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

According to the Philips curve diagram, if a central bank takes action to reduce the inflation rate, unemployment is

If a central bank decreases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?

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

Some countries have inflation around or in excess of 8 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent? In your answer, define the sacrifice ratio and explain how you found the cost of inflation reduction.

According to the Phillips curve, policymakers can reduce inflation by

Samuelson and Solow argued that when unemployment is high, there is

If people anticipate higher inflation, but inflation remains the same then

Which of the following leads to a lower level of unemployment in the long run?

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

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. What is measured along the horizontal axis of the left-hand graph?

Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run.

In 1979, Fed chair Paul Volcker decided to pursue a policy

The economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's argument

Figure 35-1. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD curves. On the right-hand diagram, U represents the unemployment rate. -Refer to Figure 35-1. The curve that is depicted on the right­hand graph offers policymakers a "menu" of combinations

If there is an adverse supply shock, then

What does an unexpected decrease in the growth rate of the money supply do to inflation and unemployment in the short-run? What does it do to inflation and unemployment in the long run?

For a number of years Canada and many European countries have had higher average unemployment rates than the United States. The Phillips curve suggests that these countries

Figure 35-8 Use this graph to answer the questions below. -Refer to figure 35-8. Suppose the economy starts at 5% unemployment and 3% inflation and expected inflation remains at 3%. Which one of the following points could the economy move to in the short run if the Federal Reserve pursues a more expansionary monetary policy?

In the 1970s, the Fed accommodated an)

A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate towards its previous level it would