Question 1

How will an adverse supply shock shift the short-run Phillips curve,and how will it change unemployment?
A) It will shift the short-run Phillips curve right and raise unemployment.
B) It will shift the short-run Phillips curve right and lower unemployment.
C) It will shift the short-run Phillips curve left and raise unemployment.
D) It will shift the short-run Phillips curve left and lower unemployment.

Accepted Answer

An adverse supply shock, such as an increase in the price of oil, would cause an increase in production costs for firms. In turn, this would shift the short-run Phillips curve to the right, as firms can only produce the same level of output at a higher price level. As a result, the economy would experience higher inflation and higher unemployment in the short run, known as stagflation. Therefore, the best choice is A, which states that the short-run Phillips curve will shift right and raise unemployment.

Question 2

How will a favourable supply shock shift the short-run Phillips curve,and how does unemployment change?
A) It will shift the short-run Phillips curve right,and unemployment will rise.
B) It will shift the short-run Phillips curve right,and unemployment will fall.
C) It will shift the short-run Phillips curve left,and unemployment will rise.
D) It will shift the short-run Phillips curve left,and unemployment will fall.

Accepted Answer

A favourable supply shock, such as a decrease in oil prices or an increase in productivity, will shift the short-run Phillips curve to the left, as producers can now produce more output at a lower cost. This will lead to a decrease in inflation and lower unemployment in the short run. Therefore, the correct choice is D, as the short-run Phillips curve shifts left and unemployment falls.

Question 3

How will an adverse supply shock shift the short-run Phillips curve,and how does inflation change?
A) It will shift the short-run Phillips curve right,and inflation will rise.
B) It will shift the short-run Phillips curve right,and inflation will fall.
C) It will shift the short-run Phillips curve left,and inflation will rise.
D) It will shift the short-run Phillips curve left,and inflation will fall.

Accepted Answer

An adverse supply shock, such as an increase in input prices or a decrease in aggregate supply, will shift the short-run Phillips curve to the right due to an increase in the natural rate of unemployment. This means that at any given level of unemployment, there will be a higher level of inflation. As a result, inflation will rise.

Question 4

How will a favourable supply shock shift short-run aggregate supply,and how will output change?
A) It will shift short-run aggregate supply left,making output rise.
B) It will shift short-run aggregate supply left,making output fall.
C) It will shift short-run aggregate supply right,making output rise.
D) It will shift short-run aggregate supply right,making output fall.

Accepted Answer

A favourable supply shock, such as a decrease in the price of input for production or an improvement in technology, will shift short-run aggregate supply rightward. This means that firms can produce more output at the same price level as before. As a result, output will increase.

Question 5

Suppose that weather around the world is especially good next year,so farmers have unusually good crops.What might we expect that this will do to the short-run and long-run Phillips curves?
A) This will shift both the short-run and long-run Phillips curves to the right.
B) This will shift both the short-run and long-run Phillips curves to the left.
C) This will shift the short-run Phillips curve to the left,but not affect the long-run Phillips curve.
D) This will shift the long-run Phillips curve to the left,but not affect the short-run Phillips curve.

Accepted Answer

The short-run Phillips curve may shift to the left due to lower inflation expectations from increased supply of agricultural products, reducing costs for food and possibly other goods. However, the long-run Phillips curve is not affected by short-term supply changes, as it is determined by factors like technology, labor market institutions, and policy, which are not influenced by temporary changes in weather or crop yields.

Question 6

What happened to expected inflation in Canada during the 1970s?
A) It increased substantially.
B) It increased slightly.
C) It decreased slightly.
D) It decreased substantially.

Accepted Answer

Expected inflation in Canada during the 1970s increased substantially due to various factors such as high government spending, wage-price spiral, and high energy costs. This led to a high rate of inflation and a decrease in the value of the Canadian dollar.

Question 7

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops.What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?
A) It would shift both the short-run aggregate-supply curve and the short-run Phillips curve right.
B) It would shift both the short-run aggregate-supply curve and the short-run Phillips curve left.
C) It would shift the short-run aggregate-supply curve to the right,and the short-run Phillips curve to the left.
D) It would shift the short-run aggregate-supply curve to the left,and the short-run Phillips curve to the right.

Accepted Answer

Exceptionally good weather for growing crops would increase the productivity of farmers and decrease their costs. This would shift the short-run aggregate-supply curve to the right, as the economy is able to produce more output at any given price level. However, the increase in output could also lead to lower prices, which would shift the short-run Phillips curve to the left. Overall, the short-run aggregate-supply curve would shift to the right, while the short-run Phillips curve would shift to the left.

Question 8

What 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 favourable supply shock

Accepted Answer

An adverse supply shock, such as a sudden increase in the price of oil, would cause the cost of production to rise and reduce the supply of goods and services, leading to a decrease in output. However, the demand for goods and services remains unchanged or may even increase, leading to an increase in the price level.

Question 9

Suppose a war disrupts the supply of oil to the country.What would we expect to happen to the short-run aggregate-supply curve,the short-run Phillips curve,and the long-run Phillips curve?
A) We would expect the short-run aggregate-supply curve,short-run Phillips curve,and long-run Phillips curve to shift left.
B) We would expect the short-run aggregate-supply curve,short-run Phillips curve,and long-run Phillips curve to shift right.
C) We would expect the short-run aggregate-supply curve to shift left,and the short-run Phillips curve and long-run Phillips curve to shift right.
D) We would expect the short-run aggregate-supply curve to shift left,the short-run Phillips curve to shift right,and the long-run Phillips curve to be unaffected.

Accepted Answer

A disruption in the supply of oil would increase production costs, leading to a decrease in the short-run aggregate supply (shift left). This would also cause the short-run Phillips curve to shift right, indicating a higher inflation rate for any given level of unemployment. However, the long-run Phillips curve would remain unaffected because it is vertical, reflecting the natural rate of unemployment, which is not influenced by short-term supply shocks.

Question 10

How will an adverse supply shock shift the short-run aggregate-supply curve,and what will be the effect on prices?
A) It will shift the short-run aggregate-supply curve right,making prices rise.
B) It will shift the short-run aggregate-supply curve left,making prices rise.
C) It will shift the short-run aggregate-supply curve right,making prices fall.
D) It will shift the short-run aggregate-supply curve left,making prices fall.

Accepted Answer

An adverse supply shock, such as a sudden increase in oil prices, typically reduces the quantity of goods and services that businesses can produce at any given price level, shifting the short-run aggregate-supply curve to the left. This decrease in supply, with demand remaining constant, leads to higher prices.

Question 11

In 1980,how did the Canadian misery index compare to the average?
A) It was much higher than average.
B) It was slightly higher than average.
C) It was just below average.
D) It was well below average.

Accepted Answer

In 1980, the Canadian misery index, which is calculated by adding the unemployment rate to the inflation rate, was much higher than average due to a combination of high inflation and unemployment rates during that period.

Question 12

What will an adverse supply shock cause output and prices to do?
A) It will cause output and prices to rise.
B) It will cause output and prices to fall.
C) It will cause output to rise and prices to fall.
D) It will cause output to fall and prices to rise.

Accepted Answer

An adverse supply shock, such as an increase in the cost of inputs, will cause a decrease in the supply of goods and services. As a result, output will fall. However, the decrease in supply will also lead to an increase in prices as consumers compete for a limited supply. Therefore, output will fall and prices will rise.

Question 13

What will a favourable supply shock cause the price level and output to do?
A) It will cause the price level and output to rise.
B) It will cause the price level and output to fall.
C) It will cause the price level to rise and output to fall.
D) It will cause the price level to fall and output to rise.

Accepted Answer

A favourable supply shock increases the supply of goods and services, which causes a decrease in prices and an increase in output. Therefore, the correct choice is D) It will cause the price level to fall and output to rise.

Question 14

If policymakers accommodate an adverse supply shock,what will happen to the unemployment rate and inflation?
A) The unemployment rate and the inflation rate will rise.
B) The unemployment rate and the inflation rate will fall.
C) The unemployment rate will rise and the inflation rate will fall.
D) The unemployment rate will fall and the inflation rate will rise.

Accepted Answer

Accommodating an adverse supply shock typically involves monetary or fiscal policies that stimulate demand. While these policies can help lower unemployment by boosting economic activity, they also tend to increase inflation by raising demand in the face of constrained supply.

Question 15

If there is an adverse supply shock,what will most likely happen?
A) The aggregate supply curve and the short-run Phillips curve will both shift right.
B) The aggregate supply curve and the short-run Phillips curve will both shift left.
C) The aggregate supply curve will shift right,and the short-run Phillips curve will shift left.
D) The aggregate supply curve will shift left,and the short-run Phillips curve will shift right.

Accepted Answer

An adverse supply shock causes a decrease in aggregate supply due to factors such as higher input prices or reduced availability of resources. As a result, the aggregate supply curve shifts left, meaning that for any given level of demand, there is a lower level of output and higher prices. This shift in the aggregate supply curve also leads to a shift in the short-run Phillips curve, which shows the relationship between unemployment and inflation. In this case, the Phillips curve shifts right, indicating that higher levels of unemployment are associated with higher levels of inflation.

Question 16

In 1980,what was the Canadian inflation rate and unemployment rate?
A) The inflation rate was about 2 percent,and the unemployment rate was about 8 percent.
B) The inflation rate was about 6 percent,and the unemployment rate was about 2 percent.
C) The inflation rate was about 7 percent,and the unemployment rate was about 10 percent.
D) The inflation rate was about 10 percent,and the unemployment rate was about 7 percent.

Accepted Answer

The answer of In 1980,what was the Canadian inflation rate...

Question 17

If there is a favourable supply shock,what will most likely happen?
A) The aggregate supply curve and the short-run Phillips curve will both shift right.
B) The aggregate supply curve and the short-run Phillips curve will both shift left.
C) The aggregate supply curve will shift right,and the short-run Phillips curve will shift left.
D) The aggregate supply curve will shift left,and the short-run Phillips curve will shift right.

Accepted Answer

A favorable supply shock, such as a decrease in the price of oil, typically increases the aggregate supply in an economy, shifting the aggregate supply curve to the right. This leads to lower prices and lower unemployment, which is represented by a leftward shift in the short-run Phillips curve.

Question 18

What is the effect of an adverse supply shock?
A) The long-run aggregate supply curve shifts to the left.
B) The short-run aggregate supply curve shifts to the right.
C) The long-run Phillips curve shifts to the left.
D) The short-run Phillips curve shifts to the right.

Accepted Answer

The answer of What is the effect of an adverse...

Question 19

Which of the following was the primary cause of the large increase in oil prices in the 1970s?
A) an increase in demand for oil
B) the introduction of the National Energy Program
C) a decrease in the supply of oil by OPEC
D) an increase in the supply of oil by OPEC

Accepted Answer

In the 1970s, OPEC, a group of oil producing countries, reduced their oil production and imposed an oil embargo on several countries. This led to a decrease in the supply of oil in the international market, which caused oil prices to increase sharply. This was the primary cause of the oil crisis of the 1970s, and not an increase in demand, the National Energy Program or an increase in supply by OPEC.

Question 20

How will a favourable supply shock shift the short-run Phillips curve and how does it change inflation?
A) It will shift the short-run Phillips curve right and raise inflation.
B) It will shift the short-run Phillips curve right and lower inflation.
C) It will shift the short-run Phillips curve left and raise inflation.
D) It will shift the short-run Phillips curve left and lower inflation.

Accepted Answer

A favourable supply shock increases the aggregate supply and results in a lower price level and lower inflation. This shifts the short-run Phillips curve leftward, indicating a lower trade-off between inflation and unemployment. Therefore, option D is correct.

Quiz 16: The Short-Run Tradeoff Between Inflation and Unemployment

How will an adverse supply shock shift the short-run Phillips curve,and how will it change unemployment?

How will a favourable supply shock shift the short-run Phillips curve,and how does unemployment change?

How will an adverse supply shock shift the short-run Phillips curve,and how does inflation change?

How will a favourable supply shock shift short-run aggregate supply,and how will output change?

Suppose that weather around the world is especially good next year,so farmers have unusually good crops.What might we expect that this will do to the short-run and long-run Phillips curves?

What happened to expected inflation in Canada during the 1970s?

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops.What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?

What would cause the price level to rise and output to fall in the short run?

Suppose a war disrupts the supply of oil to the country.What would we expect to happen to the short-run aggregate-supply curve,the short-run Phillips curve,and the long-run Phillips curve?

How will an adverse supply shock shift the short-run aggregate-supply curve,and what will be the effect on prices?

In 1980,how did the Canadian misery index compare to the average?

What will an adverse supply shock cause output and prices to do?

What will a favourable supply shock cause the price level and output to do?

If policymakers accommodate an adverse supply shock,what will happen to the unemployment rate and inflation?

If there is an adverse supply shock,what will most likely happen?

In 1980,what was the Canadian inflation rate and unemployment rate?

If there is a favourable supply shock,what will most likely happen?

What is the effect of an adverse supply shock?

Which of the following was the primary cause of the large increase in oil prices in the 1970s?

How will a favourable supply shock shift the short-run Phillips curve and how does it change inflation?