Question

If the economy starts at the natural rate of output, then in the short run a decrease in aggregate demand moves the economy to a lower level of output and, according to the Phillips curve, a higher level of unemployment as the inflation rate falls.

Select one:

True

False

In the long run, unemployment depends upon factors such as the nature of the job search process, the amount and duration of unemployment benefits and the power of unions and minimum wage laws that alter the amount of structural unemployment.

Select one:

True

False

According to the natural rate hypothesis (Friedman and Phelps), in the short run the economy will move to a point on the Phillips curve where the unemployment rate is lower if the inflation rate rises.

Select one:

True

False

Milton Friedman argued that the Fed's control over the money supply could be used to peg the level or growth rate of a real variable, but not the level or growth rate of a nominal variable.

Select one:

True

False

In the United States, the inflation rate has been consistently above 4 percent during the period from 2000 to 2015.

Select one:

True

False

Answer 1

If the economy starts at the natural rate of output, then in the short run a decrease in aggregate demand moves the economy to a lower level of output and, according to the Phillips curve, a higher level of unemployment as the inflation rate falls.

True

Eplanation: Fall in AD will lead to lower inflation and higher unemployment.

In the long run, unemployment depends upon factors such as the nature of the job search process, the amount and duration of unemployment benefits and the power of unions and minimum wage laws that alter the amount of structural unemployment.

True

Explanation: Natural unemployment rate is the rate that economy tends towards in the long run.

According to the natural rate hypothesis (Friedman and Phelps), in the short run the economy will move to a point on the Phillips curve where the unemployment rate is lower if the inflation rate rises.

True
Explanation: In the Short run there is inverse relationship between unemployment and inflation.

Milton Friedman argued that the Fed's control over the money supply could be used to peg the level or growth rate of a real variable, but not the level or growth rate of a nominal variable.

False

Explanation: It would affect only nominal variables and not real ones.