Exam 14: Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

The imperfect-information model bases the difference in the short-run and long-run aggregate supply curve on:

Assume that an economy is initially at the natural rate of unemployment. a. Use a Phillips curve diagram to illustrate graphically how the inflati on rate and unemployment rate respond both in the short run and in the long run to an unexpected expansionaty monetary policy. b. Use a Phillips curve diagram to illustrate graphically how the inflation rate and unemployment rate respond both in the short run and in the long run to the announcement of a credible plan of expansionary monetary policy when people have rational expectations.

If the equation for a country's Phillips curve is $\pi$ = 0.02 - 0.8(u - 0.05), where $\pi$ is the rate of inflation and u is the unemployment rate, what is the short-run inflation rate when unemployment is 4 percent (0.04)?

The Phillips curve expresses a short-run link:

The endogenous variables of the mother of all models in the Appendix to Chapter 14 include the level of output, the natural rate of output, the price level, and:

How would an adverse supply shock change the short-run tradeoff between inflation and unemployment? Illustrate your answer using a Phillips curve diagram.

According to the natural-rate hypothesis, fluctuations in aggregate demand affect output in:

The government can lower inflation with a low sacrifice ratio if the:

The basic aggregate supply equation implies that output exceeds natural output when the price level is:

If the short-run aggregate supply curve is assumed to be horizontal and international capital flows are infinitely elastic, then the mother of all models in the Appendix to Chapter 14 corresponds to which of the following special cases?

If the short-run aggregate supply curve is steep, the Phillips curve will be:

Inflation inertia refers to the idea that inflation:

What is the natural rate hypothesis? Explain the term NAIRU.

If only unanticipated changes in the money supply affect real GDP, the public has rational expectations, and everyone has the same information about the state of the economy, then:

According to the imperfect-information model, when the price level falls but the producer did not expect it to fall, the producer:

According to the sticky-price model:

Assume that an economy has the usual type of Phillips curve except that the natural rate of unemployment in an economy is given by an average of the unemployment rates in the last two years. Then, there is:

How does the Phillip curve explain the tradeoff between the unemployment and inflation? Illustrate with a graph.

The Phillips curve depends on all of the following forces except:

Assume that an economy is governed by the Phillips curve $\pi$ = $\pi$ ^e - 0.5(u - 0.06), where $\pi$ = (P - P_-1)/P_-1, $\pi$ ^e = ( $\pi$ ^e - P_-1)/P_-1, and 0.06 is the natural rate of unemployment. Further assume $\pi$ ^e = $\pi$ _-1. Suppose that, in period zero, $\pi$ = 0.03 and $\pi$ ^e = 0.03-that is, that the economy is experiencing steady inflation at a 3-percent rate.