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

As aggregate demand shifts left along the short-run aggregate supply curve,

An adverse supply shock shifts the short-run Phillips curve to the

In most of the 1970s, the Fed's policy created expectations of high inflation.

If there is an adverse supply shock, then

Typical estimates of the sacrifice ratio suggest that about 10 percent of annual output has to be given up in order to reduce the inflation rate from

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

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

If a central bank reduced inflation by 2 percentage points and that made output fall by 1 percentage points for 2 years and the unemployment rate rise from 3 percent to 5 percent for 2 years, the sacrifice ratio is

A central bank disinflates. Output falls by 3% for one year, 2% the second year, and 1% the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

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

Suppose that an economy is currently experiencing 10 percent unemployment and 15 percent inflation. If in the process of bringing inflation down by 2 percentage points, real GDP falls by 6 percent for a year, the sacrifice ratio is

Consider two countries: Eastland and Westland. Eastland's long­run Phillips curve sits further to the right than does Westland's long­run Phillips curve. Eastland and Westland are identical in all other ways. In particular, they have the same money supply growth rates. In the long run, compared to Westland, which of the following will we observe in Eastland?

A policy change that changes the natural rate of unemployment changes

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

Fiscal policy cannot be used to move the economy along the short-run Phillips curve.

Other things the same, if the Fed increases the rate at which it increases the money supply then the short-run Phillips curve shifts right in the long run.

If expected inflation falls but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

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 left-hand graph?

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

Assuming that rational expectations theory does not hold, if a central banks attempts to reduce the inflation rate what happens to the unemployment rate in the short-run?