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

If policymakers expand aggregate demand, what happens to inflation and unemployment in the long run?

According to Samuelson and Solow, when aggregate demand is high, how are unemployment, wages, and prices affected?

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists?

According to Friedman and Phelps, no matter what a central bank does to the money supply, what will happen in the long run?

Which equation summarize the analysis of Friedman and Phelps (where a is a positive number)?

If inflation expectations rise, how do the short-run Phillips curve and unemployment change?

Which of the following would shift aggregate supply to the right?

Figure 17-2 -Refer to Figure 17-2. If the economy starts at c and the money supply growth rate increases, where does the economy move to in the long run?

Suppose the Bank of Canada reduces inflation 3 percentage points, and this makes output fall 12 percentage points and unemployment rises 4 percentage points. What is the sacrifice ratio?

Suppose a war disrupts the supply of oil to the country. What would we expect to happen to the short-run aggregate-supply curve, the short-run Phillips curve, and the long-run Phillips curve?

Figure 17-4 -Refer to Figure 17-4. What is the natural rate of unemployment?

Are the effects of an increase in aggregate demand in the AD-AS model consistent with the Phillips curve? Explain.

In the long run, what are the effects of a decrease in the rate of growth of the money supply?

In the long run, people come to expect whatever inflation rate the Bank of Canada chooses to produce, so unemployment returns to its natural rate.

What would NOT be associated with a favourable supply shock?

How will an adverse supply shock shift the short-run Phillips curve, and how will it change unemployment?

How does the short-run Phillips curve model reflect an increase in the expected inflation?

Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 4 percentage points for five years, and it made the unemployment rate rise from 3 percent to 7 percent for three years. What is the sacrifice ratio?

According to Friedman and Phelps, when is the unemployment rate above the natural rate?

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