1、Chapter35TheShort-RunTrade-offbetweenInflationandUnemploymentMultipleChoiceCloselywatchedindicatorssuchastheinflationrateandunemploymentarereleasedeachmonthbytheBureauoftheBudget.BureauofLaborStatistics.DepartmentoftheTreasury.PresidentsCouncilofEconomicAdvisors.ANS:BPTS:1DIF:1REF:35-1TOP:BureauofLa

2、borStatisticsMSC:DefinitionalThemiseryindexiscalculatedastheinflationrateplustheunemploymentrate.unemploymentrateminustheinflationrate.actualinflationrateminustheexpectedinflationrate.naturalunemploymentrateplusthelong-runinflationrate.ANS:APTS:1DIF:1REF:35-1TOP:MiseryindexMSC:DefinitionalThemiseryi

3、ndexissupposedtomeasurethesocialcostofunemployment.healthoftheeconomy.lostoutputassociatedwithaparticularunemploymentrate.short-runtradeoffbetweeninflationandunemployment.ANS:BPTS:1DIF:1REF:35-1Onedeterminantofthenaturalrateofunemploymentistherateofgrowthofthemoneysupply.minimumwagerate.expectedinfl

4、ationrate.Alloftheabovearecorrect.ANS:BPTS:1DIF:1REF:35-1TOP:NaturalrateofunemploymentMSC:DefinitionalOnedeterminantofthelong-runaverageunemploymentrateisthemarketpowerofunions,whiletheinflationratedependsprimarilyupongovernmentspending.minimumwage,whiletheinflationratedependsprimarilyuponthemoneysu

5、pplygrowthrate.rateofgrowthofthemoneysupply,whiletheinflationratedependsprimarilyuponthemarketpowerofunions.existenceofefficiencywages,whiletheinflationratedependsprimarilyupontheextenttowhichfirmsarecompetitive.ANS:BPTS:1DIF:1REF:35-1TOP:Long-runPhillipscurveMSC:InterpretiveInthelongrun,theinflatio

6、ernmentspending.themoneysupplygrowthrate.themonopolypoweroffirms.ANS:CPTS:1DIF:2REF:35-1TOP:InflationMSC:DefinitionalInthelongrun,thenaturalrateofunemploymentdependsprimarilyonthelevelofaggregatedemand.inflationdependsprimarilyuponthemoneysupp

7、lygrowthrate.thereisatradeoffbetweentheinflationrateandthenaturalrateofunemployment.Alloftheabovearecorrect.ANS:BPTS:1DIF:2REF:35-1Thereisashort-runtradeoffbetweeninflationandunemployment.short-runtradeoffbetweentheactualunemploymentrateandthenaturalrateofunemployment.long-runtradeoffbetweeninflatio

8、nandunemployment.long-runtradeoffbetweentheactualunemploymentrateandthenaturalrateofunemployment.ANS:APTS:1DIF:1REF:35-1TOP:PhillipscurveMSC:DefinitionalIfpolicymakersdecreaseaggregatedemand,thepricelevelfalls,butunemploymentrises.andunemploymentfall.andunemploymentrise.rises,butunemploymentfalls.AN

9、S:APTS:1DIF:1REF:35-1TOP:Short-runPhillipscurve|ContractionarypolicyMSC:AnalyticalIfpolicymakersincreaseaggregatedemand,thepricelevelfalls,butunemploymentrises.andunemploymentfall.andunemploymentrise.rises,butunemploymentfalls.ANS:DPTS:1DIF:1REF:35-1TOP:Short-runPhillipscurve|ExpansionarypolicyMSC:A

10、nalyticalIntheshortrun,policythatchangesaggregatedemandchangesbothunemploymentandthepricelevel.neitherunemploymentnorthepricelevel.onlyunemployment.onlythepricelevel.ANS:APTS:1DIF:1REF:35-1Ifthegovernmentraisesgovernmentexpenditures,intheshortrun,pricesriseandunemploymentfalls.fallandunemploymentris

11、es.andunemploymentrise.andunemploymentfall.ANS:APTS:1DIF:2REF:35-1TOP:FiscalpolicyMSC:AnalyticalIfthecentralbankincreasesthemoneysupply,intheshortrun,pricesriseandunemploymentfalls.fallandunemploymentrises.andunemploymentrise.andunemploymentfall.ANS:APTS:1DIF:2REF:35-1TOP:ExpansionarypolicyMSC:Analy

12、ticalUnemploymentwoulddecreaseandpricesincreaseifaggregatedemandshiftedright.aggregatedemandshiftedleft.aggregatesupplyshiftedright.aggregatesupplyshiftedleft.ANS:APTS:1DIF:2REF:35-1TOP:Short-runequilibriumMSC:ApplicativeIfpolicymakersexpandaggregatedemand,theninthelongrunpriceswillbehigherandunempl

13、oymentwillbelower.priceswillbehigherandunemploymentwillbeunchanged.pricesandunemploymentwillbeunchanged.Noneoftheaboveiscorrect.ANS:BPTS:1DIF:2REF:35-1Ifpolicymakersdecreaseaggregatedemand,theninthelongrunpriceswillbelowerandunemploymentwillbehigher.priceswillbelowerandunemploymentwillbeunchanged.in

14、flationandunemploymentwillbeunchanged.Noneoftheaboveiscorrect.ANS:BPTS:1DIF:2REF:35-1TOP:Long-runaggregatesupply|ContractionarypolicyMSC:AnalyticalInthelongrun,policythatchangesaggregatedemandchangesbothunemploymentandthepricelevel.neitherunemploymentnorthepricelevel.onlyunemployment.onlythepricelev

15、el.ANS:DPTS:1DIF:2REF:35-1TOP:Long-runPhillipscurveMSC:AnalyticalIn2001,CongressandPresidentBushinstitutedtaxcuts.Accordingtotheshort-runPhillipscurvethischangeshouldhavereducedinflationandunemployment.raisedinflationandunemployment.reduceinflationandraisedunemployment.raisedinflationandreducedunemp

16、loyment.ANS:DPTS:1DIF:1REF:35-1TOP:Short-runPhillipscurveMSC:ApplicativeTheshort-runrelationshipbetweeninflationandunemploymentisoftencalledtheClassicalDichotomy.MoneyNeutrality.thePhillipscurve.theKeynesiancross.ANS:CPTS:1DIF:1REF:35-1Phillipsfoundapositiverelationbetweenunemploymentandinflationint

17、heUnitedKingdom.positiverelationbetweenunemploymentandinflationintheUnitedStates.negativerelationbetweenunemploymentandinflationintheUnitedStates.negativerelationbetweenunemploymentandinflationintheUnitedKingdom.ANS:DPTS:1DIF:2REF:35-1TOP:PhillipscurveMSC:DefinitionalPhillipsfoundanegativerelationbe

18、tweenoutputandunemployment.outputandemployment.wageinflationandoutput.wageinflationandunemployment.ANS:DPTS:1DIF:1REF:35-1TOP:PhillipscurveMSC:DefinitionalA.W.Phillipsfindingswerebasedondatafrom1861-1957fortheUnitedKingdom.from1861-1957fortheUnitedStates.mostlyfromthepost-WorldWarIIperiodintheUnited

19、Kingdom.mostlyfromthepost-WorldWarIIperiodintheUnitedStates.ANS:APTS:1DIF:2REF:35-1TOP:PhillipscurveMSC:DefinitionalIftheshort-runPhillipscurvewerestable,whichofthefollowingwouldbeunusualanincreaseingovernmentspendingandafallinunemploymentanincreaseininflationandadecreaseinoutputadecreaseintheinflat

20、ionrateandariseintheunemploymentrateadecreaseinthemoneysupplyandariseinunemployment.ANS:BPTS:1DIF:2REF:35-1SamuelsonandSolowreasonedthatwhenaggregatedemandwashigh,unemploymentwaslow,sotherewasupwardpressureonwagesandprices.low,sotherewasdownwardpressureonwagesandprices.high,sotherewasupwardpressureo

21、nwagesandprices.high,sotherewasdownwardpressureonwagesandprices.ANS:APTS:1DIF:2REF:35-1TOP:PhillipscurveMSC:AnalyticalSamuelsonandSolowreasonedthatwhenaggregatedemandwaslow,unemploymentwashigh,sotherewasupwardpressureonwagesandprices.high,sotherewasdownwardpressureonwagesandprices.low,sotherewasupwa

22、rdpressureonwagesandprices.low,sotherewasdownwardpressureonwagesandprices.ANS:BPTS:1DIF:2REF:35-1TOP:PhillipscurveMSC:AnalyticalSupposethatacentralbankincreasesthemoneysupply.AccordingtothelogicofthePhillipscurvethisshouldmakeprices,output,andemploymentrise.pricesandoutputrise,employmentfall.pricesr

23、iseandoutputandemploymentfall.pricesfall,output,andemploymentrise.ANS:APTS:1DIF:1REF:35-1TOP:PhillipscurveMSC:AnalyticalSupposethatthemoneysupplyincreases.Intheshortrunthisincreasesemploymentaccordingtoboththeshort-runPhillipscurveandtheaggregatedemandandaggregatesupplymodel.neithertheshort-runPhill

24、ipscurvenortheaggregatedemandandaggregatesupplymodel.theshort-runPhillipscurve,butnottheaggregatedemandandsupplymodel.theaggregatedemandandaggregatesupplymodel,butnottheshort-runPhillipscurve.ANS:APTS:1DIF:2REF:35-1Supposethatthemoneysupplyincreases.Intheshortrun,thisincreasespricesaccordingtobothth

25、eshort-runPhillipscurveandtheaggregatedemandandaggregatesupplymodel.neithertheshort-runPhillipscurvenortheaggregatedemandandaggregatesupplymodel.theshort-runPhillipscurve,butnottheaggregatedemandandaggregatesupplymodel.theaggregatedemandandaggregatesupplymodelbutnottheshort-runPhillipscurve.ANS:APTS

26、:1DIF:2REF:35-1TOP:Phillipscurve|AggregatedemandandsupplyMSC:InterpretiveSamuelsonandSolowbelievedthatthePhillipscurveimpliedthatlowunemploymentwasassociatedwithlowinflation.indicatedthattheaggregatesupplyandaggregatedemandmodelwasincorrect.offeredpolicymakersamenuofpossibleeconomicoutcomesfromwhich

27、tochoose.Alloftheabovearecorrect.ANS:CPTS:1DIF:2REF:35-1TOP:PhillipscurveMSC:DefinitionalTheeconomywillmovetoapointontheshort-runPhillipscurvewhereunemploymentisloweriftheinflationratedecreases.thegovernmentincreasesitsexpenditures.theFeddecreasesthemoneysupply.Noneoftheaboveiscorrect.ANS:BPTS:1DIF:

28、1REF:35-1TOP:Short-runPhillipscurveMSC:AnalyticalWhichofthefollowingwouldwenotexpectifgovernmentpolicymovedtheeconomyupalongagivenshort-runPhillipscurveRavireadsinthenewspaperthatthecentralbankrecentlyraisedthemoneysupply.Tonygetsmorejoboffers.Louismakessmallerincreasesinthepricesathishealthfoodstor

29、e.Jessicasnominalwageincreaseislarger.ANS:CPTS:1DIF:1REF:35-1ThegovernmentofLibertinaconsiderstwopolicies.PolicyAwouldshiftADrightby200unitswhilepolicyBwouldshiftADrightby100units.Accordingtotheshort-runPhillipscurvepolicyAwillleadtoalowerunemploymentrateandalowerinflationratethanpolicyB.toalowerune

30、mploymentrateandahigherinflationratethanpolicyB.toahigherunemploymentrateandlowerinflationratethanpolicyB.toahigherunemploymentrateandhigherinflationratethanpolicyB.ANS:BPTS:1DIF:1REF:35-1TOP:PhillipscurveMSC:AnalyticalUsethepairofdiagramsbelowtoanswerthefollowingquestions.Figure35-1PriceJaInflation

31、OutputRefer to Figure 35-1. If the economy starts at c and 1,the money supply growth rate moves the economy to a. a and 1.b and 2.c and 3.None of the above is correct.ANS: BPTS: 1DIF: 2REF: 35-1Unemploymentthen in the short run, an increase inLevelRateI34. Refer to Figure 35-1.Iftheeconomystartsatca

32、nd1,thenintheshortrun,anincreaseingovernmentexpendituresmovestheeconomytoband2.band3.dand3.Noneoftheaboveiscorrect.ANS:APTS:1DIF:2REF:35-1TOP:Short-runPhillipscurve|AggregatedemandandsupplyMSC:AnalyticalRefertoFigure35-1.Iftheeconomystartsatcand1,thenintheshortrun,adecreaseintaxesmovestheeconomytoda

33、nd2.dand3.backtocand1.Noneoftheaboveiscorrect.ANS:DPTS:1DIF:2REF:35-1TOP:Short-runPhillipscurve|AggregatedemandandsupplyMSC:AnalyticalRefertoFigure35-1.Iftheeconomystartsatcand1,thenintheshortrun,adecreaseinaggregatedemandmovestheeconomytoaand2.dand3.eand3.Noneoftheaboveiscorrect.MSC: AnalyticalANS:

34、BPTS:1DIF:1REF:35-1TOP:Short-runPhillipscurve|AggregatedemandandsupplyRefertoFigure35-1.Iftheeconomystartsatcand1,thenintheshortrun,adecreaseinthemoneysupplymovestheeconomytoeand1.dand2.dand3.Noneoftheaboveiscorrect.ANS:CPTS:1DIF:2REF:35-1TOP:Short-runPhillipscurve|AggregatedemandandsupplyMSC:Analyt

35、icalRefertoFigure35-1.Iftheeconomystartsatcand1,thenintheshortrun,adecreaseingovernmentexpendituresmovestheeconomytodand2dand3.eand3.Noneoftheaboveiscorrect.ANS:BPTS:1DIF:2REF:35-1TOP:Short-runPhillipscurve|AggregatedemandandsupplyMSC:AnalyticalRefertoFigure35-1.Iftheeconomystartsatcand1,theninthesh

36、ortrun,anincreaseintaxesmovestheeconomytoband2.dand3.eand2.Noneoftheaboveiscorrect.ANS:BPTS:1DIF:2REF:35-1MSC: AnalyticalTOP:Phillipscurve|AggregatedemandandsupplyIn1968,economistMiltonFriedmanpublishedapapercriticizingthePhillipscurveonthegroundsthatitseemedtoworkforwagesbutnotforinflation.monetary

37、policywasineffectiveincombatinginflation.thePhillipscurvedidnotapplyinthelongrun.Phillipshadmadeerrorsincollectinghisdata.ANS:CPTS:1DIF:2REF:35-1TOP:Inflationexpectations|PhillipscurveMSC:DefinitionalIntheshortrununemploymentandinflationarepositivelyrelated.Inthelongruntheyarelargelyunrelatedproblem

38、s.andinthelongruninflationandunemploymentarepositivelyrelated.unemploymentandinflationarenegativelyrelated.Inthelongruntheyarelargelyunrelatedproblems.andinthelongruninflationandunemploymentarenegativelyrelated.ANS:CPTS:1DIF:1REF:35-1TOP:PhillipscurveMSC:DefinitionalInthelate1960s,economistEdmundPhe

39、lpspublishedapaperthatarguedthattherewasnolong-runtradeoffbetweeninflationandunemployment.disprovedFriedmansclaimthatmonetarypolicywasineffectiveincontrollinginflation.showedtheoptimalpointonthePhillipscurvewasatanunemploymentrateof5percentandaninflationrateof2percent.arguedthatthePhillipscurvewasst

40、ableandthatitwouldnotshift.ANS:APTS:1DIF:1REF:35-2FriedmanandPhelpsarguedthatinthelongrun,monetarygrowthdidnotinfluencethosefactorsthatdeterminetheeconomysunemploymentrate.thatthePhillipscurvecouldbeexploitedinthelongrunbyusingmonetary,butnotfiscalpolicy.thattheshort-runPhillipscurvewasverysteep,but

41、notvertical.thattherewasneitherashort-runnorlong-runtradeoffbetweeninflationandunemployment.ANS:APTS:1DIF:1REF:35-2TOP:Long-runPhillipscurveMSC:DefinitionalAccordingtoclassicalmacroeconomictheory,inthelongrunmonetarygrowthaffectsbothrealandnominalvariables.theonlyrealvariableaffectedbymonetarygrowth

42、istheunemploymentrate.anumberoffactorsthataffectunemploymentareinfluencedbymonetarygrowth.monetarygrowthaffectsnominalbutnotrealvariables.ANS:DPTS:1DIF:1REF:35-2TOP:ClassicaltheoryMSC:InterpretiveMiltonFriedmanarguedthattheFedscontroloverthemoneysupplycouldbeusedtopegthelevelorgrowthrateofanominalva

43、riable,butnotthelevelorgrowthrateofarealvariable.thelevelofanominalorrealvariable,butnotthegrowthrateofarealornominalvariable.thelevelorgrowthrateofarealvariable,butnotthelevelorgrowthrateofanominalvariable.bothlevelsandgrowthratesofbothrealandnominalvariables.ANS:APTS:1DIF:1REF:35-2Friedmanarguedth

44、attheFedcouldusemonetarypolicytopegaratefornominalexchangerates.realGDP.unemployment.Noneoftheaboveiscorrect.ANS:APTS:1DIF:1REF:35-2TOP:Long-runPhillipscurveMSC:InterpretiveInrespondingtothePhillipscurvehypothesis,FriedmanarguedthattheFedcanpegthea.unemploymentrate.inflationrate.growthrateofrealnati

45、onalincome.Alloftheabovearecorrect.ANS:BPTS:1DIF:1REF:35-2TOP:Long-runPhillipscurveMSC:InterpretiveInthelongrun,iftheFeddecreasestherateatwhichitincreasesthemoneysupply,inflationandunemploymentwillbehigher.inflationwillbehigherandunemploymentwillbelower.inflationwillbelowerandunemploymentwillbehighe

46、r.Noneoftheaboveiscorrect.ANS:DPTS:1DIF:1REF:35-2TOP:Long-runPhillipscurveMSC:AnalyticalInthelongrun,iftheFedincreasestherateatwhichitincreasesthemoneysupply,inflationwillbehigher.unemploymentwillbelower.realGDPwillbehigher.Alloftheabovearecorrect.ANS:APTS:1DIF:2REF:35-2Inthelongrun,whichofthefollow

47、ingwouldshiftthelong-runPhillipscurvetotherightanincreaseintheminimumwageadecreaseintaxratesanincreaseinthemoneysupplyadecreaseinthemoneysupplyANS:APTS:1DIF:1REF:35-2TOP:Long-runPhillipscurveMSC:ApplicativeThenaturalrateofunemploymentisconstantovertime.variesovertime,butcantbechangedbythegovernment.

48、istheunemploymentratethattheeconomytendstomovetointhelongrun.dependsontherateatwhichtheFedincreasesthemoneysupply.ANS:CPTS:1DIF:1REF:35-2TOP:NaturalrateofunemploymentMSC:DefinitionalThenaturalrateofunemploymentisconstantovertime.variesovertime,butcantbechangedbythegovernment.isthesociallydesirablera

49、teofunemployment.doesnotdependontherateatwhichtheFedincreasesthemoneysupply.ANS:DPTS:1DIF:1REF:35-2MSC: DefinitionalTOP:NaturalrateofunemploymentWhichofthefollowingleadstoahigherlevelofunemploymentinthelongrunbothanincreaseinthesizeofthemoneysupplyandanincreaseinthemoneysupplygrowthrate.anincreasein

50、thesizeofthemoneysupplybutnotanincreaseinthemoneysupplygrowthrate.anincreaseinthemoneysupplygrowthrate,butnotanincreaseinthesizeofthemoneysupply.neitheranincreaseinthesizeofthemoneysupplynoranincreaseinthemoneysupplygrowthrate.ANS:DPTS:1DIF:1REF:35-2TOP:Long-runPhillipscurveMSC:DefinitionalTheexiste

51、heshortrun,helongrun,butnottheshortrun.inneithertheshortnorthelongrun.ANS:BPTS:1DIF:1REF:35-2TOP:Long-runPhillipscurveMSC:DefinitionalWhichofthefollowin

52、giscorrectconcerningthelong-runPhillipscurveItspositionisdeterminedprimarilybymonetaryfactors.Ifitshiftsright,long-runaggregatesupplyshiftsright.Itcannotbechangedbyanygovernmentpolicy.Itspositiondependsonthenaturalrateofunemployment.ANS:DPTS:1DIF:1REF:35-2Ifefficiencywagesbecamemorecommon,boththelon

53、g-runPhillipscurveandthelong-runaggregatesupplycurvewouldshiftright.boththelong-runPhillipscurveandthelong-runaggregatesupplycurvewouldshiftleft.thelong-runPhillipscurvewouldshiftright,andthelong-runaggregatesupplycurvewouldshiftleft.thelong-runPhillipscurvewouldshiftleft,andthelong-runaggregatesupp

54、lycurvewouldshiftright.ANS:CPTS:1DIF:2REF:35-2TOP:Long-runPhillipscurve|Long-runaggregatesupplyMSC:AnalyticalWhichofthefollowingisupwardslopingboththelong-runandtheshort-runPhillipscurveneitherthelong-runnortheshort-runPhillipscurvethelong-runPhillipscurve,butnottheshort-runPhillipscurvetheshort-run

55、Phillipscurve,butnotthelong-runPhillipscurveANS:BPTS:1DIF:1REF:35-2TOP:Long-runPhillipscurve|Long-runaggregatesupplyMSC:DefinitionalWhichofthefollowingisdownwardslopingboththelong-runPhillipscurveandtheshort-runPhillipscurveneitherthelong-runPhillipscurvenortheshort-runPhillipscurvethelong-runPhilli

56、pscurve,butnottheshort-runPhillipscurvetheshort-runPhillipscurve,butnotthelong-runPhillipscurveANS:DPTS:1DIF:1REF:35-2TOP:Short-runPhillipscurve|Long-runPhillipscurveMSC:DefinitionalWhichofthefollowingisupwardslopingboththelong-runPhillipscurveandthelong-runaggregatesupplycurveneitherthelong-runPhil

57、lipscurvenorthelong-runaggregatesupplycurvethelong-runPhillipscurve,butnotthelong-runaggregatesupplycurvetheshort-runPhillipscurve,butnotthelong-runaggregatesupplycurveANS:BPTS:1DIF:1REF:35-2TOP:Short-runPhillipscurve|Long-runPhillipscurveMSC:DefinitionalSupposethatmoneysupplygrowthincreases.Inthelo

58、ngrun,thisincreasesemploymentaccordingtoboththelong-runPhillipscurveandtheaggregatedemandandaggregatesupplymodelneitherthelong-runPhillipscurvenortheaggregatedemandandaggregatesupplymodelthelong-runPhillipscurve,butnotthelong-runaggregatesupplycurvethelong-runaggregatesupplycurve,butnotthelong-runPh

59、illipscurveANS:BPTS:1DIF:2REF:35-2TOP:Short-runPhillipscurve|Long-runPhillipscurveMSC:DefinitionalSupposethecentralbankpursuesanexpansionarymonetarypolicy.Intheshort-runtheeffectsofthisareshownbymovingtotheleftalongtheshort-runPhillipscurve.movingtotherightalongtheshort-runPhillipscurve.shiftingthes

60、hortrunPhillipscurveright.shiftingtheshortrunPhillipscurveleft.ANS:APTS:1DIF:2REF:35-2TOP:Short-runPhillipscurveMSC:DefinitionalSupposethatthecentralbankreducesthegrowthrateofthemoneysupply.Intheshort-runtheeffectsofthisareshownbymovingtotheleftalongtheshort-runPhillipscurve.movingtotherightalongthe