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

Figure 16-2 -Refer to Figure 16-2. If the economy starts at c and the money supply growth rate decreases, where does the economy move to in the short run?

In which of the following situations will the economy move to a point on the Phillips curve where unemployment is higher?

Which of the following is the misery index supposed to measure?

According to Phelps and Friedman, in the short run, what effect does an increase in the money supply have on prices and unemployment?

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.

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops. What would the good weather do to the short-run aggregate supply curve and the short-run Phillips curve?

Which of the following terms refers to the short-run relationship between inflation and unemployment?

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

Are the effects of an increase in aggregate demand in the AD-AS model consistent with the Phillips curve? Explain.

Suppose that monetary policymakers announced that they were going to make a serious effort to fight inflation. A few years later the inflation rate has been reduced, but there had also been a serious recession. Which of the following could we conclude with certainty?

What happened to expected inflation in Canada during the 1970s?

When aggregate demand increases, what happens to prices and employment?

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

A policy change that reduced the natural rate of unemployment would shift both the long-run aggregate-supply curve and the long-run Phillips curve left.

Figure 16-2 -Refer to Figure 16-2. If the economy starts at c and the money supply growth rate increases, where does the economy move to in the long run?

If there is a favourable supply shock, which of the following will most likely happen?

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 so that people expect that the government will soon start printing more money again to pay for its expenditures, 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.

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?

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?

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