Exam 16: The Dynamics of Inflation and Unemployment

Recall the Application about the study by Thomas J. Sargent of hyperinflations after World War I in Germany, Austria, Hungary, and Poland, and how those hyperinflations ended, to answer the following question(s). -According to this Application, Sargent found that in each of the four cases studied, hyperinflation ended

Which of the following would be likely to lead to a decrease in the natural rate of unemployment?

If nominal wages increase by 5 percent while real wages fall by 1 percent, the inflation rate must be

Suppose workers negotiate for a 5 percent nominal wage increase and expect a 1 percent inflation rate. If the actual inflation rate is 6 percent, then workers

Suppose that union leaders negotiate a significant increase in nominal wages. If the Federal Reserve holds the growth in the money supply constant, in the long run, unemployment

Suppose the economy has been at full employment for the past two years with a 4 percent inflation rate, and both the money supply and money demand were growing at 4 percent a year. If the Federal Reserve unexpectedly increases the rate of money growth to 6 percent, the following sequence of events occurs

What factors can shift the natural rate of unemployment?

In the short run, decreases in the growth rate of the money supply will ________ nominal rates of interest and ________ real rates of interest.

The rate at which the money supply turns over in economic transactions in a given year to purchase nominal GDP is known as

If the velocity of money is 4 and nominal GDP is $24 trillion, then the money supply is

When determining monetary policies, central banks tend to take what kind of approach?

When the public expects inflation, real and nominal interest rates will differ because inflation needs to be accounted for in calculating the real return from lending and borrowing.

Recall the Application about how to estimate the shifts in the natural rate of unemployment to answer the following question(s). -According to the theory of rational expectations, people do not make mistakes when they form their expectations.

Suppose that for a given year money growth is 5 percent, real GDP growth is 2 percent, and the inflation rate is 5 percent. According to the growth version of the quantity equation, velocity growth would be

The United States had serious difficulties fighting inflation in

What happens to the real value of money in an economy experiencing hyperinflation?

If the velocity of money is high

If, on average, the velocity of money is low

Suppose the public expects a 4 percent inflation rate, while the Federal Reserve unexpectedly allows the money growth rate to be 5 percent. In the short run, we expect that investment spending by firms will ________ and consumer durable spending will ________.

Suppose the public expects a 7 percent inflation rate, and both the money supply and money demand grow at 7 percent a year. The Federal Reserve decides to keep the the money growth rate to be 7 percent. In the short run, we expect that investment spending by firms will ________ and consumer durable spending will ________.