Exam 8: Inflation: Its Causes and Cures

If the average unemployment rate = 6.0, Y = 5200, and YN = 5030, Okun's law, using the textbook's value for "h," predicts that the unemployment rate is approximately ________ percent.

Suppose we are initially at a long-run SP/LP equilibrium with x = p = pe = 4. Then an adverse supply shock adds 3 percentage points to the inflation necessary to produce each level of output. An "accommodating" policy response ________ the level of nominal GDP growth so that inflation is ________ percent while (Y/YN) ________.

The rate of inflation will be permanently reduced provided

The economy is in long-run equilibrium

Backward-looking expectations may reasonably describe actual behavior because

From 1991 to 1996, the output ratio rose by 2.2 percent while the unemployment rate fell by 1.35 percentage points. This implies an Okun's law coefficient of

Suppose we are initially at a long-run SP/LP equilibrium with x = p = pe = 4. Then an adverse supply shock adds 3 percentage points to the inflation necessary to produce each level of output. An "extinguishing" policy response ________ the level of nominal GDP growth so that inflation is ________ percent while (Y/YN) ________.

Suppose the average unemployment rate = 6.0, and YN = 5000. According to Okun's law and the textbook's value for "h," what value of Y would bring about an actual unemployment rate of exactly 5.5 percent?

Which of the following will shift the short-run Phillips Curve?

The existence of staggered overlapping wage contracts makes the assumption of backward-looking expectations ________ reasonable since wages and prices tend to adjust ________ to changes in nominal GDP.

An extinguishing policy response to a supply shock

Whenever x exceeds p,

In constructing the short-run Phillips Curve, SP,

Lucas's idea of information barriers as applied to the formation of inflation expectations is an example of

Will a supply shock that shifts the SP curve upward leave it permanently at its new higher position?

At every current AD/SAS equilibrium point to the left of the LAS curve, the price level is ________ than that expected on average and figured into the wage contracts in force, and thus there is pressure on the SAS curve to shift ________ with wage renegotiations.

The sacrifice ratio for disinflations is the cumulative

When the expected inflation rate is 5 percent, we know to draw the short-run Phillips Curve through the

Figure 8-3 -Employing Figure above and assuming the nominal money supply is not altered, a permanent adverse supply side shock puts ________ pressure on nominal wages during renegotiation provided ________.

Figure 8-1 -Everywhere to the left of the long-run Phillips Curve as in the figure above