Question 1

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-1. What is measured along the vertical axis of the right-hand graph?

Accepted Answer

The vertical axis of the right-hand graph measures the unemployment rate, which is usually inversely related to the inflation rate. Therefore, the best choice for the measured variable is B, the inflation rate.

Question 2

If policymakers decrease aggregate demand, then in the long run

Accepted Answer

The answer of If policymakers decrease aggregate demand, then in...

Question 3

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-1. Assuming the price level in the previous year was 100, point F on the right-hand graph corresponds to

Accepted Answer

Point F on the right-hand graph corresponds to an unemployment rate of 6%, which intersects with the AD2 curve. Following the intersection to the left, it intersects with the SRAS curve at point B on the left-hand graph. Therefore, the answer is B.

Question 4

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

Accepted Answer

According to the short-run Phillips curve, there is a trade-off between unemployment and inflation. Policy A would result in a larger shift in AD, causing a decrease in unemployment but an increase in inflation. Policy B, with a smaller shift in AD, would still lead to a decrease in unemployment but with a smaller increase in inflation. Therefore, Policy A would result in a lower unemployment rate and a higher inflation rate than Policy B.

Question 5

According to the short-run Phillips curve, if the central bank increases the money supply, then

Accepted Answer

According to the short-run Phillips curve, there is an inverse relationship between inflation and unemployment. If the central bank increases the money supply, this will lead to higher aggregate demand and an increase in output, which in turn will lead to a decrease in unemployment. At the same time, the increase in aggregate demand will put upward pressure on prices, leading to an increase in inflation. Therefore, the best choice is D, which states that inflation will rise and unemployment will fall.

Question 6

If the central bank increases the money supply, in the short run, output

Accepted Answer

Increasing the money supply usually leads to lower interest rates, making it easier for firms to borrow money to invest and expand their businesses. This results in an increase in output (GDP) in the short run, which means that unemployment falls.

Question 7

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-1. Suppose points F and G on the right-hand graph represent two possible outcomes for an imaginary economy in the year 2012, and those two points correspond to points B and C, respectively, on the left- hand graph. Then it is apparent that the price index equaled

Accepted Answer

The answer of Figure 35-1. The left-hand graph shows a...

Question 8

If the central bank increases the money supply, then in the short run prices

Accepted Answer

When the central bank increases the money supply, it becomes easier for businesses and individuals to borrow money. This leads to an increase in spending, which in turn leads to an increase in demand for goods and services. In the short run, this increase in demand leads to an increase in prices (inflation) and a decrease in unemployment as businesses hire more workers to meet the increased demand.

Question 9

Suppose that the money supply decreases. In the short run, this increases prices according to

Accepted Answer

The answer of Suppose that the money supply decreases. In...

Question 10

In the long run, policy that changes aggregate demand changes

Accepted Answer

The answer of In the long run, policy that changes...

Question 11

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-1. What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

The horizontal axis of the left-hand graph represents output, measured by real GDP.

Question 12

The economy will move to a point on the short-run Phillips curve where unemployment is higher if

Accepted Answer

According to the short-run Phillips curve, there is a negative relationship between inflation and unemployment. If the inflation rate decreases, the short-run Phillips curve shifts downward, causing a higher unemployment rate at any given level of inflation. Therefore, the economy will move to a point on the short-run Phillips curve where unemployment is higher.

Question 13

In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run this change should have

Accepted Answer

The answer of In 2001, Congress and President Bush instituted...

Question 14

Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?

Accepted Answer

Moving up along a given short-run Phillips curve implies higher inflation and lower unemployment. This would generally lead to more job offers (contrary to fewer as stated in option B), as employers are more likely to hire due to better economic conditions. The other options are consistent with moving up along the Phillips curve, as they reflect higher inflation (C and D) and an expansionary monetary policy (A).

Question 15

If the short-run Phillips curve were stable, which of the following would be unusual?

Accepted Answer

The answer of If the short-run Phillips curve were stable,...

Question 16

If policymakers expand aggregate demand, then in the long run

Accepted Answer

Expanding aggregate demand in the short run can boost economic growth and employment, but in the long run, it is unlikely to change the natural rate of unemployment, which is determined by structural factors such as technology and demographics. However, increasing aggregate demand can lead to inflationary pressure, as firms raise prices to meet the higher demand. As a result, prices are likely to be higher in the long run, while unemployment remains unchanged.

Question 17

If a central bank decreases the money supply, then

Accepted Answer

The answer of If a central bank decreases the money...

Question 18

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-1. Assuming the price level in the previous year was 100, point G on the right-hand graph corresponds to

Accepted Answer

The answer of Figure 35-1. The left-hand graph shows a...

Question 19

Suppose that the money supply increases. In the short run, this increases prices according to

Accepted Answer

An increase in the money supply shifts the aggregate demand curve to the right, leading to an increase in both output and prices in the short run. This is represented in the aggregate demand and aggregate supply model. Additionally, the short-run Phillips curve shows that there is a trade-off between inflation and unemployment in the short run, so an increase in the money supply would lead to higher inflation (as measured by the Consumer Price Index, for example) in the short run. Therefore, both models suggest that an increase in the money supply leads to higher prices in the short run.

Question 20

Suppose that the money supply increases. In the short run this decreases unemployment according to

Accepted Answer

According to the short-run Phillips curve, an increase in the money supply will decrease unemployment in the short run. This is because the increase in the money supply will lead to an increase in aggregate demand, which in turn will cause firms to increase production and hire more workers, leading to a decrease in unemployment. This same effect is also captured by the aggregate demand and aggregate supply model, where an increase in the money supply will shift the aggregate demand curve to the right, leading to an increase in output and employment in the short run. Therefore, choice A is the correct answer.

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

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate. -Refer to Figure 35-1. What is measured along the vertical axis of the right-hand graph?

If policymakers decrease aggregate demand, then in the long run

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

According to the short-run Phillips curve, if the central bank increases the money supply, then

If the central bank increases the money supply, in the short run, output

If the central bank increases the money supply, then in the short run prices

Suppose that the money supply decreases. In the short run, this increases prices according to

In the long run, policy that changes aggregate demand changes

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate. -Refer to Figure 35-1. What is measured along the horizontal axis of the left-hand graph?

The economy will move to a point on the short-run Phillips curve where unemployment is higher if

In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run this change should have

Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?

If the short-run Phillips curve were stable, which of the following would be unusual?

If policymakers expand aggregate demand, then in the long run

If a central bank decreases the money supply, then

Suppose that the money supply increases. In the short run, this increases prices according to

Suppose that the money supply increases. In the short run this decreases unemployment according to