Exam 9: An Introduction to the Short Run

Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 7 percent, according to Okun's law, $\tilde { Y }$ is:

What does the Phillips curve represent?

Refer to the following figure when answering Figure 9.4: U.S. Inflation 1990-2012 (Source: Bureau of Labor Statistics) -Consider two economies. Economy 1 has a steep Phillips curve and Economy 2 has a gently sloped Phillips curve. If each economy experiences an identical economic expansion, ________ would increase less in ________.

The Phillips curve shows the negative relationship between output fluctuations and the change in inflation.

According to the text, which of the following can be used to estimate potential output? i. Get the data from the Census Bureau. ii. Survey leading economists. iii. Gather current data from statistical agencies, such as the Bureau of Economic Analysis.

Suppose an economy exhibits a large unexpected decrease in productivity growth that lasts for a decade; however, monetary policymakers are slow to recognize that the change is to potential, not current, output, and they interpret the decrease in output as a recession that leads current to fall below potential output. In this scenario, policymakers believe that ________ pressures are building and incorrectly respond by ________ interest rates, sending the economy into a(n) ________ gap.

Suppose an economy exhibits a large unexpected increase in productivity growth that lasts for a decade; however, monetary policymakers are slow to recognize that the change is to potential, not current, output, and they interpret the increase in output as a boom that leads current to exceed potential output. In this scenario, policymakers believe that ________ pressures are building and incorrectly respond by ________ interest rates, sending the economy into a(n) ________ gap.

Taken together, the Phillips curve and Okun's law imply there is a ________ relationship between ________ and unemployment.

A decline in long-term productivity implies that an economy requires more resources to produce goods; therefore, as costs of production rise, we should see an acceleration in inflation.

According to the Phillips curve presented in the text, a negative macroeconomic shock:

The long-run model determines ________ and ________, while the short-run model determines ________ and ________.

If an economy has a horizontal Phillips curve and experiences an expansion, inflation:

Defining $Y _ { t}$ as current output, $\bar { Y } _ { t }$ as potential output, and $\tilde { Y } _ { t }$ as short-run fluctuations, the text uses the following equation to measure the fluctuations component of output: $\tilde { Y } _ { t } = \frac { Y _ { t } + \bar { Y } _ { t } } { Y _ { t } }$ .

Defining u as the unemployment rate and $\bar { u }$ as the natural rate of unemployment, Okun's law is given by the following equation:

Which of the following is NOT an example of a short-term macroeconomic "shock"?

Taxes, oil price changes, government spending, interest rate changes, new technologies, and disasters are examples of:

What is the best definition of the short term in the short-term model?

Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 3 percent, according to Okun's law, $\tilde { Y }$ is:

New technology, oil price changes, pork-barrel spending, interest rate changes, changes in planned investment, and disasters are examples of:

Refer to the following figure when answering Figure 9.4: U.S. Inflation 1990-2012 (Source: Bureau of Labor Statistics) -Consider Figure 9.4, which shows the annual inflation rate. According to the Phillips curve, the period from about 2003 to 2005 was a period of: