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?

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate.How does the economy return to the natural rate of unemployment if this lower inflation rate persists?

Suppose the government passes legislation that decreases the natural rate of unemployment.How does this change the long- and short-run Phillips curves?

Figure 16-4 -Refer to the Figure 16-4e.If the economy is at point h and the Bank of Canada pursues a contractionary monetary policy,then the economy will move to which point in the short run?

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

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

Suppose a policy increases the natural rate of unemployment.What is the effect of such a policy change?

What do the data for the period of 1968 through 1973 demonstrate?

Figure 16-4 -Refer to the Figure 16-4.If the economy is at point c and the Bank of Canada pursues an expansionary monetary policy,then the economy will move to which point in the short run?

What is the long-run effect of an increase in expected inflation predicted by the Phillips curve model?

Figure 16-2 -Refer to the Figure 16-2.Where is the money supply growth rate the greatest?

According to Friedman and Phelps,when is the unemployment rate below the natural rate?

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

In the late 1960s and early 1970s,how did the short-run Phillips curve shift?

How will a favourable supply shock shift short-run aggregate supply,and how will output change?

Figure 16-2 -Refer to the Figure 16-2.Suppose the economy is initially at point c.If the money supply growth rate decreases,where does the economy move to in the short-run?

If policymakers reduce aggregate demand,what happens to inflation and unemployment?

If policymakers expand aggregate demand,what happens to inflation and unemployment in the long run?

Ultimately,what causes the short-run reduction in unemployment associated with an increase in inflation?

How will an adverse supply shock shift the short-run Phillips curve,and how does inflation change?