Exam 12: Unemployment and Inflation

How is the sacrifice ratio measured? How big is the sacrifice ratio in the United States? In other countries? What problems are there in measuring the sacrifice ratio?

The expectations-augmented Phillips curve is π = π^e - 2(u - 0.06). (a)Graph the long-run Phillips curve and the short-run Phillips curve for an expected inflation rate of 0.04.If the Fed chooses to keep the actual inflation rate at 0.04,what will be the unemployment rate? Label the equilibrium point "A".What is the numerical value of the natural rate of unemployment? (b)An aggregate demand shock (resulting from increased exports of goods)raises the inflation rate to 0.06 (the natural rate of unemployment and the expected inflation rate are not affected).Show what happens on your graph.Label the equilibrium point "B".What is the numerical value of the unemployment rate? (c)In response to the aggregate demand shock,suppose the Fed allows the inflation rate of 0.06 to persist.Show what happens on your graph,labeling the equilibrium point "C".In the long run,what is the numerical value of the unemployment rate? (d)From the situation in part (c),suppose a supply shock raises the natural rate of unemployment by .01 from its original value.If both the inflation rate and the expected inflation rate do not change,show what happens in your graph,labeling the equilibrium point "D".What is the numerical value of the unemployment rate?

In the expectations-augmented Phillips curve,π = π^e - 3(u - 0.05).When π = 0.06 and π^e = 0.03,the unemployment rate is

With fixed interest rates,unanticipated deflation hurts ________ because ________.

A beneficial supply shock would cause

In years when teenagers become a greater percentage of the labor force,

Can macroeconomic policy be used systematically to create unanticipated inflation?

Consider an economy in long-run equilibrium with an inflation rate (π)of 0.08 per year and a natural unemployment rate of 0.05.Suppose Okun's law holds and a one percentage point increase in the unemployment rate reduces real output by 2% of full-employment output.The expectations-augmented Phillips curve is given by π = π^e - 2.5 (u - 0.05). Consider a two-year disinflation.In the first year,π = 0.06 and π^e = 0.08.In the second year,π = 0.04 and π^e = 0.05. (a)In the first year,what is the value of the unemployment rate? (b)In the first year,by what percentage does output fall short of full-employment output? (c)In the second year,what is the value of the unemployment rate? (d)In the second year,by what percentage does output fall short of full-employment output? (e)What is the sacrifice ratio for this disinflation?

Suppose most people had anticipated that inflation would be 3% in the coming year because the Fed would increase the money supply by 3%.Instead,the Fed increases the money supply by 5%.In the short run,this would cause actual output to be ________ full-employment output and prices to increase by ________ 3%.

The sacrifice ratio is

One reason for the rise in the natural rate of unemployment from 1960 to 1980 is

The main determinant of how quickly expected inflation adjusts to changes in monetary policy is

When the economy goes into a recession,there's an increase in

Some economists argue that Okun's Law overstates the cost of cyclical unemployment because

In the expectations-augmented Phillips curve,π = π^e - 3(u - $\bar u$ ).If π = 0.06 when π^e = 0.06 and u = 0.04,then $\bar u$ =

The natural rate of unemployment in the United States generally ________ from 1960 to 1980 and ________ from 1980 to 2000.

Which of the following disinflationary monetary policies would classical economists prefer?

Starting on a Phillips curve with expected inflation equal to 5% and unemployment at its natural rate,show what happens to unemployment if the Fed tries to reduce inflation,but has no credibility.As time passes and people realize that the inflation rate is now lower,what happens to the short-run Phillips curve?

The idea that new policies change the economic rules and affect economic behavior,so that no one can safely assume that historical relationships between variables will hold when policies change,is known as

Describe the principal costs of unemployment.Are there any benefits to unemployment?