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

According to Friedman and Phelps, when do policymakers face a tradeoff between inflation and unemployment?

In the nineteenth century, some countries were on gold standards so that on average the money supply growth rate was close to zero and expected inflation was more or less constant. For these countries during this time period, we find that increases in inflation were generally associated with falling unemployment. Are these findings consistent with Friedman and Phelps's theories, and why?

Suppose that weather around the world is especially good next year, so farmers have unusually good crops. What might we expect that this will do to the short-run and long-run Phillips curves?

In the long run, which of the following will happen if the Bank of Canada increases the rate at which it increases the money supply?

Although monetary policy cannot reduce the natural rate of unemployment, other types of policies can.

Which of the following curves is (are) upward sloping?

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

What did Friedman and Phelps argue about inflation and unemployment?

Which of the following is one determinant of the natural rate of unemployment?

Discuss the factors determining the slope of the short-run Phillips curve. Is the linear shape appropriate? Why, or why not?

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

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

Which of the following hypotheses is supported by the economic experience of Canada during the late 1960s and early 1970s?

In the long run, what effect does an increase in the money supply have on prices and unemployment?

Scenario 1 The aggregate demand (AD) and aggregate supply (AS) model can be constructed having inflation rate on the vertical axis instead of the price level and the rate of economic growth instead of output. -Referring to Scenario 1, draw the AD-AS model in terms of inflation ( $\pi$ ) and rate of growth (g).

Which of the following would NOT be associated with an adverse supply shock?

If efficiency wages became more common, where would the long-run Phillips curve and the long-run aggregate supply curve shift?

Scenario 1 The aggregate demand (AD) and aggregate supply (AS) model can be constructed having inflation rate on the vertical axis instead of the price level and the rate of economic growth instead of output. -Using the quantity theory of money, derive an aggregate demand curve. Show that this curve shifts when the money supply changes.

What will a favourable supply shock cause the price level and output to do?