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

What did Friedman and Phelps argue about the relationship between inflation and unemployment?

The Phillips curve and the short-run aggregate-supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Friedman and Phelps believed that the natural rate of unemployment was constant.

Suppose an economy with high inflation decides to decrease the money supply growth rate. Which of the following best describes the results?

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 run?

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve, what are the values of unemployment and inflation?

According to classical macroeconomic theory, what does money growth influence in the long run?

How will a favourable supply shock shift short-run aggregate supply, and how will output change?

How was the Phillips curve for most of the 1990s and why?

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation.

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

If the short-run Phillips curve were stable, what would be unusual?

A decrease in expected inflation shifts which of the following curves, and in what direction?

How does the short-run Phillips curve reflect a financial crisis such as the one in 2008-2009?

Friedman argued that a central bank could use monetary policy to peg which of the following?

Figure 17-2 -Refer to Figure 17-2. Suppose the economy is initially at point c. If the money supply increases, where does the economy move to in the short-run?

In the Friedman-Phelps analysis, when inflation is less than expected, unemployment is less than the natural rate.

The long-run response to a decrease in the growth rate of the money supply is shown by shifting which of the Phillips curves and in what direction?

How does the short-run Phillips curve reflect an increase in the price of oil such as occurred in the early 1970s?