Download Study Questions concerning the Phillips Curve

Phillips Curve: Theory, History, Policy
1) Neutrality of Money suggests that
a. If the Fed expands the money supply and increases
inflation, unemployment decreases
b. If the Fed expands the money supply and increases
inflation, unemployment increases
c. If the Fed expands the money supply and increases
inflation unexpectedly, unemployment decreases
d. If the Fed expands the money supply and increases
inflation unexpectedly, unemployment increases
e. The Fed expanding the money supply would have no
impact on unemployment
2) Keynesian theory as developed in the 1930’s
suggested that
a. If the Fed expands the money supply and increases
inflation, unemployment decreases
b. If the Fed expands the money supply and increases
inflation, unemployment increases
c. If the Fed expands the money supply and increases
inflation unexpectedly, unemployment decreases
d. If the Fed expands the money supply and increases
inflation unexpectedly, unemployment increases
e. The Fed expanding the money supply would have no
impact on unemployment
3) When activist polices were implemented in the
1960’s, the economy experienced
a. Rising inflation and falling unemployment
b. Stagflation
c. Monetary neutrality
d. Several recessions with severe deflation
e. Vertical Phillips Curve
4) The evidence of the 1950’s and the results of policy
changes in the 1960’s
a. Suggested there’s a trade-off between inflation and
unemployment
b. Convinced economists that Keynesian theory was
correct
c. Created the possibility that the economy would never
suffer a recession again
d. Demonstrated the usefulness of an activist policy
e. All of the above
5) Stagflation of the 1970’s is important to
Macroeconomics because
a. It called for an increase in the use of governmental
fiscal policy
b. Called into question whether Keynesian theory and
policy was correct
c. Proved that money was neutral
d. Disproved the misperception theory
e. Showed that people’s expectations are not important.
6) The multiple Phillips Curve model, which allows the
Phillips Curve to shift as people’s expectations change, is
an implication or result of
a. Money neutrality
b. Original Keynesian theory
c. Misperception theory
d. Laissez Faire policy
e. All of the above
7) The multiple Phillips Curve model suggests
a. If the Fed expands the money supply and increases
inflation, unemployment decreases
b. If the Fed expands the money supply and increases
inflation, unemployment increases
c. If the Fed expands the money supply and increases
inflation unexpectedly, unemployment decreases
d. If the Fed expands the money supply and increases
inflation unexpectedly, unemployment increases
e. The Fed expanding the money supply would have no
impact on unemployment
8) The multiple Phillips Curve model suggests
a. There is a consistent, dependable trade-off between
inflation and unemployment
b. If the money supply expands, inflation will increase
and the economy will experience stagflation
c. Money is neutral
d. The result of a change in monetary policy will
depend upon what people expected would happen
e. Surprises raise unemployment and inflation
9) The Fed loosens the money supply, the theory of
Money Neutrality suggests
a. Inflation will increase, and unemployment will
decrease
b. Inflation will increase, and unemployment will
increase
c. Inflation will increase, and unemployment will stay
the same
d. Inflation will increase, and unemployment might go
up, might go down, or might stay the same
e. Inflation will stay the same, but unemployment will
go down.
10) The Fed loosens the money supply, the original
Keynesian theory suggests
a. Inflation will increase, and unemployment will
decrease
b. Inflation will increase, and unemployment will
increase
c. Inflation will increase, and unemployment will stay
the same
d. Inflation will increase, and unemployment might go
up, might go down, or might stay the same
e. Inflation will stay the same, but unemployment will
go down.
11) The Fed loosens the money supply, the multiple
Phillips Curve theory suggests
a. Inflation will increase, and unemployment will
decrease
b. Inflation will increase, and unemployment will
increase
c. Inflation will increase, and unemployment will stay
the same
d. Inflation will increase, and unemployment might go
up, might go down, or might stay the same
e. Inflation will stay the same, but unemployment will
go down.
12) The lower inflation, booming economies of the 80’s
and 90’s demonstrated
a. Keynesian theory was correct
b. Money Neutrality
c. The success of activist policy
d. The original single Phillips Curve had flaws
e. All the above
13) As antibiotics were prescribed widely, bacteria grew
to be antibiotic resistant. This is an example of what
policy problem?
a. Delays or lags
b. Unintended consequences
c. Mistakes
d. None of the above
14) A patient suffering from a bad infection is prescribed
an antibiotic. The person is allergic to the antibiotic and
dies. This is an example of what policy problem?
a. Delays or lags
b. Unintended consequences
c. Mistakes
d. None of the above
15) A person falls sick, and after a couple of days, finally
visits a doctor. The doctor diagnosis the person with the
common cold and sends them home without any treatment.
This is an example of what policy problem?
a. Delays or lags
b. Unintended consequences
c. Mistakes
d. None of the above
1)
e. Neutrality says a change in the money supply
and, in turn, inflation should have no real effects on the
economy.
2)
a. The early Keynesian theory believed in an
inflation / unemployment trade-off.
3)
a. The 1960’s saw rising inflation and falling
unemployment. This lead economists to believe they
could easily control and “fine tune” the economy.
4)
e. With the observed trade-off in the 50’s and the
apparent success of policy in the 60’s supported all of
those ideas.
5)
b. Stagflation, high unemployment and inflation
at the same time, was contrary to the original Keynesian
beliefs.
6)
c. The idea that the Phillips Curve could shift
upon people’s beliefs came out of the misperception
theory. Even modern Keynesian theory now incorporates
the idea of expectations in their theory.
7)
c. The misperception theory says that only
unexpected inflation will lower unemployment because it
fools businesses into thinking there’s an increase in
demand for their product.
8)
d. The results of monetary policy depend
completely upon what people expect to happen.
9)
c. Neutrality theory says a change in the money
supply should have no impact on the real economy
10)
a. The original Keynesian theory sees a trade-off
between inflation and unemployment
11)
d. The result of monetary policy depends upon
what people expect. So if the Fed loosens the money
supply and injects more money, the effect on
unemployment could be higher, lower, or the same
depending upon what people expected the policy to be.
12)
d. Much of the 80’s and much of the 90’s saw
lower inflation rates coupled with falling unemployment.
This is just the reverse of Stagflation. Those two results
are incompatible with the original single Phillips Curve
which saw a trade-off. This is why many started referring
to the 90’s a new economy. Not a new economy, just
looking at the world through an out-dated theory.
13)
b. An unintended bad side effect of the wide use
of antibiotics is an unintended consequence.
14)
c. The doctor did not know the treatment would
cause the patient to die
15)
d. As long as the diagnosis was correct (no
mistake) there is no policy mistake here. Doctors don’t
have treatments for the common cold (other than rest and
fluids and such). Even if the person had visited the doctor
earlier, nothing would have changed.