2312 Chapter 35 The Short-Run Trade-Off Between Inflation and Unemployment TRUE/FALSE 1. In the long run, the natural rate of unemployment depends primarily on the growth rate of the money supply. ANS: F DIF: 1 REF: 35-0 NAT: Analytic LOC: Unemployment and inflation TOP: Natural rate of unemployment MSC: Definitional 2. In the long run, the inflation rate depends primarily on the growth rate of the money supply. ANS: T DIF: 1 REF: 35-0 NAT: Analytic LOC: Unemployment and inflation TOP: Inflation MSC: Definitional 3. Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation. ANS: T DIF: 1 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Phillips curve | Aggregate demand and supply MSC: Applicative 4. Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run. ANS: T DIF: 2 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve slope MSC: Applicative 5. A given short-run Phillips curve shows that an increase in the inflation rate will be accompanied by a lower unemployment rate in the short run. ANS: T DIF: 2 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve slope MSC: Interpretive 6. The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate above its natural rate. ANS: F DIF: 2 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve slope MSC: Definitional 7. The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output. ANS: T DIF: 2 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve slope MSC: Analytical 8. Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate. ANS: T DIF: 1 REF: 35-2 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve slope | Short-run Phillips curve shifts MSC: Analytical 9. Fiscal policy cannot be used to move the economy along the short-run Phillips curve. ANS: F DIF: 1 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve slope | Fiscal policy MSC: Applicative 10. If the Fed were to increase the money supply, inflation would increase and unemployment would decrease in the short run. ANS: T DIF: 1 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve MSC: Analytical Chapter 35 /The Short-Run Trade-Off Between Inflation and Unemployment 2313 11. Friedman and Phelps believed that the natural rate of unemployment was constant. ANS: F DIF: 2 REF: 35-2 NAT: Analytic LOC: Unemployment and inflation TOP: Long-run Phillips curve MSC: Definitional 12. The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy. ANS: T DIF: 1 REF: 35-2 NAT: Analytic LOC: Unemployment and inflation TOP: Long-run Phillips curve | Classical dichotomy MSC: Interpretive 13. The short-run Phillips curve is based on the classical dichotomy. ANS: F DIF: 1 REF: 35-1 NAT: Analytic LOC: Unemployment and inflation TOP: Classical dichotomy MSC: Interpretive 14. The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve. ANS: T DIF: 2 REF: 35-2 NAT: Analytic LOC: Unemployment and inflation TOP: Long-run aggregate supply | Long-run Phillips curve | Classical dichotomy MSC: Interpretive 15. Although monetary policy cannot reduce the natural rate of unemployment, other types of government policies can. ANS: T DIF: 1 REF: 35-2 TOP: Natural rate of unemployment MSC: Definitional 16. A policy change that reduces the natural rate of unemployment shifts both the long-run aggregate-supply curve and the long-run Phillips curve left. ANS: F DIF: 1 REF: 35-2 TOP: Long-run Phillips curve | Long-run aggregate supply MSC: Applicative 17. An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right. ANS: T DIF: 1 REF: 35-2 NAT: Analytic LOC: Unemployment and inflation TOP: Long-run Phillips curve | Natural rate of unemployment MSC: Analytical 18. In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to its natural rate. ANS: T DIF: 2 REF: 35-2 NAT: Analytic LOC: Unemployment and inflation TOP: Long-run Phillips curve MSC: Analytical 19. The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate. ANS: T DIF: 2 REF: 35-2 NAT: Analytic LOC: Unemployment and inflation TOP: Short-run Phillips curve shifts MSC: Analytical 20. In the Friedman-Phelps analysis, when inflation