Exam 8: The Phillips Curve, the Natural Rate of Unemployment and Inflation

Explain the relationship among the following variables in the medium run: (1) output; (2) the natural level of output; (3) nominal money growth; (4) the real money stock; (5) inflation; and (6) the inflation target.

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Question 1

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In the medium run, unemployment is constant and equal to the natural rate. This implies that output equals the natural level of output. Given the aggregate demand function, the interest rate is at the medium- run value with inflation at the target rate (assuming constant government spending and taxes). Given constant output and the interest rate, the real money stock is constant. This implies that nominal growth money growth equals inflation which is pinned down by the inflation target in the medium run.

If a country experiences persistently low inflation, which of the following tends not to occur?

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Question 2

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Which of the following is the essential ingredient of successful disinflation according to Sargent?

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Question 3

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Suppose policy makers underestimate the natural rate of unemployment. In such situations, policy makers will likely implement policies that result in:

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Question 4

Explain how the credibility of monetary policy affects how the economy adjusts to a monetary policy action that attempts to reduce the inflation rate.

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Question 5

Assume that the Phillips curve equation is represented by nt - nt- 1 = (m + z) - aut . Which of the following will not cause an increase in the natural rate of unemployment?

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Question 6

Hysteresis in the labour market refers to:

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Question 7

The "Lucas critique" is that:

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Question 8

An increase in the price of oil will likely cause which of the following?

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Question 9

Given the Phillips curve equation: nt = net + (m + z) - aut. Explain which variable changes would shift the Phillips curve and which variable changes would provide a movement along the Phillips curve.

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Question 10

Which of the following situations generally exists when deflation occurs?

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Question 11

A disinflation refers to a situation where:

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Question 12

Explain how changes in the proportion of contracts that are indexed affect how a given change in monetary policy will affect economic activity.

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Question 13

Briefly comment on the predictions of economists Milton Friedman and Edmund Phelps about the ability to exploit a tradeoff between inflation and unemployment.

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Question 14

Which of the following assumptions best characterised the assumption about how individuals formed expectations of inflation by the early 1970s?

(Multiple Choice)

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Question 15

A number of factors are believed to have caused changes in the natural rate of unemployment in Australia during the 1990s. Briefly comment on each of these factors.

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Question 16

In which of the following decades did the Phillips curve break down for Australia?

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Question 17

Which of the following individuals is responsible for the phrase, "inflation is always and everywhere a monetary phenomenon"?

(Multiple Choice)

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Question 18

Which of the following individuals first discovered the relationship between unemployment and inflation for the United States?

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Question 19

Assume that expected inflation is based on u e = 8nt- 1. If 8 = 0, we know that:

(Multiple Choice)

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Question 20

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Exam 8: The Phillips Curve, the Natural Rate of Unemployment and Inflation

Explain the relationship among the following variables in the medium run: (1) output; (2) the natural level of output; (3) nominal money growth; (4) the real money stock; (5) inflation; and (6) the inflation target.

If a country experiences persistently low inflation, which of the following tends not to occur?

Which of the following is the essential ingredient of successful disinflation according to Sargent?

Suppose policy makers underestimate the natural rate of unemployment. In such situations, policy makers will likely implement policies that result in:

Explain how the credibility of monetary policy affects how the economy adjusts to a monetary policy action that attempts to reduce the inflation rate.

Assume that the Phillips curve equation is represented by nt - nt- 1 = (m + z) - aut . Which of the following will not cause an increase in the natural rate of unemployment?

Hysteresis in the labour market refers to:

The "Lucas critique" is that:

An increase in the price of oil will likely cause which of the following?

Given the Phillips curve equation: nt = net + (m + z) - aut. Explain which variable changes would shift the Phillips curve and which variable changes would provide a movement along the Phillips curve.

Which of the following situations generally exists when deflation occurs?

A disinflation refers to a situation where:

Explain how changes in the proportion of contracts that are indexed affect how a given change in monetary policy will affect economic activity.

Briefly comment on the predictions of economists Milton Friedman and Edmund Phelps about the ability to exploit a tradeoff between inflation and unemployment.

Which of the following assumptions best characterised the assumption about how individuals formed expectations of inflation by the early 1970s?

A number of factors are believed to have caused changes in the natural rate of unemployment in Australia during the 1990s. Briefly comment on each of these factors.

In which of the following decades did the Phillips curve break down for Australia?

Which of the following individuals is responsible for the phrase, "inflation is always and everywhere a monetary phenomenon"?

Which of the following individuals first discovered the relationship between unemployment and inflation for the United States?

Assume that expected inflation is based on u e = 8nt- 1. If 8 = 0, we know that:

A Tour of the World

A Tour of the Book

The Goods Market

Financial Markets

Goods and Financial Markets: the Islm Model

The Labour Market

Putting All Markets Together: the Asad Model

The Crisis

The Facts of Growth

Saving, Capital Accumulation and Output

Technological Progress and Growth

Technological Progress: the Short, the Medium and the Long Run

Expectations: the Basic Tools

Financial Markets and Expectations

Expectations, Consumption and Investment

Expectations, Output and Policy

Openness in Goods and Financial Markets

The Goods Market

Output, the Interest Rate and the Exchange Rate

Exchange Rate Regimes

Should Policy-Makers Be Restrained

Fiscal Policy: a Summing up

Monetary Policy: a Summing up

Epilogue: the Story of Macroeconomics

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