Exam 34: The Trade-Off between Inflation and Unemployment

A scatter diagram of the position of the U.S.economy from 1972 through 2007 with the price level on the vertical axis and real GDP on the horizontal axis would show a movement generally toward the

The rational expectations theory claims that workers and firms will not make systematic errors when they forecast inflation.

Figure 17-7 -In Figure 17-7, the only sustainable long-run equilibrium position is at point

What reasons would economists give for an increase in the natural rate of unemployment that could have occurred from 2007 to 2011? What argument would suggest that the natural rate of unemployment may not have risen?

The Phillips curve shows the relationship between

During the 1960s and early 1970s, economists believed that the Phillips curve indicated

If unemployment and inflation always move in the same direction, then we can infer that business fluctuations are

Describe three arguments of why some economists object to the predictions of the rational expectations theory and do not subscribe to the conclusions of this approach.

If the short-run Phillips curve is fairly horizontal, attempts to fight inflation will generate considerable unemployment.

The main reason why the economy's aggregate supply curve slopes upward is that

One reason that the Phillips curve "broke down" is that it

If aggregate demand grows faster than aggregate supply, the equilibrium price level will rise.

In the face of the 2007-2009 recession, the President, Congress, and the Fed

The main process by which a recessionary gap is eliminated is a(n)

Figure 17-6 -Figure 17-6 (b) illustrates that

In the short run, fiscal and monetary policy cause unemployment and inflation to move in opposite directions because

One of the reasons why the Phillips curve is no longer viewed as a "menu" of possible choices available to policy makers is that

The economy's self-correcting mechanism ensures that neither recessionary nor inflationary gaps will be eliminated eventually.

In the rational expectations model, government control over aggregate demand

Rational expectations are forecasts