Exam 33: The Trade-Off Between Inflation and Unemployment

Natural rate of unemployment is the normal rate of unemployment toward which the economy gravitates.

One way in which the Phillips curve is misinterpreted is to think of it as

Figure 33-6 Figure 33-6 (b) illustrates that

Figure 33-4 Figure 33-4 shows four movements of the inflation rate and the unemployment rate. Which panel shows the movement associated with a "supply shock" like those of the 1970s?

Most economists reject the theory of rational expectations because

The economy's self-correcting mechanism always tends to push the unemployment rate back toward a specific rate of unemployment called the

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

Rational expectations are the theory according to which people optimally use all the information they have, including information about government policies, when forecasting the future.

Recessionary gaps lead to falling inflation and falling unemployment.

Figure 33-2 Given the situation in graph (1) in Figure 33-2, what movement would be expected in graph (2) from the economy's self-correcting mechanism?

Most economists think that the economy's self-correcting mechanism is

Demand-side inflation is the rise in inflation caused by rapid growth of aggregate demand.

The Phillips curve assumes that shocks to the economy come from the demand side.

If the self-correcting mechanism operates quickly,

If the aggregate supply curve is vertical, then the short-run Phillips curve will

Most economists and policymakers decided in 2007-2010 that reducing unemployment was the main national priority.

Figure 33-6 The short-run Phillips curve in Figure 33-6 would include which of the following points?

If fluctuations in economic activity emanate from the supply side, higher rates of inflation will be associated with higher rates of unemployment, and lower rates of inflation will be associated with lower rates of unemployment.

In the fall of 2007, most economists felt that the

The economy's self-correcting mechanism