1. Suppose that the money supply increases.

In the long run, this increases

employment according to

both the long-run Phillips curve and the aggregate demand and aggregate supply model.

only the aggregate demand and aggregate supply model.

only the long-run Phillips curve.

neither the long-run Phillips curve nor the aggregate demand and aggregate supply model.

2. A basis for the slope of the short-run Phillips curve is that when
unemployment is high there are

upward pressures on prices and wages.

downward pressures on prices and upward pressures on wages.

upward pressures on prices and downward pressures on wages.

downward pressures on prices and wages.

3. There is an adverse supply shock. In response the SBV pursues an

expansionary monetary policy. Taking into account both the shock and the
SBV’s policy, which of the following are we sure of?
inflation will be higher

inflation will be lower

unemployment will be higher

unemployment will be lower

4. There is a

long-run tradeoff between the actual unemployment rate and the natural rate of unemployment.
short-run tradeoff between the actual unemployment rate and the natural rate of unemployment.

long-run tradeoff between inflation and unemployment.

short-run tradeoff between inflation and unemployment.

5. Unemployment would decrease and prices increase if

aggregate demand shifted right.

aggregate demand shifted left.

aggregate supply shifted right.

aggregate supply shifted left

6. When the Federal Reserve increases the money supply, it ………………

aggregate demand and moves the economy along the Phillips curve to a
point with ……………… inflation and ……………… unemployment.

expands, higher, lower

expands, lower, higher

expands, higher, higher

contracts, lower, higher

7. One determinant of the long-run average unemployment rate is the

rate of growth of the money supply, while the inflation rate depends primarily upon the market
power of unions.

market power of unions, while the inflation rate depends primarily upon government spending.

minimum wage, while the inflation rate depends primarily upon the money supply growth rate.
existence of efficiency wages, while the inflation rate depends primarily upon the extent to which
firms are competitive.

8. If policymakers expand aggregate demand, then in the long run

prices will be higher and unemployment will be lower.

prices will be higher and unemployment will be unchanged.

prices and unemployment will be unchanged.

None of the above is correct.

9. If the Federal Reserve increases the rate of money growth and maintains it
at the new higher rate, eventually expected inflation will ……………… and the
short-run Phillips curve will shift ……………….

decrease, downward

increase, upward

decrease, upward

increase, downward

10. Which of the following results in higher inflation and higher

unemployment in the short run?

a more contractionary monetary policy

an adverse supply shock such as an increase in the price of oil

a decrease in the minimum wage

a more expansionary monetary policy

11. From one year to the next, inflation falls from 5 to 4 percent, while
unemployment rises from 6 to 7 percent. Which of the following events could
be responsible for this change?
The appointment of a new Fed chairman increases expected inflation.

Newly discovered oil reserves cause world oil prices to plummet.

The government cuts spending and raises taxes to reduce the budget deficit.

The central bank increases the growth rate of the money supply.

12. When aggregate demand shifts right along the short-run aggregate supply
curve, unemployment

falls, so there are downward pressures on wages and prices.

falls, so there are upward pressures on wages and prices.

rises, so there are downward pressures on wages and prices.

rises, so there are upward pressures on wages and prices.

13. If policymakers expand aggregate demand, then in the long run

prices will be higher and unemployment will be lower.

prices will be higher and unemployment will be unchanged.

prices and unemployment will be unchanged.

None of the above is correct.

14. According to the long-run Phillips curve, in the long run monetary policy
influences

the unemployment rate but not the inflation rate.

both the inflation rate and the unemployment rate.

neither the unemployment rate nor the inflation rate.

the inflation rate but not the unemployment rate.

15. According to the Phillips curve, policymakers could reduce both inflation
and unemployment by

increasing the money supply.

increasing government expenditures.

raising taxes.

None of the above is correct.

16. An increase in expected inflation shifts the

short-run Phillips curve right.

long-run Phillips curve right.

long-run Phillips curve left.

short-run Phillips curve left.

17. The short-run Phillips curve shows the combinations of

real GDP and the price level that arise in the short run as short-run aggregate supply shifts the
economy along the aggregate demand curve.

unemployment and inflation that arise in the short run as short-run aggregate supply shifts the
economy along the aggregate demand curve.

unemployment and inflation that arise in the short run as aggregate demand shifts the economy
along the short-run aggregate supply curve.

None of the above is correct.

18. In the long run, inflation

is primarily determined by the rate of money supply growth while unemployment is primarily
determined by labor market factors.

and unemployment are primarily determined by the rate of money supply growth.

and unemployment are primarily determined by labor market factors.

is primarily determined by labor market factors while unemployment is primarily determined by the
rate of money supply growth.

19. According to the Phillips curve, policymakers would reduce inflation but
raise unemployment if they

decreased the money supply.

increased government expenditures.

decreased taxes.

None of the above is correct.

20. When an adverse supply shock shifts the short-run aggregate-supply

curve to the left, it also

shifts the short-run Phillips curve to the left.

shifts the short-run Phillips curve to the right.

moves the economy along the short-run Phillips curve to a point with higher inflation and lower
unemployment.

moves the economy along the short-run Phillips curve to a point with lower inflation and higher
unemployment.