Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

In the nineteenth century, some countries were on a gold standard so that on average the money supply growth rate was close to zero and expected inflation was more or less constant. For these countries during this time period, we find that increases in actual inflation were generally associated with falling unemployment. These findings

What evidence does the Volcker disinflation provide concerning the importance of inflation expectations to the costs of disinflation?

Neither monetary policy nor any government policy can change the natural rate of unemployment.

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run

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. Subsequent to the shift of the Phillips curve from PC1 to PC2, the curve will soon shift back to PC1 if people perceive the

Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output. This country's sacrifice ratio is

Which of the following is vertical?

If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same, then policymakers

If the government raises government expenditures, then in the short run prices

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,

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

If there is a large and sudden but temporary increase in the price of oil, which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

In the long run, inflation

According to classical macroeconomic theory, in the long run

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

If a central bank reduced inflation by 3 percentage points and in the short run this made output fall by 3 percentage points for 3 years and the unemployment rate rise from 3 percent to 9 percent for three years, the sacrifice ratio is

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

If consumer confidence rises and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

A favorable supply shock causes output to