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Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

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A downward-sloping Phillips curve implie...

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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.

E) C) and D)
F) A) and B)

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A decrease in expected inflation shifts which of the following curves, and in what direction?


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

E) None of the above
F) B) and C)

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


A) an increase in inflation and an increase in output
B) a decrease in inflation and an increase in unemployment
C) an increase in both inflation and unemployment
D) an increase in output and a decrease in unemployment

E) A) and D)
F) A) and C)

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The vertical long-run Phillips curve is an exception to monetary neutrality implied by the classical dichotomy.

A) True
B) False

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Scenario 2 Suppose the natural rate of unemployment is 6 percent, the expected inflation is 2 percent, and the constant a in the short-run Phillips curve equation is 0.8. -Referring to Scenario 2, change the expected inflation to 3 percent and draw the new Phillips curves. How did they change?

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The 3 percent expected inflation SRPC is...

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


A) The inflation rate was about 1 percent, and the unemployment rate was about 7 percent.
B) The inflation rate was less than 4 percent, and the unemployment rate was less than 6 percent.
C) The inflation rate was about 7 percent, and the unemployment rate was about 9 percent.
D) The inflation rate was about 10 percent, and the unemployment rate was about 7 percent.

E) None of the above
F) All of the above

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Which of the following curves is (are) upward sloping?


A) both the long-run and the short-run Phillips curve
B) neither the long-run nor the short-run Phillips curve
C) only the long-run Phillips curve
D) only the short-run Phillips curve

E) A) and C)
F) A) and B)

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Which of the following would NOT be associated with a favourable supply shock?


A) The short-run Phillips curve shifts left.
B) Unemployment falls.
C) The price level rises.
D) Output rises.

E) B) and C)
F) A) and B)

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Figure 16-4 Figure 16-4 -Refer to Figure 16-4. Along SRPC1, what is the expected rate of inflation? A) 0 percent B) 2 percent C) 5 percent D) 8 percent -Refer to Figure 16-4. Along SRPC1, what is the expected rate of inflation?


A) 0 percent
B) 2 percent
C) 5 percent
D) 8 percent

E) A) and D)
F) All of the above

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Which of the following 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

E) C) and D)
F) None of the above

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If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 6 percent would require sacrificing what percent of annual output?


A) 2 percent of annual output
B) 5 percent of annual output
C) 6 percent of annual output
D) 12 percent of annual output

E) A) and D)
F) A) and C)

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Figure 16-4 Figure 16-4 -Refer to Figure 16-4. At point b, how do actual and expected inflation rates and unemployment rates compare? A) The actual inflation rate is less than the expected inflation rate, and the actual rate of unemployment exceeds the natural rate of unemployment. B) The actual inflation rate is greater than the expected inflation rate, and the actual rate of unemployment exceeds the natural rate of unemployment. C) The actual inflation rate is less than the expected inflation rate, and the actual rate of unemployment is less than the natural rate of unemployment. D) The actual inflation rate is greater than the expected inflation rate, and the actual rate of unemployment is less than the natural rate of unemployment. -Refer to Figure 16-4. At point b, how do actual and expected inflation rates and unemployment rates compare?


A) The actual inflation rate is less than the expected inflation rate, and the actual rate of unemployment exceeds the natural rate of unemployment.
B) The actual inflation rate is greater than the expected inflation rate, and the actual rate of unemployment exceeds the natural rate of unemployment.
C) The actual inflation rate is less than the expected inflation rate, and the actual rate of unemployment is less than the natural rate of unemployment.
D) The actual inflation rate is greater than the expected inflation rate, and the actual rate of unemployment is less than the natural rate of unemployment.

E) C) and D)
F) B) and D)

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Which of the following best describes the sacrifice ratio for Canada?


A) It falls over a range of 2 to 5.
B) It is about 8.
C) It cannot be determined.
D) It is between 2 and 4.

E) None of the above
F) C) and D)

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Scenario 2 Suppose the natural rate of unemployment is 6 percent, the expected inflation is 2 percent, and the constant a in the short-run Phillips curve equation is 0.8. -Referring to Scenario 2, describe the process of adjustment from the old to the new inflation-unemployment point when the expected inflation has changed.

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First, the actual inflation rate increas...

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What did Samuelson and Solow believe about the Phillips curve?


A) It implied that low unemployment was associated with low inflation.
B) It indicated that the aggregate supply and aggregate demand model was incorrect.
C) It offered policymakers a menu of possible economic outcomes from which to choose.
D) It demonstrated that fiscal policies were ineffective in reducing unemployment.

E) A) and D)
F) All of the above

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Suppose that the money supply increases. In the long run, employment increases according to which of the following theories?


A) both the long-run Phillips curve and the aggregate demand and aggregate supply model
B) neither the long-run Phillips curve nor the aggregate demand and aggregate supply model
C) only the long-run Phillips curve
D) only the aggregate demand and aggregate supply model

E) B) and C)
F) A) and B)

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Which of the following best characterizes the theory of rational expectations?


A) It describes how policymakers react to supply shocks.
B) It concerns how people use information to predict the future.
C) It explains why the long run Phillips curve is vertical.
D) It explains how people act when there is unemployment and workers must be rationed.

E) B) and D)
F) All of the above

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Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 6 percentage points for three years, and it made the unemployment rate rise from 3 percent to 9 percent for three years. What is the sacrifice ratio?


A) 1
B) 3
C) 4
D) 4.5

E) B) and C)
F) All of the above

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If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve, what are the values of unemployment and inflation?


A) Unemployment equals the natural rate, and expected inflation equals actual inflation.
B) Unemployment is above the natural rate, and expected inflation equals actual inflation.
C) Unemployment equals the natural rate, and expected inflation is greater than actual inflation.
D) Unemployment is below the natural rate, and inflation is lower than the expected rate.

E) All of the above
F) B) and C)

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