Exam 17: The Short-Run Tradeoff Between Inflation and Unemployment

A central bank announces it will decrease the inflation rate by 10 percentage points. People are skeptical of the announcement, but do expect the central bank will reduce inflation by 5 percentage points and so expected inflation falls by 5 percentage points. If the central bank decreases inflation by only 3 percentage points then the unemployment rate will fall.

Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

If the Federal Reserve accommodates an adverse supply shock,

Country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have

Which of the following both make the sacrifice ratio higher than otherwise?

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

Disinflation is like

In 1979, Fed Chair Paul Volcker

In the long run, a decrease in the money supply growth rate

Monetary Policy in Flosserland In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years. -Refer to Monetary Policy in Mokania. The Bank of Mokania publicizes its intent to reduce the inflation rate to 5%. If it is successful in doing so but people had expected inflation to fall only to 10%, then

In 1980, the U.S. misery index was

From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have

Which of the following is correct according to the long-run Phillips curve?

Which of the following is downward-sloping?

If the Fed reduces inflation 1 percentage point and this makes output fall 2 percentage points and unemployment rise 3 percentage points for six months, the sacrifice ratio is

Which of the following depends primarily on the growth rate of the money supply?

There is a temporary adverse supply shock. Given the effects of this shock, if the central bank chooses to return unemployment closer to its previous rate it would

A central bank disinflates. Output is 4% less for one year, 3% less the next year, and 2% less the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.

If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the