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

If the government raises government expenditures,what happens to prices and unemployment in the short run?

What did proponents of rational expectations argue about the sacrifice ratio and why?

Some countries have had high inflation rates for a long time and other countries have had low inflation rates for a long time.Yet in some of the high-inflation countries,the unemployment rate is not much different or even higher than in the low-inflation countries.Explain how these observations can be consistent with the Phillips curve.

Explain the causes and consequences of the early 1970s recession in Canada.How did the authorities respond,and what were the long-term effects of this response? What do we learn from this case study?

Which of the following was the primary cause of the large increase in oil prices in the 1970s?

In the long run,the natural rate of unemployment depends primarily on the growth rate of the money supply.

Which statement best describes the sacrifice ratio for Canada?

Suppose the Bank of Canada decreased the growth rate of the money supply.What would permanently decrease?

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

In the Friedman-Phelps analysis,when inflation is less than expected,unemployment is greater than the natural rate.

What did Phillips discover?

In the nineteenth century,some countries were on gold standards so that on average the money supply growth rate was close to zero and expected inflation was more or less constant.For these countries during this time period,we find that increases in inflation were generally associated with falling unemployment.Are these findings consistent with Friedman and Phelps's theories,and why?

In the long run,what does the inflation rate primarily depend on?

What would cause the price level to rise and output to fall in the short run?

How does an increase in the expected rate of inflation shift the Phillips curves?

Figure 16-1 -Refer to the Figure 16-1.If the economy starts at c and 1,then in the short run,where does a decrease in government expenditures move the economy?

Which statement characterizes the long-run Phillips curve?

Figure 16-4 -Refer to the Figure 16-4.Along SRPC2,what is the expected rate of inflation?

How will a favourable supply shock shift the short-run Phillips curve and how does it change inflation?

Which of the following best defines the sacrifice ratio?