Exam 12: Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

Each of the two models of short-run aggregate supply is based on some market imperfection. In the sticky-price model, the imperfection is that:

Each of the following phenomena hinders the precise estimation of the natural rate of unemployment except:

If the equation for a country's Phillips curve is π = .02 - .8(u - .05), where π is the rate of inflation and u is the unemployment rate, what is the short-run inflation rate when unemployment is 4 percent (.04)?

The percentage of a year's real GDP that must be foregone to reduce inflation by 1 percentage point is called the:

Along a short-run aggregate supply curve, output is related to unexpected movements in the . Along a Phillips curve, unemployment is related to unexpected movements in the .

Starting from the natural level of output, an unexpected monetary contraction will cause output and the price level to in the short run, and in the long run the expected price level will , causing the level of output to return to the natural level.

Based on the sticky-price model, the short-run aggregate supply curve will be steeper, the greater the:

Along any aggregate supply curve, there is only one:

The firms and workers in Alpha form expectations adaptively. The firms and workers in Omega form expectations rationally. Their otherwise identical economies are initially in equilibrium at the natural level of output with 10 percent inflation. The central banks of both Alpha and Omega make credible commitments to reduce the growth rates of money until they achieve 2 percent inflation. Compare and contrast the adjustment process to the new equilibrium at the lower rate of inflation in both countries.

The government can lower inflation with a low sacrifice ratio if the:

According to the imperfect-information model, when the price level is greater than the expected price level, output will the natural level of output

Economists are able to estimate the natural rate of unemployment in the United States:

Which of the following will shift the aggregate supply curve up to the left?

The relationship between short-run aggregate supply curves and Phillips curves is that there:

Use the aggregate demand-aggregate supply model to graphically illustrate the difference between demand-pull and cost-push inflation. Explain your graphs in words.

How would an adverse supply shock change the short-run tradeoff between inflation and unemployment? Illustrate your Answer using a Phillips curve diagram.

According to the Phillips curve, other things being equal, inflation depends positively on all of the following except:

Assume that an economy has the Phillips curve π = π -1 - 0)5(u - 0.06). Then the natural rate of unemployment is:

Analysis of the short-run Phillips curve suggests that policymakers who want to reduce unemployment in the short run should aggregate demand at a cost of generating inflation.

The idea that the natural rate of unemployment is increased following extended periods of unemployment is called: