Exam 12: The Business Cycle, Inflation, and Deflation

For a persistent cost-push inflation to occur, the Fed must persistently increase the quantity of money.

Both the new classical and new Keynesian business cycle theories agree that

Along a short-run Phillips curve, suppose the expected inflation rate is 6 percent. If the inflation rate turns out to be 8 percent instead

Along the long-run Phillips curve

A one-time increase in aggregate demand creates inflation.

A rise in the expected inflation rate leads to ________ in the long-run Phillips curve and ________ in the short-run Phillips curve.

Suppose the growth rate of the quantity of money increased from 5 percent per year to 8 percent per year. According to the ________, this event would trigger a business cycle expansion.

Suppose that forecasters have incorrectly estimated aggregate demand. According to the ________, this mistake could trigger a business cycle.

Based on the Keynesian theory of the business cycle, if the economy is at its full-employment equilibrium and aggregate demand increases then

Cost-push inflation can start with

Initially, demand-pull inflation will

The long-run Phillips curve shows the relationship between

-In the above figure, suppose the economy starts at point A. The short-run response to an increase in the growth rate of the quantity of money in the monetarist business cycle theory moves the economy to point

Suppose aggregate demand increases by less than expected. Which of the following describes what will occur?

One assumption of the new classical model is that

A decrease in the expected inflation rate shifts the short-run Phillips curve

A story from www.ft.com (1/31/2005)describing Ireland's transformation to a prosperous economy noted that "Ireland's story is unique: a small, English-speaking, non-industrialized country on the edge of Europe was able to secure structural funds from the EU, cut taxes, deregulate faster than its neighbours and attract lots of foreign companies in the process." If the natural rate of unemployment in Ireland decreased as a result of these policies, then ________ would shift ________.

The real business cycle theory asserts that changes in ________ lead to changes in ________.

Oil prices increase sharply, raising the price level and decreasing real GDP. The Fed has an incentive to

A key difference between the new classical and the new Keynesian views of the business cycle is the role played by