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

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 5 percentage points for four years,and it made the unemployment rate rise from 3 percent to 9 percent for three years.What is the sacrifice ratio?

Suppose the Bank of Canada reduces the rate of inflation by 4 percentage points.Suppose,as well,that the sacrifice ratio has a value of 2.5.Which of the following describes what happens to GDP?

Suppose an economy with high inflation decides to decrease the money supply growth rate.Which of the following best describes the results?

Suppose the Bank of Canada reduces inflation 2 percentage points,and this makes output fall 10 percentage points and unemployment rises 4 percentage points.What is the sacrifice ratio?

Figure 16-3 -Refer to the Figure 16-3.Starting from c and 3,in the short run,where does an unexpected decrease in money supply growth move the economy to?

Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops.What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?

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

If macroeconomic policy expands aggregate demand,unemployment will fall and inflation will rise in the short run.

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

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

Suppose that in response to an adverse aggregate supply shock,the Bank of Canada increased the money supply.What would happen to unemployment and inflation?

When aggregate demand increases,what happens to prices and employment?

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.Describe the process of adjustment when the expected inflation rate changes from 2 percent to 3 percent.

In the long run,what are the effects of a decrease in the rate of growth of the money supply on the Phillips curves?

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

What would NOT be associated with a favourable supply shock?

Which theory proposes that people optimally use all available information when forecasting the future?

According to Phelps and Friedman,in the short run,what effect does an increase in the money supply have on prices and unemployment?

How is the misery index calculated?