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

A policy change that reduces the natural rate of unemployment shifts both the long-run aggregate-supply curve and the long-run Phillips curve left.

If the Fed were to increase the money supply,inflation would increase and unemployment would decrease in the short run.

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

Although monetary policy cannot reduce the natural rate of unemployment,other types of government policies can.

Unexpectedly high inflation reduces unemployment in the short run,but as inflation expectations adjust the unemployment rate returns to its natural rate.

If monetary policy moves unemployment below its natural rate,both expected and actual inflation will rise.

A given short-run Phillips curve shows that an increase in the inflation rate will be accompanied by a lower unemployment rate in the short run.

An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Samuelson and Solow believed that the Phillips curve offered policymakers a menu of possible economic outcomes.

An adverse supply shock shifts the short-run Phillips curve right.If people raise their inflation expectations,the short-run Phillips curve shifts farther right.

The analysis of Friedman and Phelps argues that an expected change in inflation has no impact on the unemployment rate.