Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

Typical estimates of the sacrifice ratio suggest that about 10 percent of annual output has to be given up in order to reduce the inflation rate from

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

Suppose, as in the 1970's in the U.S., that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force. Would this have any effect on the long-run Phillips curve?

An increase in the inflation rate permanently reduces the natural rate of unemployment.

Friedman and Phelps believed that the natural rate of unemployment was constant.

More flexible labor markets will shift

Over the long run the Volcker disinflation

If a central bank attempts to lower the inflation rate but the public doesn't believe the inflation rate will fall as far as the central bank says, then in the short run unemployment

Which of the following shifts the long-run Phillips curve left?

An event that directly affects firms' costs of production and thus the prices they charge is called

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

A central bank pledges to reduce the inflation rate from 10% to 3%. People reduce their inflation expectations to 5%, but the central bank reduces inflation to 3%. What happens to the unemployment rate?

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

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.

A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.

Other things the same, if there is an increase in the money supply growth rate that is larger than expected, then in the short run

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

In the long run, a decrease in the money supply growth rate

Although monetary policy cannot reduce the natural rate of unemployment, other types of government policies can.