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

Just as the aggregate-supply curve slopes upward only in the short run, the trade-off between inflation and unemployment holds only in the short run.

A. W. Phillips' findings were based on data

According to the long-run Phillips curve, if the Fed increases the growth rate of the money supply, what happens to the inflation rate and the unemployment rate in the long run?

If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent would require sacrificing

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

Write the equation representing the short-run Phillips curve.

Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by

In the equation, Unemployment rate = Natural rate of unemployment - a × Αctual inflation - Expected inflation), the variable a is a parameter that measures how much

Suppose that the central bank unexpectedly increases the growth rate of the money supply. In the short run the effects of this are shown by

In the long run, an increase in the money supply

Suppose the central bank decreases the growth rate of the money supply. In the short run, this policy change will affect

Friedman and Phelps concluded that

If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run

The short-run Phillips curve shows the combinations of

Considering a plot of the inflation rate and the unemployment rate, one might conjecture that the short run Phillips curve was further to the right in the first part of the 2000's than it was in the last part of the 1990s and 2000.

Ultimately, the change in unemployment associated with a change in inflation is due to

The experience of the Volcker disinflation of the early 1980s

Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 2%.

How does a central bank's accommodation of an adverse supply shock change the long­run results of the shock?

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in aggregate demand moves the economy to