Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. Which of the following events could explain the shift of the aggregate-supply curve from AS₁ to AS₂?

If the Fed wants to reverse the effects of a favorable supply shock on the inflation rate, it should

If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year, the sacrifice ratio is

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Suppose that a small economy that produces mostly agricultural goods experiences a year with exceptionally good conditions for growing crops. The good weather would

In responding to the Phillips curve hypothesis, Friedman argued that the Fed can peg the

How is a decrease in the natural rate of unemployment shown in the Phillips curve diagram? Does this decrease change the inflation rate?

Suppose that the money supply increases. In the short run, this increases prices according to

Natural rate of unemployment - a × (Αctual inflation - Expected inflation) =

The economist A.W. Phillips published a famous article in 1958 in which he showed a

In response to the financial crisis of 2007-2008, policymakers used

One determinant of the natural rate of unemployment is the

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. The shift of the aggregate-supply curve from AS₁ to AS₂ could be a consequence of

Which of the following would shift the long-run Phillips curve to the right?

Figure 35-4. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the left-hand diagram, the price level is measured on the vertical axis; on the right-hand diagram, the inflation rate is measured on the vertical axis. -Refer to Figure 35-4. Assume the figure depicts possible outcomes for the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was

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? Use sticky-wage theory to explain your answer.

If inflation expectations rise, the short-run Phillips curve shifts

If an increase in inflation permanently reduced unemployment, then