Exam 16: Inflation, Disinflation, and Deflation

A liquidity trap results from:

A supply shock caused by an increase in the price of gasoline causes a(n) _____ in output and a(n) _____ in prices.

If the Fed increases the monetary base by $40 billion through open-market operations:

If potential output is higher than actual output, then the unemployment rate is:

The Fed monetizes the debt when it:

Irving Fisher argued that deflation is MOST likely to:

Historical evidence has led economists to conclude that during periods of high inflation, the _____ model of the price level is a good approximation of reality because nominal wages and prices adjust more _____ than during periods of low inflation.

Politicians have an incentive to push the unemployment rate below the natural rate of unemployment right before their reelection because:

An economy's short-run Phillips curve will shift up in response to:

When workers and firms become aware of a rise in the general price level:

When the Treasury Department borrows from the public to finance the government's purchases of goods and services and the Fed buys the debt back from the public in the form of Treasury bills, it is known as:

Politicians may accept moderate inflation in an election year, since the _____ in aggregate _____ serves to _____.

Use the following to answer questions : Figure: Actual and Natural Rates of Unemployment -(Figure: Actual and Natural Rates of Unemployment) Look at the figure Actual and Natural Rates of Unemployment. In 2014, the natural unemployment rate was approximately:

Suppose the economy is in long-run equilibrium. The government has just decided to lower income taxes. The long-run impact of this policy will be _____ in the natural rate of unemployment and _____ in inflation.

Suppose the economy is significantly weakened, real GDP is far below potential GDP, and the unemployment rate is high. The Federal Reserve is concerned that monetary policy might have limited effectiveness because of deflation. How can deflation limit the Fed's ability to increase aggregate demand?

To bring disinflation to an economy, policy makers must:

In economies with persistently high inflation, an increase in the money supply will have:

Use the following to answer questions : Figure: AD-AS -(Figure: AD-AS) Refer to the figure AD-AS. If our economy is at equilibrium with low-level inflation and the Fed uses expansionary monetary policy, the initial effect is that _____ will shift to _____ and the economy will move from _____.

Deflation:

Use the following to answer questions : Figure: AD-AS Model and the Short-Run Phillips Curve -(Figure: AD-AS Model and the Short-Run Phillips Curve) Look at the figure AD-AS Model and the Short-Run Phillips Curve. If the central bank increases the money supply so that aggregate demand shifts from AD₁ to AD₂, then real GDP will increase by: