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

Friedman argued that a central bank could use monetary policy to peg which of the following?

Suppose the natural rate of unemployment is 6 percent,the expected inflation is 2 percent,and the constant "a" in the short-run Phillips curve equation is 0.8.Change the expected inflation to 3 percent and draw the new Phillips curve.How did it change?

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?

If there is a favourable supply shock,what will most likely happen?

Although monetary policy cannot reduce the natural rate of unemployment,other types of policies can.

Figure 16-4 -Refer to the Figure 16-4.Along LRPC,what is the expected rate of inflation?

Proponents of rational expectations theory have argued that,in the most extreme case,if policymakers are credibly committed to reducing inflation,and if rational people understand that commitment and quickly lower their inflation expectation,the sacrifice ratio could be as small as what?