Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

Suppose that an economy is currently experiencing 10 percent unemployment and 15 percent inflation. If in the process of bringing inflation down by 2 percentage points, real GDP falls by 6 percent for a year, the sacrifice ratio is

In the nineteenth century, some countries were on a gold standard so that on average the money supply growth rate was close to zero and expected inflation was more or less constant. For these countries during this time period, we find that increases in actual inflation were generally associated with falling unemployment. These findings

In the short run, policy that changes aggregate demand changes

An increase in the price of oil shifts the

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

If the long-run Phillips curve shifts to the right, then for any given rate of money growth and inflation the economy has

An adverse supply shock will shift short-run aggregate supply

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

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

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

Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists? Use sticky-wage theory to explain your answer.

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short- run consequence of this contraction?

If the Fed wants to reverse the effects of a favorable supply shock on the inflation rate, it should

The large increase in oil prices in the 1970s was caused primarily by an)

In the long run, an increase in the money supply growth rate

Samuelson and Solow believed that the Phillips curve

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.

Samuelson and Solow argued that a combination of low unemployment and low inflation

Proponents of rational expectations theory argued that, in the most extreme case, if policymakers are credibly committed to reducing inflation and rational people understand that commitment and quickly lower their inflation expectations, the sacrifice ratio could be as small as

Disinflation is a reduction in