Exam 16: Inflation and Unemployment

In the 1960s and early 70s, economists believed that the short-run Phillips curve indicated that policymakers could choose the mix of inflation and unemployment they were willing to accept and achieved this with appropriate fiscal and monetary policies.

Use the following to answer questions . Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases -(Exhibit: Shifts in Aggregate Demand and Aggregate Supply and Inflation-Unemployment Phases) The recessionary gap at point 4 was created

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 3% rate. Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?

Use the following to answer questions . Exhibit: AD-AS and the Inflation-Unemployment Cycle -(Exhibit: AD-AS and the Inflation-Unemployment Cycle) At point 4, the economy is experiencing

The vertical long-run Phillips curve occurs in the long run because

In general, the duration of job search will be shorter if

The inflation rate can be measured as

In the long run, unemployment I. will be at the natural rate of unemployment. II. is made up of structural and frictional unemployment. III. could be made up of structural, frictional, and cyclical unemployment.

In a recovery phase, a falling inflation rate means that the price level is rising by smaller and smaller percentages.

In the long-run, only a change in the _______ is likely to affect the inflation rate associated With a particular rate of growth in the money supply.

The Phillips phase of the inflation-unemployment relationship emerges because

In the long run, monetary growth

If the efficiency wage theory holds,

In the equation of exchange, if velocity is stable,

What are the three phases of the inflation-unemployment relationship? What are the critical features that mark these phases?

If a Phillips curve relationship between inflation and unemployment was completely valid at all times, would this be a good thing? Would this create any problems for policymakers? Explain.

Use the following to answer questions . Exhibit: The Inflation-Unemployment Cycle -(Exhibit: The Inflation-Unemployment Cycle) The shifts of AD from point 1 to 2 to 3 to 4 are characteristic of the _______ phase of the inflation-unemployment cycle.

Expectations of higher inflation rates cause a leftward shift in the short-run aggregate supply curve and usher in a stagflation phase of the inflation-unemployment relationship.

Use the theory behind the equation of exchange to demonstrate that "inflation is always and everywhere a monetary phenomenon."

The short-run Phillips curve implies a positive relationship between inflation and unemployment.