Exam 9: An Introduction to the Short Run

Defining as current output, as potential output, and as short-run fluctuations, the equation is defined as the percentage deviation of current output from potential output.

Okun's law shows the ________ relationship between ________ and ________.

Refer to the following figure when answering the following questions. Figure 9.4: Phillips Curve -Consider the Phillips curve at in Figure 9.4. Which of the following is true?

Suppose an economy's natural rate of unemployment is 5 percent. If the unemployment rate is 3 percent, according to Okun's law, is ________ percent.

If , the macroeconomy is in a recessionary gap.

You are a staff economist with the Federal Reserve. The chairman says to you, "The rate of change in inflation is too high, and I think the Phillips curve is horizontal. What should we do to reduce these inflationary increases?" How do you respond?

Taken together, the Phillips curve and Okun's law imply there is a short-term ________ relationship between ________ and inflation.

Suppose an economy exhibits a large unexpected increase in productivity growth that lasts for a decade; however, monetary policymakers are slow to recognize that the change is to potential-not current-output, and they interpret the increase in output as a boom that leads current to exceed potential output. In this scenario, policymakers believe that ________ pressures are building and incorrectly respond by ________ interest rates, sending the economy into a(n) ________ gap.

Which of the following is NOT an example of a short-term macroeconomic shock?

In the text, Okun's law is given as:

If , the macroeconomy is:

According to the text, which of the following can be used to estimate potential output? i. Get the data from the Census Bureau. ii. Survey leading economists. iii. Gather current data from statistical agencies, such as the Bureau of Economic Analysis.

According to the Phillips curve presented in the text, a positive macroeconomic shock:

If , the macroeconomy is:

When the U.S. economy bottomed out during the Great Depression, the unemployment rate hit about ________ percent in ________.

An increase in planned investment expenditures is a short-term economic shock.

If current output is billion and potential output Billion, then the economy is in a ________ and Is about ________ percent.

Current output is defined as:

Consider the following three figures, which show the Phillips curve relationship for the 1970s, 1980s, and 1990s. The output gap is on the x-axis and the change in inflation, $\Delta$ $\pi$ , is on the y-axis. Explain what each of these Phillips curves tells us about each of the three decades. In which period would fighting inflation be the most difficult?Figure 9.9: Phillips Curve Relationship, 1970s Figure 9.10: Phillips Curve Relationship, 1980s Figure 9.11: Phillips Curve Relationship, 1990s

Taxes, oil price changes, government spending, interest rate changes, new technologies, and disasters are examples of: