Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

What would we NOT expect to happen if government policy moved the economy up along a given short-run Phillips curve?

How does an increase in the expected rate of inflation shift the Phillips curves?

How does the short-run Phillips curve model reflect an increase in the natural rate of unemployment?

Figure 17-1 -Refer to Figure 17-1. If the economy starts at c and 1, then in the short run, where does a decrease in taxes move the economy?

Figure 17-4 -Refer to Figure 17-4. If the economy is at point a and the Bank of Canada pursues an expansionary monetary policy, then the economy will move to which point in the short and long run?

Which hypothesis is supported by the economic experience of Canada during the late 1960s and early 1970s?

Suppose that a central bank increases the money supply. According to the Phillips curve, what should happen to prices, output, and employment?

If there is a favourable supply shock, what will most likely happen?

Although monetary policy cannot reduce the natural rate of unemployment, other types of policies can.

What would cause the price level to rise and output to fall in the short run?

According to Phillips, which set of two items have a negative relation?

In the long run, what does the inflation rate primarily depend on?

Which statement best describes the sacrifice ratio for Canada?

Figure 17-4 -Refer to Figure 17-4. If the economy is at point h and the Bank of Canada pursues a contractionary monetary policy, then the economy will move to which point in the short and long run?

According to Phelps and Friedman, in the short run, what effect does an increase in the money supply have on prices and unemployment?

Figure 17-3 -Refer to Figure 17-3. Starting from c and 3, in the short run, where does an unexpected increase in money supply move the economy to?

Compared to the 1970s, how did the Canadian short-run Phillips curve move in recent years and why?

How will a favourable supply shock shift the short-run Phillips curve, and how does unemployment change?

Figure 17-4 -Refer to Figure 17-4. If the economy is at point a and the Bank of Canada pursues an expansionary monetary policy, then the economy will move to which point in the short run?

In the nineteenth century, some countries were on gold standards so that on average the money supply growth rate was close to zero and expected inflation was more or less constant. For these countries during this time period, we find that increases in inflation were generally associated with falling unemployment. Are these findings consistent with Friedman and Phelps's theories, and why?