Question 1

Other things the same,a country that decides to reduce inflation will

Accepted Answer

When a country decides to reduce inflation, it typically does so by implementing contractionary monetary or fiscal policies such as raising interest rates or reducing government spending. These policies can lead to a decrease in consumer and investment spending, which in turn can lead to a decrease in aggregate demand and a decrease in output and employment in the short run. However, in the long run, output and employment should return to their natural levels, as the economy adjusts to the new lower level of inflation. Therefore, the country will have a higher unemployment rate only in the short run.

Question 2

If inflation expectations rise,the short-run Phillips curve shifts

Accepted Answer

When inflation expectations rise, the short-run Phillips curve shifts right. This means that in the short run, higher inflation is associated with higher unemployment. Therefore, if inflation remains the same, unemployment will rise. This is because firms will need to increase prices and reduce output in response to the higher expected inflation, which reduces the demand for labor and leads to higher unemployment.

Question 3

Considering a plot of the inflation rate and the unemployment rate,one might conjecture that the short run Phillips curve was further to the right in the first part of the 2000's than it was in the last part of the 1990s and 2000.

Accepted Answer

The answer of Considering a plot of the inflation rate...

Question 4

In the long run,the natural rate of unemployment depends primarily on the growth rate of the money supply.

Accepted Answer

The natural rate of unemployment is determined by factors such as demographics, technology, and labor market institutions. The growth rate of the money supply may affect short-term fluctuations in unemployment, but it is not a primary determinant of the natural rate of unemployment in the long run.

Question 5

The long-run response to a decrease in the money supply growth rate is shown by shifting

Accepted Answer

The answer of The long-run response to a decrease in...

Question 6

The monetary-policy framework called inflation targeting is used explicitly by

Accepted Answer

Inflation targeting is used explicitly by most major countries except the United States and Japan.

Question 7

From 1993-2001 the U.S.economy experienced

Accepted Answer

During this time period, the U.S. experienced a relatively strong economy with low inflation and unemployment rates. This was due to factors such as the growth of the technology industry and a period of low interest rates.

Question 8

Which of the following describes the Volcker disinflation most accurately?

Accepted Answer

The Volcker disinflation, initiated by Federal Reserve Chairman Paul Volcker in the late 1970s and early 1980s, aimed to reduce inflation through high interest rates. A significant portion of the public doubted the Fed's commitment to maintaining low money growth, leading to higher than anticipated unemployment rates. This skepticism contributed to a slower adjustment in inflation expectations, necessitating more aggressive monetary tightening and resulting in higher unemployment.

Question 9

Most economists believe that a tradeoff between inflation and unemployment exists

Accepted Answer

The answer of Most economists believe that a tradeoff between...

Question 10

Short-run outcomes in the economy can be expressed in terms of output and the price level,or in terms of unemployment and inflation.

Accepted Answer

Short-run outcomes in the economy are often measured by output and price level, which are related to inflation, and can also be measured by unemployment and inflation.

Question 11

The arguments of Friedman and Phelps would suggest that other things the same,a country that pursues a disinflationary policy that the public does not find completely credible

Accepted Answer

Friedman and Phelps argued that in the short run, a disinflationary policy that is not credible will lead to an increase in unemployment as expectations adjust. However, in the long run, unemployment will return to its natural rate. This is because workers and firms will adjust their expectations and behavior to the new inflation rate, leading to a new equilibrium with a lower rate of inflation and the natural rate of unemployment. Therefore, option B is the best choice.

Question 12

The long-run response to an increase in the growth rate of the money supply is shown by shifting

Accepted Answer

An increase in the growth rate of the money supply is likely to lead to an increase in inflation in the short run, as firms and individuals face lower borrowing costs and have more money to spend. This will cause the short-run Phillips curve to shift right. However, in the long run, the economy will adjust to the inflation and the Phillips curve will shift back to its original position, as there will be no change in the natural rate of unemployment. Therefore, the long-run response to an increase in the growth rate of the money supply involves only the short-run Phillips curve shifting to the right.

Question 13

If a central bank attempts to lower the inflation rate but the public doesn't believe the inflation rate will fall as far as the central bank says,then in the short run unemployment

Accepted Answer

The answer of If a central bank attempts to lower...

Question 14

If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year,the sacrifice ratio is

Accepted Answer

The sacrifice ratio measures the output cost, i.e., the percentage decrease in output per percentage point reduction in inflation. It is calculated as follows:

sacrifice ratio = percentage decrease in output / percentage point reduction in inflation

In this case, the central bank reduces inflation by 2 percentage points, and output falls by 3 percentage points. Thus, the sacrifice ratio is:

sacrifice ratio = 3 / 2 = 1.5

Therefore, the best choice is B.

Question 15

Which of the following is not correct?

Accepted Answer

Unemployment can also be affected by factors such as technological advancements, changes in consumer preferences, and global economic conditions, not just government policy.

Question 16

In response to the financial crisis of 2007-2008,policymakers used

Accepted Answer

The financial crisis of 2007-2008 led to a slowdown in economic activity due to the contraction of credit markets and the decline in asset values. To stimulate economic growth and prevent a recession, policymakers used expansionary monetary policy by lowering interest rates and increasing the money supply. They also used expansionary fiscal policy by increasing government spending and cutting taxes to increase aggregate demand. Therefore, the best choice is A) expansionary monetary policy and expansionary fiscal policy.

Question 17

In the long run,the inflation rate depends primarily on the growth rate of the money supply.

Accepted Answer

According to the Quantity Theory of Money, in the long run, the inflation rate is directly proportional to the growth rate of the money supply. This means that an increase in the money supply results in higher inflation, while a decrease in the money supply leads to lower inflation. However, other factors such as changes in demand, supply shocks, and overall economic conditions can also affect the inflation rate in the short run.

Question 18

Other things the same,if the central bank decreases the rate at which it increases the money supply,then

Accepted Answer

If the central bank decreases the rate at which it increases the money supply, it is tightening monetary policy, which can lead to a decrease in inflation rates. However, this can also lead to higher interest rates, which can reduce investment and lead to higher unemployment rates in the short run.

Question 19

Other things the same,if the central bank decreases the rate at which it increases the money supply,then in the long run

Accepted Answer

The answer of Other things the same,if the central bank...

Question 20

During the mid and last part of the 1990's both inflation and unemployment were low.In general this could have been the result of

Accepted Answer

Favorable supply shocks, such as advancements in technology or increases in productivity, would shift the short-run Phillips curve left, leading to lower inflation and unemployment. Adverse supply shocks would shift the curve right, resulting in higher inflation and unemployment. Therefore, option C is the most likely explanation for the low levels of inflation and unemployment during the 1990's.

Quiz 35: The Short-Run Trade-Off Between Inflation and Unemployment