Exam 13: Aggregate Supply and the Short-Run

The higher the average rate of inflation,the more frequently firms must adjust their prices,which implies that a high rate of inflation:

All of the following are exogenous variables in the big,comprehensive model except the:

The estimate of the sacrifice ratio from the Canadian disinflation in the 1980s is approximately:

According to the sticky-price model,deviations of output from the natural level are _____ deviations of the price level from the expected price level.

According to the natural-rate hypothesis,the levels of output and unemployment depend on:

The Phillips curve shows a ______ relationship between inflation and unemployment,and the short-run aggregate supply curve shows a ______ relationship between the price level and output.

The short-run Phillips curve:

The firms and workers in Alpha form expectations adaptively.The firms and workers in Omega form expectations rationally.Their otherwise identical economies are initially in equilibrium at the natural level of output with 10 percent inflation.The central banks of both Alpha and Omega make credible commitments to reduce the growth rates of money until they achieve 2 percent inflation.Compare and contrast the adjustment process to the new equilibrium at the lower rate of inflation in both countries.

Assume that an economy has the Phillips curve $\pi$ = $\pi$ _-1 - 0.5(u - 0.06).Then the natural rate of unemployment is:

In the sticky-wage model,if labour contracts specify that the nominal wage be partially indexed for inflation,the short-run aggregate supply schedule will be:

Based on the sticky-price model,the short-run aggregate supply curve will be steeper,the greater the:

If the short-run aggregate supply curve is assumed to be horizontal and international capital flows are infinitely elastic,then the big,comprehensive model corresponds to which of the following special cases?

The relationship between short-run aggregate supply curves and Phillips curves is that there:

If the short-run aggregate supply curve is assumed to be horizontal and money demand is proportional to income,then the big,comprehensive model corresponds to which of the following special cases?

Analysis of the short-run Phillips curve suggests that policymakers who want to reduce unemployment in the short run should ______ aggregate demand at a cost of generating ______ inflation.

The Phillips Curve in Lowland takes the form $\pi$ = .04 - .5 (u - .05),where $\pi$ is the actual inflation rate and u is the unemployment rate.The Phillips curve in Highland takes the form $\pi$ = .08 - .5 (u - .05).The current unemployment rate in both countries is 9 percent (.09).a.Explain the similarities in the Phillips curves in Highland and in Lowland.b.Explain the difference in the Phillips curves in Highland and in Lowland.c.In which country will policymakers face a bigger tradeoff if they try to reduce unemployment in the short run?

Assume that an economy's production function is Y = 1,000L^1/2,so when the marginal product of capital is equated to the real wage the labour demand curve is L = 250,000(P/W)².The labour supply curve is L = 31,250(W/P).The real wage that solves these equations is W/P = 2.Assume that the expected price level is 10,so that a nominal wage contract setting the wage at 20 is agreed to,making the expected real wage 2.If the price level turns out to be 10,62,500 workers will be hired and output will be 250,000.a.If the actual price level turns out to be 20,what will the actual real wage be? b.According to the labour demand curve,how much labour will be demanded if the actual real wage is at the level given in part a? c.According to the production function,if the amount of labour given in part b is actually hired,how much will production be?

If the hypothesis of hysteresis is correct and output is lost even after a period of disinflation,the sacrifice ratio for an economy will:

The short-run aggregate supply curve is drawn for a given:

In the 1990s in Canada, I: inflation first rose and then fell; II: unemployment first rose and then fell.