Exam 16: The Dynamics of Inflation and Unemployment

Suppose that the expected inflation rate is 3 percent and the actual inflation rate is 6 percent. Then borrowers

In the long-run, reduced money growth results in ________ while having no effect on the level of output.

The real interest rate is the nominal interest rate plus the expected inflation rate.

The gap between government spending and its revenues is called

Recall the Application about how to estimate the shifts in the natural rate of unemployment to answer the following question(s). -According to the expectations Phillips curve, the unemployment rate and the inflation rate are inversely related.

When decisions are made regarding inflation using the rule-of-thumb, decision makers assume that inflation next year will be the same as the current year.

In the long run, decreases in the money supply will

Monetary policymakers tend to be conservative because

An economy can, in principle, produce at full employment with any inflation rate.

Suppose the public expects a 7 percent inflation rate, and both the money supply and money demand grow at 7 percent a year. Suddenly the Federal Reserve unexpectedly allows the money growth rate to be 5 percent. In the short run, we expect that

Recall the Application about how to estimate the shifts in the natural rate of unemployment to answer the following question(s). -According to the Application, the natural rate of unemployment in the United States was approximately 5 percent in the mid 1960s, ________ in the late 1970s and early 1980s, and ________ in the late 1980s until the year 2000.

The growth version of the quantity equation

During the Carter administration, inflation increased from 6.5 percent to 9.4 percent because

During hyperinflations, the velocity of money generally increases because

Recall the Application about how to estimate the shifts in the natural rate of unemployment to answer the following question(s). -According to the Application, if the labor market becomes more efficient in matching jobs with individuals, there will be ________ job vacancies and the natural rate of unemployment will ________.

Recall the Application about the increase in political independence for the Bank of England and its effect on anticipated inflation to answer the following question(s). In 1997, the Bank of England became more independent from the government. Although the government still retained the authority to set overall policy goals, the Bank of England was free to pursue its policy goals without direct political control. Federal Reserve economist Mark Spiegel compared interest rates on two different types of long-term bonds, those that are automatically adjusted for inflation and those that are not, to see how the British bond market reacted to this policy change. -If a central bank is credible in its desire to fight inflation, it can deter the private sector from taking aggressive actions that drive up prices.

If nominal GDP is $24 trillion and the money supply is $8 trillion, what is the velocity of money in the economy?

Assume that last year's inflation rate is the same as the expectation of inflation for the next year. According to the expectations Phillips curve, if the inflation rate increases relative to the expected rate, the unemployment rate

An inflation rate greater than 50 percent per month is known as

In the long run, the real rate of interest does not depend on monetary policy but the nominal rate of interest does.