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

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?

Which of the following would shift the long-run Phillips curve right?

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

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

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

What did proponents of rational expectations argue about the sacrifice ratio and why?

Which of the following best describes how the natural rate of unemployment changes?

Faced with an adverse supply shock, what can policymakers increase, and how will prices and output be affected?

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?

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

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.

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

Which curve does an increase in expected inflation shift?

The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.

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

In 1980, how did the Canadian misery index compare to the average?

In recent years, inflation expectations have fallen. How did this shift the short-run Phillips curve, and what are the implications for unemployment?

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

What did Friedman and Phelps argue about the effectiveness of monetary policies?

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