.
151. If the central bank raises the rate at which it increases the money supply, then in the short run unemployment is
a.
above its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of
unemployment.
b.
above its natural rate. The long-run Phillips curve shifts left as the economy moves back to its natural rate of
unemployment.
c.
below its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of
unemployment.
d.
below its natural rate. The long-run Phillips curve shifts left as the economy moves back to its natural rate of
unemployment.
152. If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?
a.
Inflation expectations rise which shifts the short-run Phillips curve to the right.
b.
Inflation expectations rise which shifts the short-run Phillips curve to the left.
c.
Inflation expectations fall which shifts the short-run Phillips curve to the right.
d.
Inflation expectations fall which shifts the short-run Phillips curve to the left.
153. If unemployment is below its natural rate, what happens to move the economy to long-run equilibrium?
a.
Inflation expectations rise which shifts the short-run Phillips curve to the right.
b.
Inflation expectations rise which shifts the short-run Phillips curve to the left.
c.
Inflation expectations fall which shifts the short-run Phillips curve to the right.
d.
Inflation expectations fall which shifts the short-run Phillips curve to the left.
154. Other things the same, in the long run a country that reduces the minimum wage from very high levels will have
a.
higher unemployment and lower inflation
b.
lower unemployment and higher inflation
c.
higher unemployment and the same level of inflation
d.
lower unemployment and the same level of inflation
155. Prime Minister Emma Bigshot urges passage of a bill to reduce unemployment benefits from very generous levels in
her country. She also urges her country’s central bank to raise the rate at which the money supply is increasing. In the
long run which, if either, of these policies will reduce the unemployment rate?
a.
both reducing the generosity of unemployment benefits and raising the rate at which the money supply is
increasing
b.
reducing the generosity of unemployment benefits but not raising the rate at which the money supply is
increasing
c.
raising the rate at which the money supply is increasing, but not reducing the generosity of unemployment
benefits
d.
neither reducing the generosity of unemployment benefits nor raising the rate at which the money supply is
increasing
156. The idea that the long-run Phillips curve is
a.
vertical stems from the analysis of Samuelson and Solow.
b.
vertical stems from the analysis of Friedman and Phelps.
c.
vertical was disproved by the experiment that monetary and fiscal policymakers inadvertently created in the
1970s.
d.
downward-sloping can be correct if unemployment responds very quickly to unexpected inflation.
157. The long-run Phillips curve would shift to the left if
a.
the money supply growth rate increased or labor markets become more flexible.
b.
the money supply growth rate increased but not if labor markets become more flexible.
c.
labor markets become more flexible but not if the money supply growth rate increased.
d.
None of the above is correct.
158. The long-run Phillips curve would shift to the right if
a.
the money supply growth rate decreased or if labor markets become more flexible.
b.
the money supply growth rate decreased, but not if labor markets become more flexible.
c.
labor markets become more flexible, but not if the money supply growth rate decreased.
d.
None of the above is correct.
159. The long-run Phillips curve would shift to the left if
a.
the money supply growth rate increased or if effective job-training programs were implemented.
b.
the money supply growth rate increased, but not if effective job-training programs were implemented.
c.
effective job-training programs were implemented, but not if the money supply growth rate increased.
d.
None of the above is correct.
160. If the central bank increases the growth rate of the money supply and initially inflation expectations are unchanged,
then in the short run
a.
unemployment rises. In the long run the short-run Phillips curve shifts left.
b.
unemployment rises. In the long run the short-run Phillips curve shifts right.
c.
unemployment falls. In the long run the short-run the Phillips curve shifts left.
d.
unemployment falls. In the long run the short-run the Phillips curve shifts right.
161. If inflation expectations rise, the short-run Phillips curve shifts
a.
right, so that at any inflation rate output is higher in the short run than before.
b.
left, so that at any inflation rate output is higher in the short run than before.
c.
right, so that at any inflation rate output is lower in the short run than before.
d.
left, so that at any inflation rate output is lower in the short run than before.
162. For a given level of inflation expectations, if the central bank increases the money supply growth rate, then in the
short run
a.
the economy moves down along the short-run Phillips curve.
b.
the economy moves up along the short-run Phillips curve.
c.
the Phillips curve shifts right.
d.
the Phillips curve shifts left.
163. If the central bank keeps the money supply growth rate constant, but people raise their inflation expectations by 1
percentage point, then the short-run Phillips curve shifts
a.
right and the unemployment rate rises.
b.
right and the unemployment rate falls.
c.
left and the unemployment rate rises.
d.
left and the unemployment rate falls.
164. If a central bank increases the money supply growth rate, then in the short run
a.
unemployment rises. In the long run the short-run Phillips curve shifts right.
b.
unemployment rises. In the long run the short-run Phillips curve shifts left.
c.
unemployment falls. In the long run the short-run Phillips curve shifts right.
d.
unemployment falls. In the long run the short-run Phillips curve shifts left.
