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

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run?

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

What is meant by the natural rate of unemployment?

In the 1970's the Federal Reserve responded to an adverse supply shock. Its policy made

According to the Phillips curve, policymakers can reduce inflation by

If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

Write the equation representing the short-run Phillips curve.

An adverse supply shock causes inflation to

According to the Friedman-Phelps analysis, in the long run actual inflation equals expected inflation and unemployment is at its natural rate.

Which of the following shifts the long-run Phillips curve left?

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

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. A movement of the economy from point A to point B, and at the same time a movement from point C to point D, would be described as

If a central bank reduced inflation by 2 percentage points and that made output fall by 3 percentage points for 2 years and the unemployment rate rise from 3 percent to 5 percent for 2 years, the sacrifice ratio is

Suppose, as in the 1970's in the U.S., that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force. Would this have any effect on the long-run Phillips curve?

The economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's argument

Which of the following played a role in depressing aggregate demand in 2001?

There is an adverse supply shock. In response the Federal Reserve pursues an expansionary monetary policy. Taking into account both the shock and the Federal Reserve's policy, which of the following are we sure of?

Suppose that a drought significantly reduces agricultural production one year. Which of the following would likely occur as a result of the bad weather?