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

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 Flosserland has had the same inflation rate for a long time. Which, if either, of the following ideas imply that the unemployment rate in Flosserland would be above the natural rate.

Figure 35-1. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD curves. On the right-hand diagram, U represents the unemployment rate. -Refer to Figure 35-1. What is measured along the horizontal axis of the left-hand graph?

Samuelson and Solow reasoned that when aggregate demand was low, unemployment was

In the long run, if the Fed decreases the growth rate of the money supply,

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. The economy would move from 3 to 5

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

In the late 1960s, Milton Friedman and Edmund Phelps argued that

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. Curve 2 is the

The long-run Phillips curve would shift to the left if

A central bank that accommodates an aggregate supply shock

The proliferation of Internet usage serves as an example of a favorable supply shock.

The sacrifice ratio is the

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

If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year, the sacrifice ratio is

Moving from the late 1960s to 1970-1973,

The sacrifice ratio of the Volcker disinflation was larger than previous estimates had predicted.

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. Curve 1 is the

Unemployment would decrease and prices would increase if

A decrease in expected inflation shifts

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money Supply, then in the short run the Federal Reserve's action