Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

Using the theory of rational expectations of inflation, identify how statements made by the government and RBA, could affect the rate of inflation.

According to Friedman and Phelps, policymakers _____.

According to the theory of rational expectations, people:

When the RBA contracts monetary policy, what is the effect on the Phillips curve in the short-run?

In the long run, the actual inflation rate depends primarily on:

According to the textbook, the sacrifice ratio should be ignored when attempting to reduce inflation beyond acceptable targets as continued inflation has dire consequences.

TThe increase in the price of oil in 2010 could be attributed to:

If the sacrifice ratio is 5 per cent, then reducing the inflation rate from 12 per cent to 4 per cent would require sacrificing _____ per cent of annual output.

The natural rate of unemployment depends upon:

The natural rate hypothesis states that if policymakers choose higher inflation in order to reduce unemployment below the natural rate, they will succeed at reducing unemployment permanently.

Suppose that the RBA increases the money supply. What will happen to unemployment in the short run? What will happen to unemployment in the long run?

Phillips's discovery in the UK was supported by a similar negative correlation between inflation and unemployment in data for the United States.

The sacrifice ratio is the number of percentage points of annual output that are lost in the process of reducing unemployment by one percentage point.

A.W. Phillips developed the Phillips curve concept by looking at the relationship between:

The Phillips curve implies that the economy faces a:

The Phillips curve is the short-run relationship between inflation and unemployment.

Phillips said that a central bank cannot use its control over nominal quantities to peg a real quantity - the real rate of interest, the rate of unemployment, the level of real national income, the real quantity of money, the rate of growth of real national income, or the rate of growth of the real quantity of money.

The natural rate of unemployment is often called the non-acceleration inflation rate of unemployment.