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

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

Where does the short-run Phillips curve intersect the long-run Phillips curve?

Some economists argue that simply and suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real reform, people expect that the government will soon start printing more money again to pay for its expenditures, and the promise to fight inflation will not be credible. Explain the importance of an inflation-reduction policy that is announced ahead of time and is credible.

Figure 16-2 -Refer to the Figure 16-2. Where is the money supply growth rate the greatest?

Among other things, what determines the long-run average unemployment rate and inflation, respectively?

The analysis of Friedman and Phelps argues that any change in inflation that is expected has no impact on the unemployment rate.

Figure 16-4 -Refer to the Figure 16-4. Along SRPC1, what is the expected rate of inflation?

What is a long-run economic aspect on which most economists agree?

Figure 16-2 -Refer to the Figure 16-2. What is Curve 2?

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 aggregate demand move the economy?

What would shift the long-run Phillips curve to the right?

How will an adverse supply shock shift the short-run Phillips curve, and how does inflation change?

Figure 16-3 -Refer to the Figure 16-3. Starting from c and 3, where does an increase in aggregate demand move the economy to, in the short run and the long run?

Which of the following would shift aggregate supply to the right?

Suppose the long-run Phillips curve shifts to the left. For any given rate of money growth and inflation, how would unemployment and output change?

In the long run, the natural rate of unemployment depends primarily on the growth rate of the money supply.

Figure 16-3 -Refer to the Figure 16-3. Starting from c and 3, where does a decrease in aggregate demand move the economy to, in the short run and the long run?

In the long run, people come to expect whatever inflation rate the Bank of Canada chooses to produce, so unemployment returns to its natural rate.

Suppose an economy with high inflation decides to decrease the money supply growth rate. Which of the following best describes the results?

According to Samuelson and Solow, when aggregate demand is low, how are unemployment, wages, and prices affected?