Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

Suppose that a small economy that produces mostly agricultural goods experiences a year with exceptionally poor conditions for growing crops. The poor weather would

What is meant by the natural rate of unemployment?

What does an unexpected decrease in the growth rate of the money supply do to inflation and unemployment in the short-run? What does it do to inflation and unemployment in the long run?

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

Scenario 35-1 Suppose that in the first half of June 2022, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to Scenario 35-1. The short-run effects of the housing and financial crisis are shown by

Suppose that the money supply increases. In the short run, this increases prices according to

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

If consumer confidence rises and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

Scenario 35-1 Suppose that in the first half of June 2022, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to Scenario 35-1. The short-run effects of rising world commodity prices are shown by

​If expected inflation increases, the short-run Phillips curve will shift to the left so that inflation will be higher at any given unemployment rate.

Figure 35-1 ​ ​ ​ ​ ​ -Refer to Figure 35-1. Assuming the price level in the previous year was 100, point F on the right-hand graph corresponds to

Disinflation is defined as a

Suppose a recession in Europe reduces U.S. net exports at every price level. Which of the following would you expect to occur in the U.S. as a result of this change?

Samuelson and Solow reasoned that when aggregate demand was high, unemployment was

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

How is a decrease in the natural rate of unemployment shown in the Phillips curve diagram? Does this decrease change the inflation rate?

Scenario 35-1 Suppose that in the first half of June 2022, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. -Refer to Scenario 35-1. The effects of the housing and financial crises could be shown by shifting

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: ​ Unemployment rate = Natural rate of unemployment − a × (Αctual inflation − x). ​ In this equation,

How are the effects of a favorable supply shock shown in the Phillips curve diagram? If the Fed wants to return unemployment to its natural rate after the shock, what should it do?

Scenario 35-2 ​ In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years. -Refer to Scenario 35-2. Suppose that the Flosserland Department of Finance undertakes a public relations campaign to convince people that it will soon change monetary policy to reduce inflation to 12.5%. If Flosserlanders believe their government then which, if any, curve(s) shift left?