c.
fall and shift the short-run Phillips curve right.
d.
fall and shift the short-run Phillips curve left.
35. Which of the following is correct if there is a favorable supply shock?
a.
the short-run aggregate supply curve and the short-run Phillips curve both shift right.
b.
the short-run aggregate supply curve and the short-run Phillips curve both shift left.
c.
the short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left.
d.
the short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right.
36. Suppose that a small economy that produces mostly agricultural goods experiences a year with exceptionally good
conditions for growing crops. The good weather would
a.
b.
c.
d.
37. Which of the following would cause the price level to rise and output to fall in the short run?
a.
an increase in the money supply
b.
a decrease in the money supply
c.
an adverse supply shock
d.
a favorable supply shock
38. Which of the following would cause the price level to fall and output to rise in the short run?
a.
an increase in the money supply
b.
a decrease in the money supply
c.
an adverse supply shock
d.
a favorable supply shock
39. The large increase in oil prices in the 1970s was caused primarily by a(n)
a.
increase in demand for oil.
b.
decrease in demand for oil.
c.
decrease in the supply of oil.
d.
increase in the supply of oil.
40. In the United States during the 1970s, expected inflation
a.
rose substantially.
b.
rose slightly.
c.
fell slightly.
d.
fell substantially.
41. In 1980, the U.S. misery index was
a.
much higher than average.
b.
slightly higher than average.
c.
about average.
d.
below average.
42. In the 1970s, the Fed accommodated a(n)
a.
adverse supply shock and so contributed to higher inflation.
b.
adverse supply shock and so contributed to lower inflation.
c.
favorable supply shock and so contributed to higher inflation.
d.
favorable supply shock and so contributed to lower inflation.
43. In the 1970’s the Federal Reserve responded to an adverse supply shock. Its policy made
a.
the recession that followed smaller and so provided a more favorable tradeoff between inflation and
unemployment.
b.
the recession that followed smaller, but in doing so produced a less favorable tradeoff between inflation and
unemployment.
c.
the recession that followed larger, but in doing so provided a more favorable tradeoff between inflation and
unemployment.
d.
the recession that followed larger and also produced a less favorable tradeoff between inflation and
unemployment.
44. In 1980, the U.S. economy had an inflation rate of
a.
about 1 percent and an unemployment rate of about 7 percent.
b.
less than 4 percent and an unemployment rate of less than 6 percent.
c.
less than 7 percent and an unemployment rate of about 9 percent.
d.
more than 9 percent and an unemployment rate of about 7 percent.
45. In 1980, the combination of inflation and unemployment the U.S. was experiencing
a.
resulted from a leftward shift of the short-run Phillips curve.
b.
was consistent with feasible inflation-unemployment combinations provided by the Phillips curve of the
1960s.
c.
followed two supply shocks that were triggered by the Organization of Petroleum Exporting Countries.
d.
All of the above are correct.
46. An adverse supply shock shifts the short-run Phillips curve to the
a.
right. This means the unemployment rate is higher at each inflation rate.
b.
right. This means the unemployment rate is lower at each inflation rate.
c.
left. This means the unemployment rate is higher at each inflation rate.
d.
left. This means the unemployment rate is lower at each inflation rate.
47. There is an adverse supply shock. In response the Federal Reserve pursues an expansionary monetary policy. Taking
into account both the shock and the Federal Reserve’s policy, which of the following are we sure of?
a.
unemployment will be higher
b.
unemployment will be lower
c.
inflation will be higher
d.
inflation will be lower
48. A favorable supply shock
a.
raises unemployment and the inflation rate.
b.
raises unemployment and reduces the inflation rate.
c.
reduces unemployment and raises the inflation rate.
d.
reduces unemployment and the inflation rate.
49. If the Federal Reserve accommodates an adverse supply shock,
a.
inflation expectations may rise which shifts the short-run Phillips curve shifts right.
b.
inflation expectations may rise which shifts the short-run Phillips curve shifts left.
c.
inflation expectations may fall which shifts the short-run Phillips curve shifts right.
d.
inflation expectations may fall which shifts the short-run Phillips curve shifts left
50. A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the
unemployment rate towards its previous level it would
a.
increase the rate at which the money supply increases. This will also move inflation closer to its previous rate..
b.
increase the rate at which the money supply increases. However, this will make inflation higher than its
previous rate
c.
decrease the rate at which the money supply increases. This will also move inflation closer to its original rate
d.
decrease the rate at which the money supply increases. However, this will make higher than its previous rate.
51. There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return
unemployment closer to its previous rate it would
a.
raise the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve
right.
b.
raise the rate at which it increases the money supply. In the long run this will shift the short-run Phillips curve
left.
c.
reduce the rate at which it increases the money supply. In the long run this will shift the short-run Phillips
curve right.
d.
reduce the rate at which it increases the money supply. In the long run this will shift the short-run Phillips
curve left.
52. An increase in the price of oil shifts the
a.
short-run Phillips curve right and the unemployment rate rises.
b.
short-run Phillips curve right and the unemployment rate falls.
c.
short-run Phillips curve left and the unemployment rate rises.
d.
short-run Phillips curve left and the unemployment rate falls.
53. After an oil price shock, which of the following would move unemployment back towards its natural rate?
a.
the Fed sells bonds
b.
the government raises taxes
c.
the government increases expenditures
d.
All of the above are correct.
54. In which case, if any, will inflation remain higher after a temporary adverse supply shock?
a.
both when the central bank maintains a higher money supply growth rate and when the central bank does
nothing
b.
only if the central bank does nothing
c.
only if the central bank maintains a higher money supply growth rate
d.
None of the above is correct. Whether the central bank maintains a higher money supply growth rate or not,
the inflation rate will return to its original level.
55. If there is an increase in the price of oil, then
a.
unemployment rises. If the central bank tries to counter this increase, inflation rises.
b.
unemployment rises. If the central bank tries to counter this increase, inflation falls.
c.
unemployment falls. If the central bank tries to counter this decrease, inflation falls.
d.
unemployment falls. If the central bank tries to counter this decrease, inflation rises.
56. A favorable supply shock shifts the short-run Phillips curve
a.
right and inflation rises.
b.
right and inflation falls.
c.
left and inflation rises.
d.
left and inflation falls.
57. If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should
a.
increase the money supply growth rate which raises the inflation rate.
b.
increase the money supply growth rate which reduces the inflation rate.
c.
decrease the money supply growth rate which raises the inflation rate.
d.
decrease the money supply growth rate which reduces the inflation rate.
58. If the Fed wants to reverse the effects of a favorable supply shock on unemployment, it should
a.
increase the money supply growth rate which raises the inflation rate.
b.
increase the money supply growth rate which reduces the inflation rate.
c.
decrease the money supply growth rate which raises the inflation rate.
d.
decrease the money supply growth rate which reduces the inflation rate.
59. If the Fed wants to reverse the effects of a favorable supply shock on the inflation rate, it should
a.
increase the money supply growth rate which also moves unemployment closer to its natural rate.
b.
increase the money supply growth rate, but this moves unemployment further from its natural rate.
c.
decrease the money supply growth rate which also moves unemployment closer to its natural rate.
d.
decrease the money supply growth rate, but this moves unemployment further from its natural rate.
60. Suppose that a drought significantly reduces agricultural production one year. Which of the following would likely
occur as a result of the bad weather?
a.
The short-run aggregate supply curve will shift to the right, and the short-run Phillips Curve will shift to the
right.
b.
The short-run aggregate supply curve will shift to the right, and the short-run Phillips Curve will shift to the
left.
c.
The short-run aggregate supply curve will shift to the left, and the short-run Phillips Curve will shift to the
right.
d.
The short-run aggregate supply curve will shift to the left, and the short-run Phillips Curve will shift to the left.
61. Suppose that a drought significantly reduces agricultural production one year. In addition, suppose the Fed
accommodates this supply shock by implementing an expansionary monetary policy. Which of the following would you
expect to occur as a result of these changes?
a.
The short-run aggregate supply curve will shift to the right, the short-run Phillips Curve will shift to the left,
and the accommodating monetary policy will raise inflation while lowering unemployment.
b.
The short-run aggregate supply curve will shift to the right, the short-run Phillips Curve will shift to the left,
and the accommodating monetary policy will increase unemployment while lowering inflation.
c.
The short-run aggregate supply curve will shift to the left, the short-run Phillips Curve will shift to the right,
and the accommodating monetary policy will raise inflation while lowering unemployment.
d.
The short-run aggregate supply curve will shift to the left, the short-run Phillips Curve will shift to the right,
and the accommodating monetary policy will increase unemployment while lowering inflation.
62. In response to an adverse supply shock, suppose the Fed implements accommodating monetary policy. Which of the
following occurs as a result of the accommodating monetary policy?
a.
Aggregate demand shifts to the left, which increases inflation and increases unemployment in the short run.
b.
Aggregate demand shifts to the left, which decreases inflation and increases unemployment in the short run.
c.
Aggregate demand shifts to the right, which increases inflation and increases unemployment in the short run.
d.
Aggregate demand shifts to the right, which increases inflation and decreases unemployment in the short run.
63. Suppose OPEC is unable to come to an agreement regarding oil production and as a result the price of oil drops.
Which of the following would you expect to occur as a result of this favorable supply shock?
a.
The short-run Phillips curve will shift to the right and the unemployment rate will increase.
b.
The short-run Phillips curve will shift to the right and the unemployment rate will decrease.
c.
The short-run Phillips curve will shift to the left and the unemployment rate will increase.
d.
The short-run Phillips curve will shift to the left and the unemployment rate will decrease.