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

A vertical long-run Phillips curve is consistent with which of the following?

Suppose the central bank wants to permanently reduce the inflation rate. What are the possible ways of doing so, and what are the consequences?

Proponents of rational expectations theory have argued that, in the most extreme case, if policymakers are credibly committed to reducing inflation, and if rational people understand that commitment and quickly lower their inflation expectation, the sacrifice ratio could be as small as what?

Which statement best describes how the natural rate of unemployment changes?

Suppose a policy increases the natural rate of unemployment. What is the effect of such a policy change?

What is a long-run economic aspect on which most economists agree?

In the long run, the natural rate of unemployment depends primarily on the growth rate of the money supply.

Suppose that reducing inflation 3 percentage points would cost a country 12 percent of annual output. What is this country's sacrifice ratio?

What did Friedman and Phelps argue about inflation and unemployment?

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

Suppose the natural rate of unemployment is 6 percent, the expected inflation is 2 percent, and the constant "a" in the short-run Phillips curve equation is 0.8. Describe the process of adjustment when the expected inflation rate changes from 2 percent to 3 percent.

How could we transform the AD-AS model such that, instead of the price level and output it would show the relationship between the inflation rate (ð) and the rate of output growth (g)?

How is the misery index calculated?

What would NOT be associated with an adverse supply shock?

Figure 17-1 -Refer to Figure 17-1. If the economy starts at c and 1, then in the short run, an increase in taxes moves the economy to where?

If efficiency wages became more common, where would the long-run Phillips curve and the long-run aggregate-supply curve shift?

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

Which Canadian economist confirmed the theory of an inflation-unemployment tradeoff?

What will a favourable supply shock cause the price level and output to do?

Which statement characterizes the long-run Phillips curve?