Exam 22: The Short Run Trade Off Between Inflation and Unemployment: Part B

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

Neither monetary policy nor any government policy can change the natural rate of unemployment.

Other things the same,an increase in aggregate demand reduces unemployment and raises inflation in the short run.

The short-run Phillips curve is based on the classical dichotomy.

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

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

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

A decrease in government expenditures serves as an example of an adverse supply shock.

An adverse supply shock shifts the short-run Phillips curve to the left.

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

A central bank can reduce inflation by reducing money supply growth,but it necessarily does so at the cost of permanently raising the unemployment rate.

An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.

U.S.monetary policy in the early 1980s reduced the inflation rate by more than half.

Short-run outcomes in the economy can be expressed in terms of output and the price level,or in terms of unemployment and inflation.

In the long run people come to expect whatever inflation rate the Fed chooses to produce,so unemployment returns to its natural rate.

An increase in the inflation rate permanently reduces the natural rate of unemployment.

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

If the Fed reduces inflation by 2 percentage points and this results in a 6 percentage-point increase in unemployment,then the sacrifice ratio is equal to 3.

In most of the 1970s,the Fed's policy created expectations of high inflation.

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply,then in the short run the Federal Reserve's action will raise inflation and lower unemployment.