Question 1

From 1993-2001 the U.S. economy experienced

Accepted Answer

The period from 1993-2001 is often referred to as the "longest peacetime expansion" in U.S. history. During this time, the economy experienced low inflation and relatively low unemployment rates, which allowed for sustained economic growth. This was due in part to a combination of factors, including technological advancements, increased productivity, and sound monetary policy.

Question 2

The experience of the Volcker disinflation of the early 1980s

Accepted Answer

The Volcker disinflation of the early 1980s led to a significant decrease in estimates of the sacrifice ratio. The sacrifice ratio measures the economic cost of reducing inflation, and the Volcker approach of aggressive monetary tightening was initially expected to have a high sacrifice ratio. However, the actual outcome was less severe than anticipated, leading to a reevaluation of the sacrifice ratio and the effectiveness of monetary policy in controlling inflation.

Question 3

The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to The Economy in 2008. The short-run effects of rising world commodity prices are shown by

Accepted Answer

Rising world commodity prices would lead to an increase in inflation in the short run, shifting the short-run Phillips curve to the right. This means that there would be an increase in both inflation and unemployment in the short run.

Question 4

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 5

The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to the Economy in 2008. In the short-run the housing and financial crises

Accepted Answer

The answer of The Economy in 2008
In the first half...

Question 6

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

Accepted Answer

The short-run Phillips curve shows the inverse relationship between inflation and unemployment. When inflation expectations rise, workers and firms will adjust their behavior accordingly, leading to higher wages and prices, and thus higher inflation. This causes the short-run Phillips curve to shift to the right, indicating that at any given level of inflation, unemployment is higher. Therefore, if inflation remains the same after the shift, unemployment will rise.

Question 7

The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to the Economy in 2008. The effects of increased prices of world commodities is shown by shifting

Accepted Answer

The answer of The Economy in 2008
In the first half...

Question 8

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 shift the short-run Phillips curve leftward, causing a decrease in both inflation and unemployment. This is consistent with the situation described in the question where both inflation and unemployment were low in the mid and late 1990s. Adverse supply shocks, on the other hand, shift the short-run Phillips curve rightward and lead to an increase in both inflation and unemployment.

Question 9

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 10

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 11

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. Inflation targeting refers to a monetary-policy framework where central banks set specific inflation targets and use various tools to achieve them. Major central banks that practice inflation targeting include the European Central Bank (ECB), Bank of England (BOE), Bank of Canada, Reserve Bank of Australia (RBA), and Reserve Bank of New Zealand (RBNZ). However, the Federal Reserve (Fed) in the United States and the Bank of Japan (BOJ) do not use a formal inflation-targeting framework.

Question 12

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

Accepted Answer

The consequences of the Volcker disinflation showed that the public believed that inflation would fall but not by as much or as quickly as Volcker claimed. This was evident from the fact that they did not immediately adjust their behavior to the new economic reality and continued to engage in practices that fueled inflation, such as wage and price increases. It took a few years for the public to fully recognize the severity of the disinflation and adjust their expectations accordingly.

Question 13

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

Accepted Answer

In order to reduce inflation, a country may adopt contractionary monetary policies such as raising interest rates, which can lead to higher unemployment in the short run. However, in the long run, as inflation is brought under control, the economy can adjust and unemployment rates may return to their natural level. Therefore, the country may only have higher unemployment in the short run, but not in the long run.

Question 14

The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to The Economy in 2008. The effects of the housing and financial crises could be shown by shifting

Accepted Answer

The housing and financial crises led to a decrease in consumer confidence and a tightening of credit, which would shift aggregate demand to the left.

Question 15

The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to The Economy in 2008. In the short-run the effects of the housing and financial crises

Accepted Answer

In the short-run, the effects of the housing and financial crises reduce the inflation rate as consumers have less money to spend due to reduced credit availability and declining home values. This reduction in spending leads to a decrease in demand and therefore a decrease in prices. At the same time, the crises raise the unemployment rate as companies reduce their workforce or cease operations, leading to fewer job opportunities.

Question 16

The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to The Economy in 2008. In the short run the increased prices of world commodities

Accepted Answer

In the short run, an increase in world prices of oil and foodstuffs would lead to an increase in the overall price level due to cost-push inflation. However, this would also reduce output as firms face increased costs of production and consumers have less disposable income to spend on goods and services. Therefore, option B is the correct answer.

Question 17

The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to The Economy in 2008. The short-run effects of the housing and financial crisis are shown by

Accepted Answer

The answer of The Economy in 2008
In the first half...

Question 18

Over the long run the Volcker disinflation

Accepted Answer

The answer of Over the long run the Volcker disinflation
...

Question 19

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

According to the arguments of Friedman and Phelps, a disinflationary policy that the public does not find completely credible may lead to a temporary increase in unemployment as workers may not immediately adjust their expectations regarding wages and prices. However, over time, as expectations adjust and the natural rate of unemployment is reached, the unemployment rate should return to its original level. Therefore, the correct answer is B. Option A is incorrect because Friedman and Phelps suggest that a disinflationary policy can lead to short-run unemployment. Option C is incorrect because they do not argue that unemployment would be permanently higher. Option D is incorrect because B is the suggested answer.

Question 20

The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
-Refer to The Economy in 2008. Given the effects of the financial and housing crisis on the price level and output and the effects of increased world commodity prices on the price level and output, the aggregate demand and aggregate supply model tells us that

Accepted Answer

The financial and housing crisis leads to a decrease in consumer and investor confidence, reducing consumption and investment demand. This causes a shift in the aggregate demand curve to the left, resulting in a decrease in both output and prices. The increase in world commodity prices leads to a decrease in the supply of goods and services as production costs increase, causing a leftward shift in the short-run aggregate supply curve. This results in a decrease in output and a rise in prices. Therefore, the overall effect is a decrease in output and an uncertain or potentially rising price level, making option C the most appropriate choice.

Quiz 22: The Short-Run Trade-Off Between Inflation and Unemployment

From 1993-2001 the U.S. economy experienced

The experience of the Volcker disinflation of the early 1980s

The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to The Economy in 2008. The short-run effects of rising world commodity prices are shown by

Which of the following describes the Volcker disinflation most accurately?

The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to the Economy in 2008. In the short-run the housing and financial crises

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

The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to the Economy in 2008. The effects of increased prices of world commodities is shown by shifting

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

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

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.

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

The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly, on average the public thought

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

The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to The Economy in 2008. The effects of the housing and financial crises could be shown by shifting

The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to The Economy in 2008. In the short-run the effects of the housing and financial crises

The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to The Economy in 2008. In the short run the increased prices of world commodities

The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to The Economy in 2008. The short-run effects of the housing and financial crisis are shown by

Over the long run the Volcker disinflation

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