Exam 13: Inflation, Unemployment, and Bank of Canada Policy

Figure 13.1 Alt text for Figure 13.1: In figure 13.1, a short-run Phillips curve. Long description for Figure 13.1: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, Philips curve, begins at the top left corner and slopes down to the end of the x-axis.Point A is plotted half way along line Philips curve.Point B is plotted to the right of point A and point C is plotted is to the left of point A.Point D is plotted above this line, in the left center of the quadrant.Point E is plotted below this line, directly below point A. -Refer to Figure 13.1.What should the Bank of Canada do if it wants to move from point A to point C in the short-run Phillips curve depicted in the figure above?

Figure 13.11 Alt text for Figure 13.11: In figure 13.11, a graph of the Phillips curve. Long description for Figure 13.11: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, short-run Philips Curve 1, begins at the top left corner and slopes down to the bottom center.A straight line labelled, short-run Philips Curve 2, follows the same slope as Curve 1, but is plotted to the right.A straight line labelled, long-run Philips Curve, is perpendicular to the x-axis, and intersects the short-run Philips Curve 1, at point A on the bottom end of both lines.Point B is plotted half way along the short-run Philips Curve 1.Long-run Philips Curve, intersects the short-run Philips Curve 2, at point C in the top half of both lines.Point D is plotted more than half-way along short-run Philips Curve 2.Points E and F are plotted close to the left and right ends, respectively, of the short-run Philips Curve 2. -Refer to Figure 13.11.A supply shock, such as rising oil prices, would be depicted as a movement from ________.

If the Bank of Canada chooses to fight high inflation with contractionary monetary policy and firms and consumers expect this policy to reduce inflation, which of the following would you expect to see?

What does it mean to say that workers and firms have rational expectations?

When will an increase in aggregate demand not result in lower unemployment rates in the short run?

If workers and firms raise their inflation expectations,

The short-run Phillips curve shifting down following the 1989 Bank of Canada announcement that they were adopting inflation targets shows that workers and firms

In the long run, the Phillips curve is a ________ at ________.

The curve showing the short-run relationship between the unemployment rate and the inflation rate is called

Figure 13.1 Alt text for Figure 13.1: In figure 13.1, a short-run Phillips curve. Long description for Figure 13.1: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, Philips curve, begins at the top left corner and slopes down to the end of the x-axis.Point A is plotted half way along line Philips curve.Point B is plotted to the right of point A and point C is plotted is to the left of point A.Point D is plotted above this line, in the left center of the quadrant.Point E is plotted below this line, directly below point A. -Refer to Figure 13.1.Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above, and the unemployment rate at A is the natural rate.If the economy was to move to point B, which of the following must be true?

Figure 13.2 Alt text for Figure 13.2: In figure 13.2, a graph shows the short-run and long-run Phillips curves. Long description for Figure 13.2: The x-axis is labelled, unemployment rate (percent).The y-axis is labelled, inflation rate (percent per year).3 points; A (5, 3), B (3.8%, 5.5%), C (6, 1)are plotted on the graph.The points are connected to their respective coordinates on the x and y-axes with dotted lines.A straight line labelled, short-run Philips Curve, begins at the top left corner and slopes down to the bottom center, and passes through points A, B, and C.A straight line labelled, long-run Philips Curve, is perpendicular to the x-axis, begins from the x-axis value 5,and intersects the Short-run Philips Curve at point A. -Refer to Figure 13.2.Suppose the economy is at point A.The Bank of Canada uses expansionary monetary policy to lower the unemployment rate permanently below the level associated with A.Which of the following will occur?

According to the short-run Phillips curve, the unemployment rate and the inflation rate are

The Bank of Canada's inflation targeting policy has led to inflation ________ since 1996.

A study conducted by Robert Shiller, a Yale Economist, found that a large majority of the public thinks that increases in inflation will not quickly lead to an increase in wages.

In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate?

One problem with deflation is that it can raise the real value of debt.

Can the Bank of Canada achieve both low inflation and low levels of unemployment? Explain.

Figure 13.10 Alt text for Figure 13.10: In figure 13.10, a graph comparing unemployment rate and inflation rate. Long description for Figure 13.10: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.3 points; A, B, and C are plotted such that A and B share equivalent y-axis values, and B and C share equivalent x-axis values. -Refer to Figure 13.10.A response to persistent ________ due to ongoing expansionary monetary policy is depicted in the figure above as a movement from C to A to B.

Figure 13.2 Alt text for Figure 13.2: In figure 13.2, a graph shows the short-run and long-run Phillips curves. Long description for Figure 13.2: The x-axis is labelled, unemployment rate (percent).The y-axis is labelled, inflation rate (percent per year).3 points; A (5, 3), B (3.8%, 5.5%), C (6, 1)are plotted on the graph.The points are connected to their respective coordinates on the x and y-axes with dotted lines.A straight line labelled, short-run Philips Curve, begins at the top left corner and slopes down to the bottom center, and passes through points A, B, and C.A straight line labelled, long-run Philips Curve, is perpendicular to the x-axis, begins from the x-axis value 5,and intersects the Short-run Philips Curve at point A. -Refer to Figure 13.2.At which point is the unemployment rate equal to the natural rate of unemployment?

If actual inflation is greater than expected inflation, what is the relationship between the actual real wage and the expected real wage?