Exam 16: The Short-Run Tradeoff between Inflation and Unemployment

How does a decrease in the expected rate of inflation shift the Phillips curves?

Some countries have inflation in excess of 20 percent.Suppose that the sacrifice ratio is 2.5.What is the cost of reducing inflation from 20 percent to 4 percent?

Which of the following is an adverse supply shock?

If the sacrifice ratio is 3,reducing the inflation rate from 10 percent to 8 percent would require sacrificing how much annual output?

If there is an adverse supply shock,which of the following will most likely happen?

How will a favourable supply shock shift the short-run Phillips curve and how does it change inflation?

In the long run,the inflation rate depends primarily on money supply growth.

Which of the following best defines the sacrifice ratio?

Suppose that a central bank increases the money supply.According to the Phillips curve,what should happen to prices,output,and employment?

Economists generally agree that there is a short-run Phillips curve.However,some economists believe that the short-run Phillips curve is steep and that inflation expectations adjust quickly so the long run is short-lived.What do such beliefs imply about the benefits of using policy to reduce unemployment? What do such beliefs imply about the costs of using policy to reduce inflation?

If the short-run Phillips curve were stable,which of the following would be unusual?

Figure 16-2 -Refer to the Figure 16-2.Suppose the economy is initially at point c. If the money supply increases, where does the economy move to in the short-run?

Proponents of rational expectations theory have argued that the sacrifice ratio could be as small as what?

Discuss the factors determining the slope of the short-run Phillips curve.Is the linear shape appropriate? Why,or why not?

Which of the following did Phillips discover?

Proponents of rational expectations theory have argued that,in the most extreme case,if policymakers are credibly committed to reducing inflation,and if rational people understand that commitment and quickly lower their inflation expectation,the sacrifice ratio could be as small as what?

Figure 16-3 -Refer to the Figure 16-3.Starting from c and 3,in the long run,where does a decrease in money supply growth move the economy to?

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops.What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?

Use the AD?AS model and the Phillips curve to analyze the short-run and long-run effects of devaluating the home currency under a fixed exchange rate regime.

In the long run,what are the effects of a decrease in the rate of growth of the money supply?