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

Figure 35-3. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the left-hand diagram, Y represents output and on the right-hand diagram, U represents the unemployment rate. -Refer to Figure 35-3. What is measured along the vertical axis of the right-hand graph?

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. Starting from C and 3, in the long run, a decrease in money supply growth moves the economy to

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

Refer to Monetary Policy in Flosserland. Suppose that the Flosserland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% but it actually raises inflation to 30%. Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%. Then

Which of the following would cause the price level to fall and output to rise in the short run?

In 1979, Fed Chair Paul Volcker

If inflation is less than expected, then the unemployment rate is

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

Which of the following is correct if there is an adverse supply shock?

Samuelson and Solow reasoned that when aggregate demand was low, unemployment was

If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

If asset prices fall and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer.

For a given short-run Phillips curve, if expected inflation is 10% but actual inflation is 8%, is the unemployment rate above or below its natural rate?

For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips curve which of the following could explain this? Country A has

If the Fed wants to reverse the effects of a favorable supply shock on the inflation rate, it should

If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year, the sacrifice ratio is

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. Starting from C and 3, in the short run an unexpected increase in money supply growth moves the economy to

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

The short-run Phillips curve shows the combinations of

Although monetary policy cannot reduce the natural rate of unemployment, other types of government policies can.