Exam 13: Aggregate Supply and the Short-Run

The model of aggregate demand and aggregate supply is consistent with short-run monetary ______ and long-run monetary ______.

All of the following events represent a supply shock except:

The government can lower inflation with a low sacrifice ratio if the:

In the short run,if the price level is greater than the expected price level,then in the long run,the aggregate:

According to the sticky-price model,output will be at the natural level if:

Advocates of the rational expectations approach predict that a credible policy to lower inflation will ______ the sacrifice ratio.

According to the Phillips curve,other things being equal,inflation depends positively on all of the following except:

Along an aggregate supply curve,if the level of output is less than the natural level of output,then the price level is:

The hypothesis that hysteresis may play an important role in macroeconomics implies,among other things,that:

In the 1970s in Canada,there was I: a series of adverse supply shocks,and II: expansionary monetary policy.

According to the imperfect-information model,when the price level falls but the producer did not expect it to fall,the producer:

Each of the three models of short-run aggregate supply is based on some market imperfection.In the sticky-price model,the imperfection is that:

Starting from the natural level of output,an unexpected monetary contraction will cause output and the price level to ______ in the short run,and in the long run the expected price level will ______,causing the level of output to return to the natural level.

According to the imperfect-information model,when the price level is greater than the expected price level,output will ______ the natural level of output.

All of the following are requirements for reducing inflation without causing a recession except:

If the short-run aggregate supply curve is steep,the Phillips curve will be:

The basic aggregate supply equation implies that output exceeds natural output when the price level is:

Assume that an economy is governed by the Phillips curve $\pi$ = $\pi$ ^e - 0.5(u - 0.06),where $\pi$ = (P - P_-1)/P_-1, $\pi$ ^e = (P^e - P_-1)/P_-1,and 0.06 is the natural rate of unemployment.Further assume $\pi$ ^e = $\pi$ _-1.Suppose that,in period zero, $\pi$ = 0.03 and $\pi$ ^e = 0.03-that is,that the economy is experiencing steady inflation at a 3-percent rate.a.Now assume that the government decides to impose whatever demand is necessary to cut unemployment to 0.04.Suppose the government follows this policy for periods 1 through 5.Create a table of $\pi$ and $\pi$ ^e for these five periods.b.Assume that,for periods 6 through 10,the government decides to hold unemployment at 0.06.Create another table of $\pi$ and $\pi$ ^e for these five periods.Is there any reason to expect the inflation rate to go back to 0.03? c.If the government persisted in its behavior under part a,do you think the public would continue for long forming expectations according to $\pi$ ^e = $\pi$ _-1? Why?

In the case of cost-push inflation,other things being equal:

Use the following to answer questions : Exhibit: AD-AS Shifts -(Exhibit: AD-AS Shifts)Starting from long-run equilibrium at A with output equal to Y and the price level equal to P₁,a demand-pull inflation would be represented by a shift from: