Exam 14: Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

How does the Phillips curve explain the tradeoff between the unemployment and inflation? Illustrate with a graph.

All of the following are exogenous variables in "A Big, Comprehensive Model" in the appendix to Chapter 14 except the:

Assume that an economy has the Phillips curve π = π_-1 - 0.5 (u - 0.06). Then the natural rate of unemployment is:

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

A recession may alter an economy's natural rate of unemployment in all of the following ways except by:

Some firms do not instantly adjust the prices they charge in response to changes in demand for all of the following reasons except:

The model of aggregate demand and aggregate supply is consistent with short-run monetary _____ and long-run monetary _____.

In the case of demand-pull inflation, other things being equal:

If the short-run aggregate supply curve is assumed to be horizontal, international capital flows are infinitely elastic, and the nominal exchange rate is fixed, then the big, comprehensive model in the appendix to Chapter 14 corresponds to which of the following special cases?

Exhibit: AD-AS Shifts Starting from long-run equilibrium at A with output equal to and the price level equal to P₁, if there is an unexpected monetary contraction that shifts aggregate demand from AD₁ to AD₃, then the short-run nonneutrality of money is represented by the movement from:

The sacrifice ratio measures the:

All of the following are ways that the modern Phillips curve differs from the relationship observed by A. W. Phillips in 1958 except that the modern Phillips curve:

Illustrate the short-run and long-run impact of an unexpected monetary contraction using both the AD-AS model and the Phillips curve. Assume the economy starts at full employment.

If the short-run aggregate supply curve is assumed to be horizontal and international capital flows are infinitely elastic, then the big, comprehensive model in the appendix to Chapter 14 corresponds to which of the following special cases?

According to the sticky-price model:

According to the natural-rate hypothesis, the levels of output and unemployment depend on:

Exhibit: Short-Run Phillips Curve As the short-run Phillips curve shifts from A to B to C to D, policymakers face:

If price expectations are assumed to be correct, money demand is proportional to income, and there are no international capital flows, then the big, comprehensive model in the appendix to Chapter 14 corresponds to which of the following special cases?

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.

An economy is initially in equilibrium at the natural level. The central bank increases the money supply. Graphically illustrate and explain short-run monetary nonneutrality and long-run monetary neutrality using the AD-AS model.