Exam 16: Inflation, Disinflation, and Deflation

Explain how the output gap is related to the unemployment rate and the natural unemployment rate.

During periods of deflation _____ will be hurt and _____ will be helped.

Disinflation:

The long-run Phillips curve:

Suppose that commodity prices across the economy begin to fall and consumers and firms begin to expect a lower rate of inflation. The SRAS curve will shift to the _____, and the short-run Phillips curve will shift _____.

When an economy has high inflation:

A high inflation rate leads people to increase their money holdings, leading to more money printing and higher inflation.

When the actual unemployment rate is equal to the natural rate of unemployment:

If the natural rate of unemployment is 5% and the actual rate of unemployment is 4%:

When economists state that there is a zero bound on nominal interest rates, they mean that:

If actual output growth is 5% when potential output growth is 5%, then the unemployment rate will:

_____ depicts a trade-off between unemployment and inflation.

Policies that expand output and decrease unemployment are popular with voters but are likely to cause inflation later.

The notion that the real quantity of money is always at its long-run equilibrium level is associated with the _____ of the price level.

In the long run, an increase in aggregate demand from a position of full employment leads to:

A government with a large deficit will also produce high inflation in the economy if it:

The notion that there is a trade-off between inflation and unemployment is expressed as a _____ curve.

Why is the long-run Phillips curve believed to be vertical at the natural rate of unemployment, or NAIRU?

In the long run, when the actual inflation rate gets embedded in people's expectation:

In the long run, the unemployment rate will equal the natural rate of unemployment at any price level.