Exam 16: Inflation and Unemployment

Consider the following statement: "President X expressed concern about reports of rising inflation but insisted the economy is on the right course. He pointed to recent reductions in unemployment as evidence that his economic policies are working." Identify the stage of the inflation-unemployment relationship.

In a Phillips phase, the short-run aggregate supply curve shifts to the right.

The Phillips phase of the inflation-unemployment relationship drives the price level

The theory that holds that firms may try to increase productivity by paying a wage in excess of the market-clearing wage is called the

What are three phases of inflation-unemployment cycles?

The efficiency-wage theory predicts that

Sustained inflation over many years is most likely due to increases in the money supply in excess of increases in potential output.

Use the following to answer questions . Exhibit: AD-AS and the Inflation-Unemployment Cycle -(Exhibit: AD-AS and the Inflation-Unemployment Cycle) Suppose initially the economy was at point 1 and as a result of Stabilization policies, it is now at point 3. Consequently, there will be pressure for

Use the following to answer questions . Exhibit: Aggregate Demand Shifts and Expectations -(Exhibit: Aggregate Demand Shifts and Expectations) Suppose the economy was operating at point e in period 1. Expansionary fiscal and monetary policies adopted in period 1 resulted in a movement to point g in period 3. When workers and firms adjust their expectations in a higher price level and act on these expectations, the economy moves from a

Prior to the 1970s, the model of choice was the aggregate expenditures model. According to This model, if the economy was in equilibrium at an income greater than the full employment level, then the primary economic problem would be

For a given labor force, an increase in real GDP implies a decrease in unemployment.

The efficiency-wage theory holds that self-correction in an economy will not automatically eliminate a recessionary gap.

Suppose the full-employment level of real GDP is increasing at a rate of 4% per period. If policymakers are committed to keeping the long-run inflation rate at 3% per period, then what is the targeted money growth rate, assuming constant velocity?

If workers and firms adjust their expectations of future prices in a higher price level, the short-run aggregate supply curve shifts to the right.

Use the following to answer questions . Exhibit: Inflation and Unemployment 2 -(Exhibit: Inflation and Unemployment 2) Which of the following movements represents a Phillips phase?

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 movement from point 4 to point 5 is consistent with which inflation-unemployment phase?

Use the following to answer questions . Exhibit: Inflation and Unemployment 2 -(Exhibit: Inflation and Unemployment 2) The figure shows the three inflation-unemployment Phases. What are these three phases, moving clockwise from point A?

Efficiency wages cause unemployment because

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 movement from point 3 to point 4 is consistent with which Segment in the diagram below?

Which of the following statements is true of the U.S. experience with regards to the Phillips curve hypothesis? I. Annual observations of inflation and unemployment from 1961 to 2015 seem consistent with a Phillips curve. II. A Phillips curve relationship best fits observations of inflation and unemployment in the 1960s. III. The Phillips curve relationship in the inflation and unemployment data began to disintegrate in the 1970s.