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

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

Discuss the advantages and disadvantages of drawing the AD-AS model in terms of inflation (ð) and rate of growth (g).

Suppose the government decides to decrease the income tax. What is the primary effect of this decision?

What happened to aggregate supply and the Phillips curve in the mid- and late 1990s?

What do the data for the period of 1973 through 1980 demonstrate?

How does the short-run Phillips curve model reflect an increase in the natural rate of unemployment?

Suppose that the money supply increases. According to the Phillips curve model, what are the effects of this policy change?

If the short-run Phillips curve were stable, what would be unusual?

An estimate of the short-run Phillips curve for a hypothetical economy is u = 12 - 1.5ð, where u is the unemployment rate and ð is the inflation rate. a. If the natural rate of unemployment is 8 percent, what is the expected inflation rate that is consistent with this short-run Phillips curve? b. Suppose the government passes legislation that decreases the natural rate of unemployment by two percentage points. What is the new long-term inflation rate?

Figure 16-1 -Refer to the Figure 16-1. If the economy starts at c and 1, then in the short run, where does a decrease in the money supply growth rate move the economy?

Which Canadian economist confirmed the theory of an inflation-unemployment tradeoff?

According to Friedman and Phelps, when is the unemployment rate below the natural rate?

According to the Friedman-Phelps analysis, in the long run, actual inflation equals expected inflation, and unemployment is at its natural rate.

Figure 16-1 -Refer to the Figure 16-1. If the economy starts at c and 1, then in the short run, where does an increase in government expenditures move the economy?

Figure 16-4 -Refer to the Figure 16-4e. If the economy is at point h and the Bank of Canada pursues a contractionary monetary policy, then the economy will move to which point in the short run?

How was the Phillips curve for most of the 1990s and why?

According to Friedman and Phelps, no matter what a central bank does to the money supply, what will happen in the long run?

Compared to the 1970s, how did the Canadian short-run Phillips curve move in recent years and why?

In responding to the Phillips curve hypothesis, what did Friedman argue that a central bank can peg?

If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 7 percent would require sacrificing how much annual output?