Exam 22: The Short Run Trade Off Between Inflation and Unemployment: The Cost of Reducing Inflation

Typical estimates of the sacrifice ratio suggest that about 10 percent of annual output has to be given up in order to reduce the inflation rate from

Proponents of rational expectations argued that the sacrifice ratio

The Volcker disinflation

As an economist working for a U.S.government agency you determine that a particular country has a sacrifice ratio of 3.Policy-makers in that country are thinking of lowering the inflation rate from 10% to 4%.Is this sacrifice ratio higher or lower than the typical estimate? From your numbers,what is the amount of output that will be lost for this country to reduce its inflation rate?

The experience of the Volcker disinflation of the early 1980s

If the sacrifice ratio is 4,then reducing the inflation rate from 9 percent to 5 percent would require sacrificing

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year,the sacrifice ratio is

An economy has a current inflation rate of 7%.If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2,then how much annual output must be sacrificed in the transition?

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output.This country's sacrifice ratio is

If inflation expectations rise,the short-run Phillips curve shifts

In 1979,when the Fed was deciding how aggressively to fight inflation,the typical estimate of the sacrifice ratio was

In response to the financial crisis of 2007-2008,policymakers used

Which of the following is not correct?

Soon after he became the chairman of the Federal Reserve System in 1979,Paul Volcker embarked on a course

Most economists believe that a tradeoff between inflation and unemployment exists

Disinflation is a

Monetary Policy in Flosserland In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years. -Refer to Monetary Policy in Flosserland.Suppose that the Flosserland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% and that it actually reduces inflation to that level.Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%.Then

The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to the Economy in 2008.In the short-run the housing and financial crises

Monetary Policy in Mokania Mokania has had inflation of 15% for many years. Mokania establishes a new central bank, the Bank of Mokania, with the hopes of reducing the inflation rate. -Refer to Monetary Policy in Mokania.The Bank of Mokania reduced inflation to its announced goal of 5%.However the unemployment rate was on average higher for many years after.A newspaper editorial argues that the unemployment rate had moved to this higher natural rate because (1)by itself the decrease in inflation had permanently increased unemployment and (2)that at the same time the central bank was fighting inflation the government of Mokania had made a large increase in the minimum wage.Which of these arguments is consistent with the Phillip's curve model?

If the sacrifice ratio is 2,reducing the inflation rate from 4 percent to 2 percent would