Question 1

Monetary Policy in Flosserland

In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years.

-Refer to Monetary Policy in Flosserland.Suppose that the Flosserland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% but it actually raises inflation to 30%.Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%.Then

Accepted Answer

A)  unemployment falls,but it would have fallen less if people had been expecting 12.5% inflation.
B)  unemployment falls,but it would have fallen less if people had been expecting 25% inflation.
C)  unemployment rises,but it would have risen less if people had been expecting 12.5% inflation.
D)  unemployment rises,but it would have risen less if people had been expecting 25% inflation.E) All of the above
F) A) and D)

Question 2

Suppose the economy is currently experiencing 6% inflation per year.If the Fed wants to reduce inflation to 2% and the sacrifice ratio is 5,then how much annual output must be sacrificed in the transition?

Accepted Answer

A)  5%
B)  10%
C)  15%
D)  20%E) All of the above
F) A) and B)

Question 3

If people believe that the central bank is going to reduce inflation,then

Accepted Answer

A)  the short-run Phillips curve shifts right and the sacrifice ratio will rise.
B)  the short-run Phillips curve shifts right and the sacrifice ratio will fall.
C)  the short-run Phillips curve shifts left and the sacrifice ratio will rise.
D)  the short-run Phillips curve shifts left and the sacrifice ratio will fall.E) C) and D)
F) None of the above

Question 4

The theory by which people optimally use all available information when forecasting the future is known as

Accepted Answer

A)  rational expectations.
B)  perfect expectations.
C)  credible expectations.
D)  predictive expectations.E) A) and D)
F) B) and C)

Question 5

Disinflation is like

Accepted Answer

A)  slowing a car down,whereas deflation is like putting the car into reverse gear.
B)  maintaining a car's speed,whereas deflation is like slowing the car down.
C)  putting a car into reverse gear,whereas deflation is like slowing the car down.
D)  maintaining a car's speed,whereas deflation is like putting the car into reverse gear.E) B) and D)
F) B) and C)

Question 6

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

Accepted Answer

A)  the short-run and long-run Phillips curves left.
B)  the short-run and long-run Phillips curves right.
C)  only the short-run Phillips curve left.
D)  only the short-run Phillips curve right.E) A) and B)
F) B) and D)

Question 7

If the sacrifice ratio is 3,then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

Accepted Answer

A)  2 percent of annual output.
B)  6 percent of annual output.
C)  8 percent of annual output.
D)  11 percent of annual output.E) A) and C)
F) B) and C)

Question 8

Over the long run the Volcker disinflation

Accepted Answer

A)  shifted the short-run and long-run Phillips curves left.
B)  shifted the short-run,but not the long-run Phillips curve left.
C)  shifted the long-run,but not the short-run Phillips curve left.
D)  None of the above is correct.E) A) and C)
F) A) and B)

Question 9

Monetary Policy in Flosserland

In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years.

-Refer to Monetary Policy in Flosserland.Suppose that the Flosserland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% but that it actually leaves inflation at 25%.Suppose that the public had expected that the Department of Finance would reduce inflation,but only to 20%.Then

Accepted Answer

A)  unemployment falls,but it would have fallen more if people had been expecting 12.5% inflation.
B)  unemployment falls,but it would have fallen more if people had been expecting 22% inflation.
C)  unemployment rises,but it would have risen more if people had been expecting 12.5% inflation.
D)  unemployment rises,but it would have risen more if people had been expecting 22% inflation.E) B) and C)
F) C) and D)

Question 10

Which of the following would tend to shorten recessions associated with anti-inflation policies by central banks?

Accepted Answer

A)  People adjust their expectations of inflation rapidly.
B)  People believe policy announcements made by central bank officials.
C)  The short-run Phillips shifts rapidly.
D)  All of the above are correct.E) None of the above
F) B) and D)

Question 11

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

Accepted Answer

A)  a sacrifice of 5 percent of annual output.
B)  a sacrifice of 5 percent of government spending.
C)  an increase in the unemployment rate of 5 percentage points.
D)  a 5 percent increase in the government budget deficit.E) A) and B)
F) C) and D)

Question 12

Monetary Policy in Flosserland

In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years.

-Refer to Monetary Policy in Flosserland.Suppose that the Flosserland Department of Finance undertakes a public relations campaign to convince people that it will soon change monetary policy to reduce inflation to 12.5%.If Flosserlanders believe their government then which,if any,curve(s) shift left?

Accepted Answer

A)  the short-run and the long-run Phillips curve
B)  the short-run but not the long run Phillips curve
C)  the long-run but not the short-run Phillips curve
D)  neither the short-run nor the long-run Phillips curveE) A) and D)
F) B) and D)

Question 13

Suppose a central bank takes actions that will lead to a higher inflation rate.The public,however,is slow to adjust its expectation of inflation.Then,in the short run,unemployment

Accepted Answer

A)  rises.As inflation expectations adjust,the short-run Phillips curve shifts right.
B)  rises.As inflation expectations adjust,the short-run Phillips curve shifts left.
C)  falls.As inflation expectations adjust,the short-run Phillips curve shifts right.
D)  falls.As inflation expectations adjust,the short-run Phillips curve shifts left.E) None of the above
F) All of the above

Question 14

The restrictive monetary policy followed by the Fed in the early 1980s

Accepted Answer

A)  reduced both unemployment and inflation.
B)  reduced inflation significantly,but at the cost of a severe recession.
C)  reduced unemployment significantly,but at the cost of higher inflation.
D)  raised both unemployment and inflation.E) A) and B)
F) A) and C)

Question 15

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

A)  rises.As inflation expectations adjust,the short-run Phillips curve shifts right.
B)  rises.As inflation expectations adjust,the short-run Phillips curve shifts left.
C)  falls.As inflation expectations adjust,the short-run Phillips curve shifts right.
D)  falls.As inflation expectations adjust,the short-run Phillips curve shifts left.E) A) and C)
F) A) and B)

Question 16

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

A)  the short-run Phillips curve shifts right.
B)  the short-run Phillips curve shifts left.
C)  the long-run Phillips curve shifts right.
D)  the long-run Phillips curve shifts left.E) C) and D)
F) A) and B)

Question 17

The sacrifice ratio is the

Accepted Answer

A)  sum of the inflation and unemployment rates.
B)  inflation rate divided by the unemployment rate.
C)  number of percentage points annual output falls for each percentage point reduction in inflation.
D)  number of percentage points unemployment rises for each percentage point reduction in inflation.E) B) and C)
F) C) and D)

Question 18

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

A)  output rises and the price level falls.
B)  output may rise,fall or stay the same and the price level rises.
C)  output falls and the price level may rise,fall or stay the same.
D)  None of the above is correct.E) None of the above
F) A) and B)

Question 19

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

A)  raise both inflation and the unemployment rate.
B)  raise the inflation rate and reduce the unemployment rate.
C)  reduce the inflation rate and raise the unemployment rate.
D)  reduce both the inflation rate and the unemployment rate.E) All of the above
F) A) and B)

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.The effects of increased prices of world commodities is shown by shifting

Accepted Answer

A)  aggregate demand to the right.
B)  aggregate demand to the left.
C)  aggregate supply to the right.
D)  aggregate supply to the left.E) A) and B)
F) B) and C)

Exam 22: The Short Run Trade Off Between Inflation and Unemployment: The Cost of Reducing Inflation

The theory by which people optimally use all available information when forecasting the future is known as

Correct Answer
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Correct Answer
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The sacrifice ratio is the

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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If people believe that the central bank is going to reduce inflation,then

Correct Answer
verified

Which of the following would tend to shorten recessions associated with anti-inflation policies by central banks?

Correct Answer
verified

Suppose a central bank takes actions that will lead to a higher inflation rate.The public,however,is slow to adjust its expectation of inflation.Then,in the short run,unemployment

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

The restrictive monetary policy followed by the Fed in the early 1980s

Correct Answer
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Suppose the economy is currently experiencing 6% inflation per year.If the Fed wants to reduce inflation to 2% and the sacrifice ratio is 5,then how much annual output must be sacrificed in the transition?

Correct Answer
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Disinflation is like

Correct Answer
verified

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

Correct Answer
verified

If the sacrifice ratio is 3,then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

Correct Answer
verified

Over the long run the Volcker disinflation

Correct Answer
verified

Exam 22: The Short Run Trade Off Between Inflation and Unemployment: The Cost of Reducing Inflation

The theory by which people optimally use all available information when forecasting the future is known as

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The sacrifice ratio is the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If people believe that the central bank is going to reduce inflation,then

Correct AnswerverifiedShow Answer

Which of the following would tend to shorten recessions associated with anti-inflation policies by central banks?

Correct AnswerverifiedShow Answer

Suppose a central bank takes actions that will lead to a higher inflation rate.The public,however,is slow to adjust its expectation of inflation.Then,in the short run,unemployment

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The restrictive monetary policy followed by the Fed in the early 1980s

Correct AnswerverifiedShow Answer

Suppose the economy is currently experiencing 6% inflation per year.If the Fed wants to reduce inflation to 2% and the sacrifice ratio is 5,then how much annual output must be sacrificed in the transition?

Correct AnswerverifiedShow Answer

Disinflation is like

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the sacrifice ratio is 3,then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

Correct AnswerverifiedShow Answer

Over the long run the Volcker disinflation

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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