Question 1

Demonstrate graphically and explain verbally the short-run Phillips curve relationship.

Accepted Answer

The short-run Phillips is a curve illustrating the inverse relationship between the rate of inflation and the rate of unemployment when expectations of inflation are constant.The short-run Phillips curve looks like this:

Question 2

On which side of the economy is the policy focus implied by the quantity theory of money?

Accepted Answer

The policy focus of the quantity theory of money is on the real economy - the supply side of the economy rather than the demand side.

Question 3

What is meant by the institutional costs of inflation?

Accepted Answer

Institutional costs of inflation are the loss of trust in government caused by inflation.People rely on government to provide a stable infrastructure within which to make decisions and enter into contracts.Unexpected inflation can undermine this contractual infrastructure of the economy, causing people to lose faith in government.If the loss of trust is significantly high, inflation will hinder establishing contracts, make it difficult for businesses to plan for the future and therefore undermine economic growth.

Question 4

Do economists who believe in the quantity theory of money favor an activist monetary policy? Why or why not?

Accepted Answer

No, economists who believe in the quanti

Question 5

Explain how policymakers use changes in productivity and wages to predict inflation.

Accepted Answer

Changes in both productivity and wages s

Question 6

Define the short-run Phillips curve.

Accepted Answer

The short-run Phillips curve is a downwa

Question 7

Using the AD/AS and the Phillips curve models, demonstrate graphically and explain in words the changes to output, unemployment and inflation caused by an expansionary fiscal policy.Show the short-run and long-run adjustments.Assume that the economy is initially in both short-run and long-run equilibrium, and that expected inflation is 2%.

Accepted Answer

The economy is initially in both short-r

Question 8

When people refer to inflation, are they generally referring to asset price inflation or goods price inflation? What is the difference between the two?

Accepted Answer

When people refer to inflation, they are

Question 9

Use a Phillips curve diagram to explain the difference between the macroeconomic policy positions of the quantity theorists and the institutionalists.

Accepted Answer

The institutionalists favored expansiona

Question 10

Briefly describe three different ways that people form expectations of inflation.

Accepted Answer

Three different ways that people form ex

Question 11

Explain how the quantity theory of money differs from the equation of exchange.

Accepted Answer

The equation of exchange is a tautology:

Question 12

Suppose the money supply is $100 billion and nominal GDP is $500 billion.What is the velocity of money?

Accepted Answer

Using the equation o

Question 13

Describe three different ways that people form expectations of inflation and give an example of each method.

Accepted Answer

Three different ways that people form ex

Question 14

Consider the following Phillips curve diagram:   (a) The economy is currently at point A with unemployment of 6% and inflation of 4%.The President has informed you that she is about to undertake an expansionary fiscal policy designed to lower unemployment from its current rate of 6% to 4%.She asks you what will happen in the economy as a result of her policy.Base your answer on the Phillips curve in the above diagram.
(b) How would your answer to (a) above change if you were to take into account potential changes in inflation expectations and their impact on actual inflation?

Accepted Answer

(a) You inform the President there exist

Question 15

How is the quantity theory of money related to the equation of exchange? What are the implications of the quantity theory for dealing with inflation? Why do economists who believe in the quantity theory advocate monetary growth rules?

Accepted Answer

The equation of exchange says that the q

Question 16

Economists who believe in the quantity theory favor monetary policy set by rules.Why?

Accepted Answer

These economists argue that th

Question 17

Using the equation of exchange, describe the difference between economists who ascribe to the quantity theory and those who follow a more institutionally-focused theory of inflation.

Accepted Answer

The difference between the two approache

Question 18

Consider the following Phillips curve diagram:   Suppose an expansionary monetary policy has moved the economy from point A to point B.Is point B a long-run equilibrium? If yes, explain why.If no, explain how the economy will get to new long-run equilibrium.

Accepted Answer

Point B is not at long-run equilibrium b

Question 19

Non-economists often say that inflation makes the nation poorer.Why are they incorrect? What are two actual costs of inflation? Explain your answer.

Accepted Answer

Whenever prices go up, the buyers are ma

Question 20

Economist's understanding of the costs and benefits of inflation differ from most lay people's understanding of the costs and benefits of inflation?

Accepted Answer

The "cost" that most lay people associat

Demonstrate graphically and explain verbally the short-run Phillips curve relationship.

On which side of the economy is the policy focus implied by the quantity theory of money?

What is meant by the institutional costs of inflation?

Do economists who believe in the quantity theory of money favor an activist monetary policy? Why or why not?

Explain how policymakers use changes in productivity and wages to predict inflation.

Define the short-run Phillips curve.

When people refer to inflation, are they generally referring to asset price inflation or goods price inflation? What is the difference between the two?

Use a Phillips curve diagram to explain the difference between the macroeconomic policy positions of the quantity theorists and the institutionalists.

Briefly describe three different ways that people form expectations of inflation.

Explain how the quantity theory of money differs from the equation of exchange.

Suppose the money supply is $100 billion and nominal GDP is $500 billion.What is the velocity of money?

Describe three different ways that people form expectations of inflation and give an example of each method.

How is the quantity theory of money related to the equation of exchange? What are the implications of the quantity theory for dealing with inflation? Why do economists who believe in the quantity theory advocate monetary growth rules?

Economists who believe in the quantity theory favor monetary policy set by rules.Why?

Using the equation of exchange, describe the difference between economists who ascribe to the quantity theory and those who follow a more institutionally-focused theory of inflation.

Consider the following Phillips curve diagram: Suppose an expansionary monetary policy has moved the economy from point A to point B.Is point B a long-run equilibrium? If yes, explain why.If no, explain how the economy will get to new long-run equilibrium.

Non-economists often say that inflation makes the nation poorer.Why are they incorrect? What are two actual costs of inflation? Explain your answer.

Economist's understanding of the costs and benefits of inflation differ from most lay people's understanding of the costs and benefits of inflation?

Economics and Economic Reasoning

The Production Possibility Model, Trade and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Economic Growth, Business Cycles, and Unemployment

Measuring the Aggregate Economy

The Aggregate Demand-Aggregate Supply Model

Growth, Productivity, and the Wealth of Nations

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policies in Developing Countries

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Exam 16: Inflation, Deflation and Macro Policy

Demonstrate graphically and explain verbally the short-run Phillips curve relationship.

On which side of the economy is the policy focus implied by the quantity theory of money?

What is meant by the institutional costs of inflation?

Do economists who believe in the quantity theory of money favor an activist monetary policy? Why or why not?

Explain how policymakers use changes in productivity and wages to predict inflation.

Define the short-run Phillips curve.

When people refer to inflation, are they generally referring to asset price inflation or goods price inflation? What is the difference between the two?

Use a Phillips curve diagram to explain the difference between the macroeconomic policy positions of the quantity theorists and the institutionalists.

Briefly describe three different ways that people form expectations of inflation.

Explain how the quantity theory of money differs from the equation of exchange.

Suppose the money supply is $100 billion and nominal GDP is $500 billion.What is the velocity of money?

Describe three different ways that people form expectations of inflation and give an example of each method.

How is the quantity theory of money related to the equation of exchange? What are the implications of the quantity theory for dealing with inflation? Why do economists who believe in the quantity theory advocate monetary growth rules?

Economists who believe in the quantity theory favor monetary policy set by rules.Why?

Using the equation of exchange, describe the difference between economists who ascribe to the quantity theory and those who follow a more institutionally-focused theory of inflation.

Consider the following Phillips curve diagram: Suppose an expansionary monetary policy has moved the economy from point A to point B.Is point B a long-run equilibrium? If yes, explain why.If no, explain how the economy will get to new long-run equilibrium.

Non-economists often say that inflation makes the nation poorer.Why are they incorrect? What are two actual costs of inflation? Explain your answer.

Economist's understanding of the costs and benefits of inflation differ from most lay people's understanding of the costs and benefits of inflation?

Economics and Economic Reasoning

The Production Possibility Model, Trade and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Economic Growth, Business Cycles, and Unemployment

Measuring the Aggregate Economy

The Aggregate Demand-Aggregate Supply Model

Growth, Productivity, and the Wealth of Nations

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policies in Developing Countries

Filters