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

Suppose the Bank of Canada reduces inflation 2 percentage points, and this makes output fall 12 percentage points and unemployment rises 4 percentage points. What is the sacrifice ratio?

A vertical long-run Phillips curve is consistent with which of the following?

In the short run, policy that changes aggregate demand also changes which of the following?

If policymakers reduce aggregate demand, what happens to inflation and unemployment?

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?

Proponents of rational expectations argue that failing to account for people's revised expectations led to estimates of the sacrifice ratio that were too high.

Figure 16-3 -Refer to Figure 16-3. Where does an increase in aggregate demand move the economy from c and 3 to, in the short run and the long run?

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

The analysis of Friedman and Phelps argues that any change in inflation that is expected has no impact on the unemployment rate.

Figure 16-4 -Refer to Figure 16-4. At point m, how do actual and expected inflation rates and unemployment rates compare?

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 run?

Figure 16-4 -Refer to Figure 16-4. If the economy is at point a 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?

Which of the following is a long-run economic aspect on which most economists agree?

According to classical macroeconomic theory, which of the following does money growth influence in the long run?

How will a favourable supply shock shift short-run aggregate supply, and how will output change?

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

More flexible labour markets will shift the long-run Phillips curve and the long-run aggregate supply curve in which direction?

Among other things, which of the following determines the long-run average unemployment rate and inflation, respectively?

Economists generally agree that there is a short-run Phillips curve. However, some economists believe that the short-run Phillips curve is steep and that inflation expectations adjust quickly so that the long run is short-lived. What do such beliefs imply about the benefits of using policy to reduce unemployment? What do such beliefs imply about the costs of using policy to reduce inflation?

If technological change shifts the long-run aggregate supply curve to the right, it will also do which of the following?