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

If there were a favorable supply shock and the central bank wanted to offset the change in the unemployment rate, what would it do?

Which of the following would reduce the natural rate of unemployment?

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Figure 35-4. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD curves. On the left-hand diagram, the price level is measured on the vertical axis; on the right-hand diagram, the inflation rate is measured on the vertical axis. -Refer to Figure 35-4. Assume the figure depicts possible outcomes for the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was

Suppose the economy is in long-run equilibrium at an inflation rate of 1% Then inflation expectations rise to 2% and inflation rises to 3%. The increase in expected inflation shifts the short-run Phillips curve

In the long run, if the Fed increases the growth rate of the money supply,

Disinflation is defined as a

Which of the following implies that an increase in the money supply growth rate permanently changes the unemployment rate?

As the aggregate demand curve shifts to the right, what happens to the price level and output? What do these changes imply happens to the inflation rate and the unemployment rate?

According to the short-run Phillips curve, if the central bank increases the money supply, then

If inflation expectations rise, the short-run Phillips curve shifts

Most economists believe that a tradeoff between inflation and unemployment exists

Suppose that the money supply increases. In the short run this decreases unemployment according to

When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that

Which of the following is not correct?

The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate above its natural rate.

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a × Αctual inflation - x).In this equation,

If policymakers increase aggregate demand, then in the short run the price level

Some economists argue suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real fiscal reforms, people will expect the government will eventually need to expand the money supply to pay for its expenditures. Thus, the promise to fight inflation will not be credible. Explain why credibility is important to a reduction in the inflation rate.

Other things the same, a country that decides to reduce inflation will