Question 1

In 2009 Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have
A)raised unemployment and inflation.
B)raised unemployment and reduced inflation.
C)reduced unemployment and raised inflation.
D)reduced unemployment and inflation.

Accepted Answer

According to the short-run Phillips curve, reducing unemployment leads to an increase in inflation. Therefore, the tax cuts and increased government spending would reduce unemployment but raise inflation.

Question 2

As the aggregate demand curve shifts leftward along a given aggregate supply curve,
A)unemployment and inflation are higher.
B)unemployment and inflation are lower.
C)unemployment is higher and inflation is lower.
D)unemployment is lower and inflation is higher.

Accepted Answer

When the aggregate demand curve shifts leftward along a given aggregate supply curve, it indicates a decrease in both real GDP and price level. This means unemployment is higher, but inflation is lower.

Question 3

Figure 35-3. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-3. Assume the figure charts possible outcomes for the year 2018. In 2018, the economy is at point B on the left-hand graph, which corresponds to point B on the right-hand graph. Also, point A on the left-hand graph corresponds to A on the right-hand graph. The price level in the year 2018 is
A)155.56.
B)159.00.
C)163.50.
D)170.04.

Accepted Answer

According to the left-hand graph, at point B, the output level is around Y = 250 and the price level is around P = 163.5. This corresponds to point B on the right-hand graph with an unemployment rate of U = 4.5%. Therefore, the price level in 2018 is approximately 163.50.

Question 4

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in the money supply growth rate moves the economy to
A)A and 1
B)B and 2
C)C and 3
D)None of the above is correct.

Accepted Answer

According to the diagram, an increase in the money supply growth rate shifts the AD curve rightward, causing output to increase and prices to rise. This shift would move the economy from point C and 1 to point B and 2 in the short run.

Question 5

Figure 35-3. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-3. What is measured along the vertical axis of the left-hand graph?
A)the wage rate
B)the inflation rate
C)the price level
D)the change in output from one year to the next

Accepted Answer

The vertical axis of the left-hand graph measures the price level, which is the average level of prices in the economy.

Question 6

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to
A)B and 2.
B)B and 1.
C)B and 3.
D)None of the above is correct.

Accepted Answer

The answer of Figure 35-2
Use the pair of diagrams below...

Question 7

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in taxes moves the economy to
A)D and 2.
B)D and 3.
C)back to C and 1.
D)None of the above is correct.

Accepted Answer

The answer of Figure 35-2
Use the pair of diagrams below...

Question 8

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in aggregate demand moves the economy to
A)A and 2.
B)D and 3.
C)E and 3.
D)None of the above is correct.

Accepted Answer

A decrease in aggregate demand would shift the AD curve to the left. This will cause a short-run contractionary gap, indicating that the economy is producing below its potential. The new equilibrium will occur at point D and 3, which is a lower level of output and a lower price level compared to the initial equilibrium at point C and 1.

Question 9

Figure 35-4. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, the price level is measured on the vertical axis; on the right-hand diagram, the inflation rate is measured on the vertical axis.  
-Refer to Figure 35-4. What is measured along the horizontal axis of the right-hand graph?
A)the interest rate
B)the price level
C)the government's budget deficit as a percent of GDP
D)the unemployment rate

Accepted Answer

The answer of Figure 35-4. The left-hand graph shows a...

Question 10

Figure 35-4. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, the price level is measured on the vertical axis; on the right-hand diagram, the inflation rate is measured on the vertical axis.  
-Refer to Figure 35-4. What is measured along the horizontal axis of the left-hand graph?
A)the wage rate
B)the inflation rate
C)output
D)the interest rate

Accepted Answer

The horizontal axis of the left-hand graph measures output, usually represented by real GDP. This is because in the short run, changes in aggregate demand will mostly affect output rather than prices. The vertical axis measures the price level. The right-hand graph shows the vertical axis measuring inflation, which is a measure of changes in the price level over time.

Question 11

Figure 35-4. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, the price level is measured on the vertical axis; on the right-hand diagram, the inflation rate is measured on the vertical axis.  
-Refer to Figure 35-4. Assume the figure depicts possible outcomes for the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was
A)106.
B)108.
C)110.
D)112.

Accepted Answer

The answer of Figure 35-4. The left-hand graph shows a...

Question 12

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in government expenditures moves the economy to
A)D and 2
B)D and 3.
C)E and 3.
D)None of the above is correct.

Accepted Answer

A decrease in government expenditures will lead to a decrease in aggregate demand, causing the economy to move leftward from point C to point D. Point 3 on the graph shows the new equilibrium point in the short run.

Question 13

Figure 35-4. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, the price level is measured on the vertical axis; on the right-hand diagram, the inflation rate is measured on the vertical axis.  
-Refer to Figure 35-4. Assume the figure charts possible outcomes for the year 2018. In 2018, the economy is at point B on the left-hand graph, which corresponds to point B on the right-hand graph. Also, point A on the left-hand graph corresponds to A on the right-hand graph. The price level in the year 2018 is
A)117.25.
B)114.95.
C)113.12.
D)111.10.

Accepted Answer

Point B corresponds to an inflation rate of 2.5% on the right-hand graph. Looking at the SRAS curve, we can see that the corresponding price level for an inflation rate of 2.5% is around 114.95. Therefore, the best choice is B.

Question 14

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in the money supply moves the economy to
A)E and 1.
B)D and 2.
C)D and 3.
D)None of the above is correct.

Accepted Answer

The answer of Figure 35-2
Use the pair of diagrams below...

Question 15

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-1. The curve that is depicted on the right-hand graph offers policymakers a "menu" of combinations
A)that applies both in the short run and in the long run.
B)that is relevant to choices involving fiscal policy, but not to choices involving monetary policy.
C)of inflation and unemployment.
D)All of the above are correct.

Accepted Answer

The curve on the right-hand graph shows a menu of combinations of inflation and unemployment. This means that policymakers can choose a point on the curve that corresponds to the combination of inflation and unemployment they desire. This curve is relevant to both fiscal and monetary policy choices, as it reflects the trade-off between inflation and unemployment that policymakers must consider when making decisions about these policies.

Question 16

Figure 35-3. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-3. What is measured along the vertical axis of the right-hand graph?
A)the interest rate
B)the inflation rate
C)the government's budget deficit as a percent of GDP
D)the growth rate of the nominal money supply

Accepted Answer

The vertical axis of the right-hand graph measures the inflation rate (as represented by the percentage change in the price level).

Question 17

Figure 35-3. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-3. Assume the figure depicts possible outcomes for the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was
A)144.
B)150.
C)152.
D)156.

Accepted Answer

Based on the left-hand graph, point A represents a level of output (Y) that is above potential output (Yp), which leads to a level of inflation above expected inflation (πe). From point A, we see that the AD curve intersects the SRAS curve at a price level of approximately 150. Therefore, the price level in the year 2017 was most likely 150, since this is the level at which the AD and SRAS curves intersect in 2018.

Question 18

As the aggregate demand curve shifts rightward along a given aggregate supply curve,
A)unemployment and inflation are higher.
B)unemployment and inflation are lower.
C)unemployment is higher and inflation is lower.
D)unemployment is lower and inflation is higher.

Accepted Answer

As aggregate demand shifts rightward along a given aggregate supply curve, there is an increase in both output and prices. However, in the short run, firms may not be able to increase their output to meet the demand, leading to a temporary increase in prices, which results in higher inflation. At the same time, the increase in demand leads to increased employment opportunities, which leads to lower unemployment. Therefore, the correct choice is D, as inflation is higher but unemployment is lower.

Question 19

From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have
A)raised inflation and unemployment.
B)raised inflation and reduced unemployment.
C)reduced inflation and raised unemployment.
D)reduced inflation and unemployment.

Accepted Answer

According to the short-run Phillips curve, there is an inverse relationship between inflation and unemployment in the short run. When the money supply increases, this typically leads to an increase in aggregate demand and therefore an increase in prices/inflation. However, in the short run, the increase in aggregate demand can also lead to an increase in output and employment, thus reducing unemployment. Therefore, the Fed's policy of increasing the money supply should have raised inflation and reduced unemployment, making choice B the correct answer.

Question 20

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to
A)B and 2.
B)D and 3.
C)E and 2.
D)None of the above is correct.

Accepted Answer

An increase in taxes would shift the aggregate demand curve leftward, which would reduce real GDP and increase the price level. This would lead the economy to move from point C and 1 to point D and 3.

Quiz 35: The Short-Run Tradeoff Between Inflation and Unemployment

In 2009 Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have

As the aggregate demand curve shifts leftward along a given aggregate supply curve,

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in the money supply growth rate moves the economy to

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in taxes moves the economy to

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in aggregate demand moves the economy to

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in government expenditures moves the economy to

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in the money supply moves the economy to

As the aggregate demand curve shifts rightward along a given aggregate supply curve,

From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to