The Short-Run Trade-off between Inflation and Unemployment 8545
71. Refer to Figure 35-7. Starting from C and 3, in the long run, an increase in money supply
growth moves the economy to
a. A and 1.
b. back to C and 3.
c. D and 4.
d. F and 5.
72. Refer to Figure 35-7. Starting from C and 3, in the long run, a decrease in money supply growth
moves the economy to
a. A and 1.
b. back to C and 3.
c. D and 4.
d. F and 5.
8546 The Short-Run Trade-off between Inflation and Unemployment
73. Refer to Figure 35-7. The economy would move from 3 to 5
a. in the short run if money supply growth increased unexpectedly.
b. in the short run if money supply growth decreased unexpectedly.
c. in the long run if money supply growth increases.
d. in the long run if money supply growth decreases.
74. Refer to Figure 35-7. The economy would move from C to B
a. in the short run if money supply growth increased unexpectedly.
b. in the short run if money supply growth decreased unexpectedly.
c. in the long run if money supply growth increases.
d. in the long run if money supply growth decreases.
The Short-Run Trade-off between Inflation and Unemployment 8547
Figure 35-8
Use this graph to answer the questions below.
75. Refer to figure 35-8. Suppose the economy starts at 5% unemployment and 3% inflation and
expected inflation remains at 3%. Which one of the following points could the economy move to
in the short run if the Federal Reserve pursues a more expansionary monetary policy?
a. 7% unemployment and 1% inflation
b. 7% unemployment and 3% inflation
c. 3% unemployment and 5% inflation
d. 3% unemployment and 7% inflation
8548 The Short-Run Trade-off between Inflation and Unemployment
76. Refer to figure 35-8. If the economy starts at 5% unemployment and 5% inflation then if the
Federal Reserve pursues a contractionary monetary policy, in the short run the economy moves to
a. 3% unemployment and 5% inflation. In the long run the economy moves to 5% unemployment
and 5% inflation.
b. 3% unemployment and 5% inflation. In the long run the economy moves to 5% unemployment
and 3% inflation.
c. 7% unemployment and 3% inflation. In the long run the economy moves to 5% unemployment
and 5% inflation.
d. 7% unemployment and 3% inflation. In the long run the economy moves to 5% unemployment
and 3% inflation.
77. On a given short–run Phillips curve which of the following is held constant?
a. the level of GDP
b. the unemployment rate
c. expected inflation
d. employment
The Short-Run Trade-off between Inflation and Unemployment 8549
78. On a given short-run Phillips curve which of the following is not held constant?
a. the level of GDP
b. the position of the aggregate-supply curve
c. expected inflation
d. the expected growth rate of the money supply
79. A change in expected inflation shifts
a. the short–run Phillips curve, but not the long run Phillips curve.
b. the long-run Phillips curve, but not the long run Phillips curve.
c. neither the short-run nor the long-run Phillips curve.
d. both the short–run and long-run Phillips curve right.
8550 The Short-Run Trade-off between Inflation and Unemployment
80. In the long run, if there is an increase in the money supply growth rate, which of the following
curves shifts right?
a. the short–run and the long run Phillips curves
b. the short-run but not the long run Phillips curve
c. the long–run but not the short-run Phillips curve
d. neither the short–run nor the long-run Phillips curves
81. An increase in expected inflation shifts
a. the long–run Phillips curve right.
b. the short-run Phillips curve right.
c. neither the short–run nor long-run Phillips curve right.
d. both the short–run and long–run Phillips curve right.
The Short-Run Trade-off between Inflation and Unemployment 8551
82. A decrease in expected inflation shifts
a. the long–run Phillips curve left.
b. the short-run Phillips curve left.
c. neither the short-run nor long–run Phillips curve left.
d. both the short–run and long-run Phillips curve left.
83. An increase in expected inflation shifts the
a. short–run Phillips curve right.
b. short-run Phillips curve left.
c. long–run Phillips curve right.
d. long–run Phillips curve left.
84. If expected inflation increases, which of the following shifts right?
a. both the short-run and the long–run Phillips curves
b. the short-run but not the long–run Phillips curve
c. the long–run but not the short–run Phillips curve
d. neither the long–run nor the short-run Phillips curve
8552 The Short-Run Trade-off between Inflation and Unemployment
85. If inflation expectations rise, the short-run Phillips curve shifts
a. right, so that at any inflation rate unemployment is higher in the short run than before.
b. left, so that at any inflation rate unemployment is higher in the short run than before.
c. right, so that at any inflation rate unemployment is lower in the short run than before.
d. left, so that at any inflation rate unemployment is lower in the short run than before.
86. If inflation expectations rise, the short-run Phillips curve shifts
a. right, so that at any unemployment rate inflation is higher in the short run than before.
b. left, so that at any unemployment rate inflation is higher in the short run the before.
c. right, so that at any unemployment rate inflation is lower in the short run than before.
d. left, so that at any unemployment rate inflation is lower in the short run than before.
87. If inflation expectations decline, then the short-run Phillips curve shifts
a. left, so that at any inflation rate unemployment is lower in the short run than before.
b. right, so that at any inflation rate unemployment is lower in the short run than before.
c. right, so that at any inflation rate unemployment is higher in the short run than before.
d. left, so that at any inflation rate unemployment is higher in the short run than before.
The Short-Run Trade-off between Inflation and Unemployment 8553
88. Friedman and Phelps argued that
a. if peoples’ inflation expectations were fixed, then an increase in the money supply growth rate
could not change output in the short or long run.
b. if peoples’ inflation expectations were fixed, then a decrease in the money supply growth rate
could raise output and unemployment in the short run.
c. any change in unemployment created by making aggregate demand increase more rapidly is
temporary because people eventually revise their inflation expectations.
d. None of the above is correct.
89. The analysis of Friedman and Phelps can be summarized in the following equation where a is a
positive number:
a. Unemployment Rate = Natural Rate of Unemployment – a(Actual Inflation – Expected
Inflation).
b. Unemployment Rate = Natural Rate of Unemployment – a(Expected Inflation – Actual
Inflation).
c. Unemployment Rate = Expected Rate of Inflation – a(Actual Inflation – Expected Inflation).
d. Unemployment Rate = Actual Rate of Inflation – a(Actual Unemployment – Expected
Unemployment).
8554 The Short-Run Trade-off between Inflation and Unemployment
90. Natural rate of unemployment – a × (Αctual inflation – Expected inflation) =
a. Quantity of goods and services demanded.
b. Quantity of goods and services supplied.
c. Unemployment rate.
d. Previous year’s inflation rate.
91. In the equation, Unemployment rate = Natural rate of unemployment – a × (Αctual inflation –
Expected inflation), the variable a is a parameter that measures how much
a. actual inflation responds to expected inflation.
b. expected inflation responds to actual inflation.
c. the natural rate of unemployment responds to unexpected inflation.
d. actual unemployment responds to unexpected inflation.
The Short-Run Trade-off between Inflation and Unemployment 8555
92. The equation, Unemployment rate = Natural rate of unemployment – a × (Αctual inflation –
Expected inflation),
a. is the equation of the short–run Phillips curve.
b. implies there can be no stable short–run Phillips curve.
c. reflects the reasoning of Friedman and Phelps.
d. All of the above are correct.
93. The equation, Unemployment rate = Natural rate of unemployment – a × (Αctual inflation –
Expected inflation),
a. is the equation of the short–run Phillips curve.
b. implies the short–run Phillips curve shifts every time there is a change in actual inflation.
c. reflects the reasoning of Samuelson and Solow.
d. All of the above are correct.
8556 The Short-Run Trade-off between Inflation and Unemployment
94. Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid:
Unemployment rate = Natural rate of unemployment – a × (Αctual inflation – x).In this equation,
a. a is a parameter that measures how much actual inflation responds to expected inflation.
b. a = 0 at the point of intersection of the short–run and long-run Phillips curves.
c. x is the expected rate of inflation.
d. All of the above are correct.
95. According to Friedman and Phelps, the unemployment rate is above the natural rate when actual
inflation
a. is greater than expected inflation.
b. is less than expected inflation.
c. equals expected inflation.
d. low whether its greater than or less than expected.
The Short-Run Trade-off between Inflation and Unemployment 8557
96. According to Friedman and Phelps’s analysis of the Phillips curve,
a. the unemployment rate will be below its natural rate whenever inflation is negative.
b. the unemployment rate will be below its natural rate whenever inflation is positive.
c. the unemployment rate will be below its natural rate only if inflation is less than expected.
d. the unemployment rate will be below its natural rate only if inflation is greater than expected.
97. According to Friedman and Phelps, the unemployment rate
a. is never below its natural rate.
b. is below its natural rate when actual inflation is greater than expected inflation.
c. is below its natural rate when actual inflation is less than expected inflation.
d. is below its natural rate when actual inflation equals expected inflation.
8558 The Short-Run Trade-off between Inflation and Unemployment
98. According to Friedman and Phelps, policymakers face a tradeoff between inflation and
unemployment
a. only in the long run.
b. only in the short run.
c. in neither the long run nor short run.
d. in both the short run and long run.
99. Friedman and Phelps concluded that
a. in the long run the Phillips curve is downward sloping, which is consistent with classical
theory.
b. in the long run the Philips curve is downward sloping, which is inconsistent with classical
theory.
c. in the long run the Phillips curve is vertical, which is consistent with classical theory.
d. in the long run the Phillips curve is vertical, which is inconsistent with classical theory.
The Short-Run Trade-off between Inflation and Unemployment 8559
100. If people eventually adjust their inflation expectations so that in the long run actual and expected
inflation are the same, then policymakers
a. can not exploit a tradeoff between inflation and unemployment in either the short or long run.
b. can exploit a tradeoff between inflation and unemployment in the short run but not in the long
run.
c. can exploit a tradeoff between inflation and unemployment in both the short run and the long
run.
d. can exploit a tradeoff between inflation and unemployment in the long run, but not the short
run.
101. A policy intended to reduce unemployment by taking advantage of a tradeoff between inflation
and unemployment leads to
a. both higher inflation and higher unemployment in the long run.
b. higher inflation and no change in unemployment in the long run.
c. the same inflation rate and lower unemployment in the long run.
d. higher inflation and lower unemployment in the long run
8560 The Short-Run Trade-off between Inflation and Unemployment
102. A central bank sets out to reduce unemployment by changing the money supply growth rate. The
long–run Phillips curve shows that in comparison to their original rates, this policy will eventually
lead to
a. an increase in both the inflation rate and the unemployment rate.
b. an increase in the inflation rate and a reduction in the unemployment rate.
c. no change in either the inflation rate or the unemployment rate.
d. an increase in the inflation rate and no change in the unemployment rate.
103. In the long run, an increase in the money supply
a. leaves prices and unemployment unchanged.
b. raises prices and unemployment.
c. raises prices and leaves unemployment unchanged.
d. leaves prices unchanged and reduces unemployment.
The Short-Run Trade-off between Inflation and Unemployment 8561
104. The short–run Phillips curve intersects the long-run Phillips curve where
a. the actual rate of inflation equals the expected rate of inflation.
b. the actual rate of unemployment equals the natural rate of unemployment.
c. Both A and B are correct.
d. None of the above is correct.
105. If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips
curve,
a. unemployment equals the natural rate and expected inflation equals actual inflation.
b. unemployment is above the natural rate and expected inflation equals actual inflation.
c. unemployment equals the natural rate and expected inflation is greater than actual inflation.
d. None of the above is necessarily correct.
8562 The Short-Run Trade-off between Inflation and Unemployment
106. Suppose expected inflation and actual inflation are both low, and unemployment is at its natural
rate. If the Fed then pursues an expansionary monetary policy, which of the following results
would be expected in the short run?
a. The short-run Phillips curve would shift to the left.
b. The short–run Phillips curve would shift to the right.
c. The economy would move up and to the left along a given short-run Phillips curve.
d. The economy would move down and to the right along a given short-run Phillips curve.
107. Suppose expected inflation and actual inflation are both relatively high, and unemployment is at
its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following
results would be expected in the short run?
a. Expected inflation would exceed actual inflation, and unemployment would exceed its natural
rate.
b. Expected inflation would exceed actual inflation, and unemployment would be below its
natural rate.
c. Actual inflation would exceed expected inflation, and unemployment would exceed its natural
rate.
d. Actual inflation would exceed expected inflation, and unemployment would be below its
natural rate.
The Short-Run Trade-off between Inflation and Unemployment 8563
108. In the long run, a decrease in the money supply growth rate
a. increases inflation and shifts the short–run Phillips curve right.
b. increases inflation and shifts the short–run Phillips curve left.
c. decreases inflation and shifts the short-run Philips curve right.
d. decreases inflation and shifts the short-run Phillips curve left.
109. In the long run, an increase in the money supply growth rate
a. increases inflation and shifts the short–run Phillips curve right.
b. increases inflation and shifts the short–run Phillips curve left.
c. decreases inflation and shifts the short-run Philips curve right.
d. decreases inflation and shifts the short-run Phillips curve left.
110. In the long run, a decrease in the money supply growth rate
a. shifts both the long-run and the short–run Phillips curves right.
b. shifts the long–run Phillips curve left and the short-run Phillips curve right.
c. shifts the long–run Phillips curve right and the short-run Phillips curve left.
d. None of the above is correct.
8564 The Short-Run Trade-off between Inflation and Unemployment
111. In the long run, an increase in the money supply growth rate
a. shifts both the long-run and the short–run Phillips curves right.
b. shifts the long–run Phillips curve left and the short-run Phillips curve right.
c. shifts the long–run Phillips curve right and the short-run Phillips curve left.
d. None of the above is correct.
112. In the long run, an increase in the money supply growth rate
a. raises expected inflation so the short-run Phillips curve shifts right.
b. raises expected inflation so the short-run Phillips curve shifts left.
c. reduces expected inflation so the short-run Phillips curve shifts left.
d. None of the above is correct.
113. 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.