The Short-Run Trade-off between Inflation and Unemployment 8525
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.
8526 The Short-Run Trade-off between Inflation and Unemployment
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.
The Short-Run Trade-off between Inflation and Unemployment 8527
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.
8528 The Short-Run Trade-off between Inflation and Unemployment
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
The Short-Run Trade-off between Inflation and Unemployment 8529
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.
8530 The Short-Run Trade-off between Inflation and Unemployment
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.
The Short-Run Trade-off between Inflation and Unemployment 8531
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
8532 The Short-Run Trade-off between Inflation and Unemployment
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
The Short-Run Trade-off between Inflation and Unemployment 8533
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.
8534 The Short-Run Trade-off between Inflation and Unemployment
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.
The Short-Run Trade-off between Inflation and Unemployment 8535
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.
8536 The Short-Run Trade-off between Inflation and 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.
The Short-Run Trade-off between Inflation and Unemployment 8537
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.
8538 The Short-Run Trade-off between Inflation and Unemployment
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.
The Short-Run Trade-off between Inflation and Unemployment 8539
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.
8540 The Short-Run Trade-off between Inflation and Unemployment
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.
Figure 35-6
Use the graph below to answer the following questions.
The Short-Run Trade-off between Inflation and Unemployment 8541
63. Refer to Figure 35-6. Curve 1 is the
a. long-run aggregate supply curve.
b. short-run aggregate supply curve.
c. long–run Phillips curve.
d. short-run Phillips curve.
64. Refer to Figure 35-6. Curve 2 is the
a. long–run Phillips curve.
b. short-run Phillips curve.
c. long-run aggregate demand curve.
d. short-run aggregate demand curve.
65. Refer to Figure 35-6. If the economy starts at C and the money supply growth rate increases,
then in the short run the economy moves to
a. B.
b. D.
c. F.
d. None of the above is consistent with an increase in the money supply growth rate.
8542 The Short-Run Trade-off between Inflation and Unemployment
66. Refer to Figure 35-6. If the economy starts at C and the money supply growth rate decreases,
in the short run the economy moves to
a. B.
b. C.
c. F.
d. None of the above is consistent with a decrease in the money supply growth rate.
67. Refer to Figure 35-6. If the economy starts at C and the money supply growth rate increases, in
the long run the economy
a. stays at C.
b. moves to B.
c. moves to F.
d. None of the above is consistent wit an increase in the money supply growth rate.
The Short-Run Trade-off between Inflation and Unemployment 8543
68. Refer to Figure 35-6. The money supply growth rate is greatest at
a. A.
b. B.
c. C.
d. F.
Figure 35-7
Use the two graphs in the diagram to answer the following questions.
8544 The Short-Run Trade-off between Inflation and Unemployment
69. Refer to Figure 35-7. Starting from C and 3, in the short run an unexpected increase in money
supply growth moves the economy to
a. A and 1.
b. B and 2.
c. back to C and 3.
d. D and 4.
70. Refer to Figure 35–7. Starting from C and 3, in the short run, an unexpected decrease in money
supply growth moves the economy to
a. A and 1.
b. B and 2.
c. back to C and 3.
d. D and 4.