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

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve (that is, to increase inflation and reduce unemployment)? Were they right or wrong?

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on which of the following?

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

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

In 1968, economist Milton Friedman published a paper that was critical of the Phillips curve. On what grounds did Friedman criticize the Phillips curve?

Which of the following best defines disinflation?

Where does the short-run Phillips curve intersect the long-run Phillips curve?

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 short run?

In the long run, which of the following will shift the long-run Phillips curve to the right?

What did Friedman and Phelps argue about the relationship between inflation and unemployment?

Figure 16-3 -Refer to Figure 16-3. When would the economy move from c and 3 to e and 5?

Figure 16-2 -Refer to Figure 16-2. What is curve 2?

Suppose that there is an adverse supply shock. Which of the following curves will shift left?

How does an increase in the expected rate of inflation shift the Phillips curves?

Which of the following is an adverse supply shock?

In the long run, the inflation rate depends primarily on money supply growth.

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

In the long run, how does an increase in the rate of growth of the money supply shift the Phillips curves?

A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.

Suppose that the money supply increases. In the short run, this increases prices according to what theory?