Chapter 35

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Unformatted text preview: Chapter 35 The Short-Run Trade-Off Between Inflation and Unemployment TRUE/FALSE 1. In the long run, the natural rate of unemployment depends primarily on the growth rate of the money supply. ANS: F DIF: 1 REF: 35-0 NAT: Analytic LOC: Unemployment and inflation TOP: Natural rate of unemployment MSC: Definitional 2. In the long run, the inflation rate depends primarily on the growth rate of the money supply. . ANS: T DIF: 1 REF: 35-0 NAT: Analytic LOC: Unemployment and inflation TOP: Inflation MSC: Definitional 3. Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation. ANS: T DIF: 1 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Phillips curve | Aggregate demand and supply MSC: Applicative 4. Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run. ANS: T DIF: 2 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve slope MSC: Applicative 5. A given short-run Phillips curve shows that an increase in the inflation rate will be accompanied by a lower unemployment rate in the short run. ANS: T DIF: 2 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve slope MSC: Interpretive 6. The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate above its natural rate. ANS: F DIF: 2 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve slope MSC: Definitional 7. The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output. ANS: T DIF: 2 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve slope MSC: Analytical 8. Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate. ANS: T DIF: 1 REF: 35-2 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve slope | Short-run Phillips curve shifts MSC: Analytical 9. Fiscal policy cannot be used to move the economy along the short-run Phillips curve. ANS: F DIF: 1 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve slope | Fiscal policy MSC: Applicative 8 9 Chapter 35 /The Short-Run Trade-Off Between Inflation and Unemployment 10. If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run. ANS: T DIF: 1 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve MSC: Analytical 11. Friedman and Phelps believed that the natural rate of unemployment was constant....
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