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

Suppose the Bank of Canada reduces the rate of inflation by 4 percentage points. Suppose, as well, that the sacrifice ratio has a value of 2.5. Which of the following describes what happens to GDP?

Suppose the Bank of Canada reduces inflation 2 percentage points, and this makes output fall 10 percentage points and unemployment rises 4 percentage points. What is the sacrifice ratio?

Suppose a war disrupts the supply of oil to the country. What would we expect to happen to the short-run aggregate-supply curve, the short-run Phillips curve, and the long-run Phillips curve?

Figure 16-4 -Refer to the Figure 16-4. Along SRPC2, what is the expected rate of inflation?

In the late 1960s, which of the following was published by economist Edmund Phelps?

If the Bank of Canada announced a policy to reduce inflation and people found it credible, what would happen to the short-run Phillips curve and the sacrifice ratio?

Friedman and Phelps believed that the natural rate of unemployment was constant.

What did Samuelson and Solow believe about the Phillips curve?

What would NOT be associated with a favourable supply shock?

The long-run response to a decrease in the growth rate of the money supply is shown by shifting which of the Phillips curves and in what direction?

Suppose that reducing inflation 3 percentage points would cost a country 15 percent of annual output. What is this country's sacrifice ratio?

The Phillips curve and the short-run aggregate-supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Figure 16-1 -Refer to the Figure 16-1. If the economy starts at c and 1, then in the short run, an increase in taxes moves the economy to where?

Which change will move the economy to a point on the Phillips curve where unemployment is lower?

Some countries have had high inflation rates for a long time and other countries have had low inflation rates for a long time. Yet in some of the high-inflation countries, the unemployment rate is not much different or even higher than in the low-inflation countries. Explain how these observations can be consistent with the Phillips curve.

What would NOT be associated with an adverse supply shock?

Figure 16-3 -Refer to the Figure 16-3. When would the economy move from c and 3 to b and 2?

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

Suppose the natural rate of unemployment is 6 percent, the expected inflation is 2 percent, and the constant "a" in the short-run Phillips curve equation is 0.8. Draw the long-run and short-run Phillips curves. What is the inflation rate corresponding to the intersection of the two curves?

How is the misery index calculated?