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

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift

One determinant of the natural rate of unemployment is the

If a central bank decreases the money supply, then

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

If the natural rate of unemployment falls,

If expected inflation decreases does the short-run Phillips curve shift? If so, what direction does it shift? Does the long-run Phillips curve shift? If so, what direction does it shift?

If the Fed raised the money supply growth by more than expected then the unemployment rate would_______in the short run. Explain the process by which the economy moves to the long run if the Fed maintains the higher money supply growth rate.

In the Friedman-Phelps analysis, when inflation is less than expected, the unemployment rate is less than the natural rate.

Data for the United States traced out an almost perfect Phillips curve for much of the

Friedman argued that the Fed could use monetary policy to peg

The Phillips curve and the short-run aggregate supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.

Any policy change that reduced the natural rate of unemployment would

A favorable supply shock will cause the price level

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

A policy that raised the natural rate of unemployment would shift

Which of the following would cause the price level to fall and output to rise in the short run?

In the late 1960s, economist Edmund Phelps published a paper that

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

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

What would a central bank need to do to reverse the effects of a favorable supply shock on inflation? What would its reaction do to the unemployment rate in the short run?