Exam 13: Inflation, Unemployment, and Bank of Canada Policy

When unemployment is below its natural rate, the inflation rate will eventually

Monetary policy can

If actual inflation is less than expected inflation, actual real wages will be ________ expected real wages and unemployment will ________.

Figure 13.10 Alt text for Figure 13.10: In figure 13.10, a graph shows the points along which a typical long-run Phillips curve runs. Long description for Figure 13.10: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.3 points; A, B, and C are plotted such that A and B share equivalent y-axis values, and B and C share equivalent x-axis values. -Refer to Figure 13.10.A typical long-run Phillips curve would have the appearance of a curve running through points

If the Bank of Canada attempts to reach and maintain very low rates of unemployment, we would expect the rate of inflation to rise.

When inflation is very low, how do workers and firms adjust their expectations of inflation?

If the long-run aggregate supply curve is vertical,

Figure 13.1 Alt text for Figure 13.1: In figure 13.1, a short-run Phillips curve. Long description for Figure 13.1: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, Philips curve, begins at the top left corner and slopes down to the end of the x-axis.Point A is plotted half way along line Philips curve.Point B is plotted to the right of point A and point C is plotted is to the left of point A.Point D is plotted above this line, in the left center of the quadrant.Point E is plotted below this line, directly below point A. -Refer to Figure 13.1.Suppose that the economy is currently at point A, and the unemployment rate at A is the natural rate.What policy would the Bank of Canada pursue if it wanted the economy to move to point C in the long run?

In face of a negative supply shock, the Bank of Canada may avoid a rise in unemployment only if it is willing to increase the rate of inflation.

In 2017 the small country of Notrealia had a price level of 149.35. In 2016 the price level was 145. If the average Notrealian earns a wage of $29 an hour in 2017. What is their real wage?

A decrease in aggregate demand will

During which of the following time periods did inflation remain above 5 percent every year?

The natural rate of unemployment equals

Evidence shows that for many people, delaying searching for a job for a year or longer after they are laid off will contribute to a deterioration of their job skills, making it harder for them to find employment.This deterioration in job skills and the subsequent retraining that is necessary to obtain employment relates to which type of unemployment?

What is the natural rate of unemployment?

Empirical evidence shows that the short-run Phillips curve was vertical during the 1950s and 1960s.

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

A higher inflation rate can lead to lower unemployment if ________ mistakenly expect the inflation rate to be lower than it turns out to be.

If the public holds rational expectations regarding changes in monetary policy, the short-run Phillips curve may be vertical.

During a time when the inflation rate is increasing each year for a number of years, are adaptive expectations or rational expectations likely to give more accurate forecasts? Briefly explain.