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1. In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that
a.
it seemed to work for wages but not for inflation.
b.
monetary policy was ineffective in combating inflation.
c.
the Phillips curve did not apply in the long run.
d.
Phillips had made errors in collecting his data.
2. In the late 1960s, economist Edmund Phelps published a paper that
a.
argued that there was no long-run tradeoff between inflation and unemployment.
b.
disproved Friedman's claim that monetary policy was effective in controlling inflation.
c.
showed the optimal point on the Phillips curve was at an unemployment rate of 5 percent and an inflation rate
of 2 percent.
d.
argued that the Phillips curve was stable and that it would not shift.
3. In the late 1960s, Milton Friedman and Edmund Phelps argued that
a.
the trade-off between inflation and unemployment did not apply in the long run This claim is consistent with
monetary neutrality in the long run.
b.
the trade-off between inflation and unemployment did not apply in the long run. This claim is inconsistent
with monetary neutrality in the long run.
c.
the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is
consistent with monetary neutrality in the long run.
d.
the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is
inconsistent with monetary neutrality in the long run.
4. Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the Phillips curve is
a.
downward-sloping, which implies that monetary and fiscal policies can influence the level of unemployment
in the long run.
b.
downward-sloping, which implies that monetary and fiscal policies cannot influence the rate of inflation in the
long run.
c.
vertical, which implies that monetary and fiscal policies cannot influence the level of unemployment in the
long run.
d.
vertical, which implies that monetary and fiscal policies cannot influence the rate of inflation in the long run.
5. In the late 1960’s, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment
a.
existed in the long run and the short run.
b.
existed in the long run but not the short run.
c.
existed in the short run but not the long run.
d.
did not exist.
6. Friedman and Phelps argued
a.
that in the long run, monetary growth did not influence those factors that determine the economy's
unemployment rate.
b.
that the Phillips curve could be exploited in the long run by using monetary, but not fiscal policy.
c.
that the short-run Phillips curve was very steep, but not vertical.
d.
that there was neither a short-run nor long-run tradeoff between inflation and unemployment.
7. According to classical macroeconomic theory, in the long run
a.
monetary growth affects both real and nominal variables.
b.
the only real variable affected by monetary growth is the unemployment rate.
c.
a number of factors that affect unemployment are influenced by monetary growth.
d.
monetary growth affects nominal but not real variables.
8. Milton Friedman argued that the Fed's control over the money supply could be used to peg
a.
the level or growth rate of a nominal variable, but not the level or growth rate of a real variable.
b.
the level of a nominal or real variable, but not the growth rate of a real or nominal variable.
c.
the level or growth rate of a real variable, but not the level or growth rate of a nominal variable.
d.
both levels and growth rates of both real and nominal variables.
9. Friedman argued that the Fed could use monetary policy to peg
a.
nominal exchange rates.
b.
the level of real GDP.
c.
the rate of unemployment.
d.
None of the above is correct.
10. Friedman argued that the Fed could use monetary policy to peg
a.
the level of real GDP.
b.
the growth rate of real GDP.
c.
the rate of unemployment.
d.
None of the above is correct.
11. In responding to the Phillips curve hypothesis, Friedman argued that the Fed can peg the
a.
unemployment rate.
b.
inflation rate.
c.
growth rate of real national income.
d.
All of the above are correct.
12. According to the long-run Phillips curve, in the long run monetary policy influences
a.
both the inflation rate and the unemployment rate.
b.
the inflation rate but not the unemployment rate.
c.
the unemployment rate but not the inflation rate.
d.
neither the unemployment rate nor the inflation rate.
13. According to the Phillips curve, unemployment and inflation are negatively related in
a.
the short run and in the long run.
b.
the short run, but not in the long run.
c.
the long run, but not in the short run.
d.
neither the long run nor the short run.
14. According to the Phillips curve, unemployment and inflation are positively related in
a.
the short run and in the long run.
b.
the short run, but not in the long run.
c.
the long run, but not in the short run.
d.
neither the long run nor the short run.
15. One way to express the classical idea of monetary neutrality is to draw
a.
a downward-sloping short-run Phillips curve.
b.
an upward-sloping short-run Phillips curve.
c.
a downward-sloping long-run Phillips curve.
d.
a vertical long-run Phillips curve.
16. A vertical long-run Phillips curve is consistent with
a.
the conclusion of Friedman and Phelps, but it is not consistent with the classical idea of monetary neutrality.
b.
the classical idea of monetary neutrality, but it is not consistent with the conclusion of Friedman and Phelps.
c.
both the conclusion of Friedman and Phelps and the classical idea of monetary neutrality.
d.
neither the conclusion of Friedman and Phelps nor the classical idea of monetary neutrality.
17. By raising aggregate demand more than anticipated, policymakers
a.
reduce unemployment for awhile.
b.
raise unemployment for awhile.
c.
reduce unemployment permanently.
d.
None of the above is correct.
18. In the long run, if the Fed increases the growth rate of the money supply,
a.
inflation will be higher.
b.
unemployment will be lower.
c.
real GDP will be higher.
d.
All of the above are correct.
19. In the long run, if the Fed decreases the growth rate of the money supply,
a.
inflation will be lower.
b.
unemployment will be higher.
c.
real GDP will be lower.
d.
All of the above are correct.
20. If the Federal Reserve increases the rate at which it increases the money supply, then unemployment is lower
a.
in the long run and the short run.
b.
in the long run but not the short run.
c.
in the short run but not the long run.
d.
in neither the short run nor the long run.
21. If the Federal Reserve decreases the rate at which it increases the money supply, then unemployment is higher in
a.
the long run and the short run.
b.
the long run but not the short run.
c.
the short run but not the long run.
d.
neither the short run nor the long run.
22. If the Federal Reserve increases the growth rate of the money supply, in the long run
a.
inflation is higher and the unemployment rate is lower.
b.
inflation is higher while the unemployment rate is unchanged.
c.
inflation is unchanged while the unemployment rate is lower.
d.
None of the above is correct.
23. In the long run, if the Fed decreases the rate at which it increases the money supply,
a.
inflation and unemployment will be higher.
b.
inflation will be higher and unemployment will be lower.
c.
inflation will be lower and unemployment will be higher.
d.
None of the above is correct.
24. The natural rate of unemployment
a.
is constant over time.
b.
varies over time, but can’t be changed by the government.
c.
is the unemployment rate that the economy tends to move to in the long run.
d.
depends on the rate at which the Fed increases the money supply.
25. The natural rate of unemployment
a.
is constant over time.
b.
varies over time, but can’t be changed by the government.
c.
is the socially desirable rate of unemployment.
d.
does not depend on the rate at which the Fed increases the money supply.
26. To say that the natural rate of unemployment changes over time is to say that
a.
the short-run Phillips curve shifts over time.
b.
the long-run Phillips curve shifts over time.
c.
the aggregate demand curve shifts over time.
d.
the Federal Reserve influences the natural rate of unemployment over time.
27. Which of the following would reduce the natural rate of unemployment?
a.
both an increase in the rate of money growth and increased unemployment compensation
b.
an increase in the rate of money growth but not increased unemployment compensation
c.
an increase in unemployment compensation but not an increase in the rate of money growth.
d.
neither an increase in unemployment compensation nor an increase in the rate of money growth.
28. Which of the following is correct according to the long-run Phillips curve?
a.
No government policy, including changes in the money supply growth rate, can change the natural rate of
unemployment.
b.
Changes in the money supply growth rate are the only means by which government policy can change the
natural rate of unemployment.
c.
Monetary policy cannot change the natural rate of unemployment, but other government policies can.
d.
Monetary policy and other government policies can shift the long-run Phillips curve.
29. Which of the following leads to a lower level of unemployment in the long run?
a.
both an increase in the size of the money supply and an increase in the money supply growth rate
b.
an increase in the size of the money supply but not an increase in the money supply growth rate
c.
an increase in the money supply growth rate, but not an increase in the size of the money supply
d.
neither an increase in the size of the money supply nor an increase in the money supply growth rate
30. A policy change that changes the natural rate of unemployment changes
a.
neither the long-run Phillips curve nor the long-run aggregate supply curve.
b.
both the long-run Phillips curve and the long-run aggregate supply curve.
c.
the long-run Phillips curve, but not the long-run aggregate supply curve.
d.
the long-run aggregate supply curve, but not the long-run Phillips curve.
31. How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?
a.
It would shift the long-run Phillips curve right.
b.
It would shift the long-run Phillips curve left.
c.
There would be an upward movement along a given long-run Phillips curve.
d.
There would be a downward movement along a given long-run Philips curve.
32. Any policy change that reduced the natural rate of unemployment
a.
would shift the long-run Phillips curve to the right.
b.
would shift the long-run aggregate-supply curve to the right.
c.
would be a policy change that impeded the functioning of the labor market.
d.
All of the above are correct.
33. Any policy change that reduced the natural rate of unemployment would
a.
shift the long-run Phillips curve to the left.
b.
shift the long-run aggregate-supply curve to the right.
c.
improve the functioning of the labor market.
d.
All of the above are correct.
34. Which of the following would shift the long-run Phillips curve to the right?
a.
expansionary fiscal policy
b.
an increase in the inflation rate
c.
increases in unemployment compensation
d.
None of the above is correct.
35. For a number of years Canada and many European countries have had higher average unemployment rates than the
United States. The Phillips curve suggests that these countries
a.
have higher average inflation rates than the United States.
b.
have long-run Phillips curves to the right of the United States’.
c.
may have less generous unemployment compensation or lower minimum wages.
d.
All of the above are consistent with the evidence on unemployment rates.
36. France has a higher natural rate of unemployment than the United States. This suggests that
a.
France is at a higher point on its long-run Phillips curve and so has higher inflation than the United States.
b.
France is at a lower point on its long-run Phillips curve and so has lower inflation than the United States.
c.
France's Phillips curve is to the left of that of the United States, possibly because they have higher inflation.
d.
France's Phillips curve is to the right of that of the United States, possibly because they have more generous
unemployment compensation.
37. Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in
a.
both the short and long run.
b.
the short run, but not the long run.
c.
the long run, but not the short run.
d.
neither the short nor the long run.
38. In the long run, which of the following would shift the long-run Phillips curve to the right?
a.
an increase in the minimum wage
b.
an increase in government spending
c.
an increase in the money supply
d.
a decrease in the money supply
39. Which of the following is correct concerning the long-run Phillips curve?
a.
Its position is determined primarily by monetary factors.
b.
If it shifts right, long-run aggregate supply shifts right.
c.
It cannot be changed by any government policy.
d.
Its position depends on the natural rate of unemployment.
40. 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.
Figure 35-5
41. Refer to figure 35-5. In this order, which curve is a long-run Phillips curve and which is a short-run Phillips curve?
a.
A, B
b.
A, D
c.
C, B
d.
None of the above is correct.
42. Which of the following is upward-sloping?
a.
both the long-run and the short-run Phillips curve
b.
neither the long-run nor the short-run Phillips curve
c.
the long-run Phillips curve, but not the short-run Phillips curve
d.
the short-run Phillips curve, but not the long-run Phillips curve
43. Which of the following is downward-sloping?
a.
both the long-run Phillips curve and the long-run aggregate-supply curve
b.
neither the long-run Phillips curve nor the long-run aggregate-supply curve
c.
the long-run Phillips curve, but not the long-run aggregate-supply curve
d.
the short-run Phillips curve, but not the long-run aggregate-supply curve
44. Which of the following is vertical?
a.
both the long-run Phillips curve and the long-run aggregate supply curve
b.
neither the long-run Phillips curve nor the long-run aggregate supply curve
c.
the long-run Phillips curve, but not the long-run aggregate supply curve
d.
the long-run Phillips curve, but not the long-run aggregate supply curve
45. Which of the following is downward-sloping?
a.
both the long-run Phillips curve and the short-run Phillips curve
b.
neither the long-run Phillips curve nor the short-run Phillips curve
c.
the long-run Phillips curve, but not the short-run Phillips curve
d.
the short-run Phillips curve, but not the long-run Phillips curve
46. Suppose that money supply growth increases. In the long run, this increases employment according to
a.
both the long-run Phillips curve and the aggregate demand and aggregate supply model.
b.
neither the long-run Phillips curve nor the aggregate demand and aggregate supply model.
c.
the long-run Phillips curve, but not the aggregate demand and aggregate supply model.
d.
the aggregate demand and aggregate supply model, but not the long-run Phillips curve
47. Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown
by
a.
moving to the left along the short-run Phillips curve.
b.
moving to the right along the short-run Phillips curve.
c.
shifting the short-run Phillips curve to the right.
d.
shifting the short-run Phillips curve to the left.
48. Suppose that the central bank unexpectedly increases the growth rate of the money supply. In the short run the effects
of this are shown by
a.
moving to the left along the short-run Phillips curve.
b.
moving to the right along the short-run Phillips curve.
c.
shifting the short-run Phillips curve to the right.
d.
shifting the short-run Phillips curve to the left.
49. A movement to the left along a given short-run Phillips curve could be caused by
a.
a reduction in the natural rate of unemployment or expansionary monetary policy.
b.
expansionary monetary policy, but not a reduction in the natural rate of unemployment.
c.
either a reduction in the natural rate of unemployment or a contractionary monetary policy.
d.
contractionary monetary policy, but not a reduction in the natural rate of unemployment.
50. A movement to the right along a given short-run Phillips curve could be caused by
a.
an increase in the natural rate of unemployment or expansionary monetary policy.
b.
expansionary monetary policy, but not an increase in the natural rate of unemployment.
c.
an increase in the natural rate of unemployment or a contractionary monetary policy.
d.
contractionary monetary policy, but not an increase in the natural rate of unemployment.
51. The “natural” rate of unemployment is the unemployment rate toward which the economy gravitates in the
a.
short run, and the natural rate is constant over time.
b.
long run, and the natural rate is constant over time.
c.
short run, and the natural rate changes over time.
d.
long run, and the natural rate changes over time.
52. The “natural” rate of unemployment is the unemployment rate toward which the economy gravitates in the
a.
short run, and the natural rate is the socially optimal rate of unemployment.
b.
long run, and the natural rate is the socially optimal rate of unemployment.
c.
short run, and the natural rate is not necessarily the socially optimal rate of unemployment.
d.
long run, and the natural rate is not necessarily the socially optimal rate of unemployment.
53. If the natural rate of unemployment falls,
a.
both the short-run Phillips curve and the long-run Phillips curve shift.
b.
only the short-run Phillips curve shifts.
c.
only the long-run Phillips curve shifts.
d.
neither the short-run nor the long-run Phillips curves shift.
54. If the natural rate of unemployment falls,
a.
both the short-run and long-run Phillips curves shift left.
b.
the short-run Phillips curve shifts left, the long-run Phillips curve is unchanged.
c.
the short-run Phillips curve is unchanged, the long-run Phillips curve shifts right.
d.
the short-run and the long-run Phillips curves shift right.
55. A policy that raised the natural rate of unemployment would shift
a.
both the short-run and the long-run Phillips curves to the right.
b.
the short-run Phillips curve right but leave the long-run Phillips curve unchanged.
c.
the long-run Phillips curve right but leave the short-run Phillips curve unchanged.
d.
neither the long-run Phillips curve nor the short-run Phillips curve right.
56. More flexible labor markets will shift
a.
both the long-run Phillips curve and the long-run aggregate supply curve to the right.
b.
both the long-run Phillips curve and the long-run aggregate supply curve to the left.
c.
the long-run Phillips curve to the right and the long-run aggregate supply curve to the left.
d.
the long-run Phillips curve to the left and the long-run aggregate supply curve to the right.
57. The long-run Phillips curve would shift left if
a.
the money supply increased or if the minimum wage was reduced.
b.
the money supply increased but not if the minimum wage was reduced.
c.
the minimum wage was reduced but not if the money supply increased.
d.
None of the above is correct.
58. The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on
a.
the natural rate of unemployment and monetary growth.
b.
the natural rate of unemployment, but not monetary growth.
c.
monetary growth, but not the natural rate of unemployment.
d.
neither monetary growth nor the natural rate of unemployment.
59. The position of the long-run Phillips curve depends on
a.
the inflation rate and the natural rate of unemployment.
b.
the inflation rate but not the natural rate of unemployment.
c.
the natural rate of unemployment, but not the inflation rate.
d.
neither the natural rate of unemployment nor the inflation rate.
60. If the minimum wage increased, then at any given rate of inflation
a.
both output and employment would be higher.
b.
neither output nor employment would be higher.
c.
output would be higher and unemployment would be lower.
d.
output would be lower and unemployment would be higher.
61. If the long-run Phillips curve shifts to the right, then for any given rate of money growth and inflation the economy
has
a.
higher unemployment and lower output.
b.
higher unemployment and higher output.
c.
lower unemployment and lower output.
d.
lower unemployment and higher output.
62. If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has
a.
higher unemployment and lower output.
b.
higher unemployment and higher output.
c.
lower unemployment and lower output.
d.
lower unemployment and higher output.
