Exam 29: Inflation and Disinflation

Assume your salary is $2000 per month and your employer gives you a raise of 6%.Over the next twelve months the inflation rate is 12%.Your real salary will change by

The sacrifice ratio is a measure of the

Suppose the actual rate of inflation in the economy is 5%.If we know that expected inflation is 2%,and that output-gap inflation is 1%,then we also know that

Which of the following will lead to sustained inflation?

A rightward shift of the AD curve accompanied by a rightward shift of the AS curve will

If a central bank is to successfully end a sustained inflation,it is essential that it

An inflation that begins as a result of any demand or supply shock will eventually come to a halt

One of the results of the restrictive monetary policy adopted by the Bank of Canada in the early 1980s was that

29.3 Reducing Inflation The three figures below show the phases of a disinflation.In part (i),the economy is experiencing a sustained inflation at E₁. FIGURE 29-4 -Refer to Figure 29-4,part (iii).The movement of the economy from E₃ to E₄ in Phase 3 is often caused by

The first OPEC oil-price shock in 1973 caused the AS curves in all industrialized countries to shift upward.The Bank of Canada validated this negative supply shock with an increase in the money supply,whereas in the United States such monetary validation did not take place.The predictable result was that

Consider the AD/AS model with a constant rate of inflation.In this situation,the money supply is rising,which tends to reduce interest rates.However,interest rates are actually likely to remain stable.Why?

When a central bank attempts to stop a constant inflation,it tries to remove the inflationary gap by

If the economy is faced with continued negative supply shocks,such as annual wage increases for unionized workers,and there is no monetary validation,we can expect

The act of "monetary validation" by a central bank can

Suppose the economy is in a long-run equilibrium.The AS curve now shifts upward due to a one-time increase in the price of raw materials.If the central bank validates this supply shock,

Suppose the NAIRU for Canada is 6.5%,the actual unemployment rate is 5% and productivity is constant.We can conclude that

Suppose the economy is currently in long-run equilibrium with real GDP equal to potential GDP.A positive demand shock,that is not validated by the Bank of Canada,will eventually result in

Suppose we know the following information about a hypothetical economy: - actual unemployment rate = 6% - NAIRU = 8% - inflation rate = 4% If the central bank tries to maintain the current output gap,we can expect the inflation rate to

There can be strong pressure on the Bank of Canada to validate a large negative supply shock.The motive behind this pressure is

Canada's actual rate of inflation is fairly constant around the 2% level.We can conclude that