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

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 decrease in money supply growth moves the economy to

Refer to Monetary Policy in Flosserland. Suppose Flosserland has had the same inflation rate for a long time. Which, if either, of the following ideas imply that the unemployment rate in Flosserland would be above the natural rate.

If the central bank increases the growth rate of the money supply and initially inflation expectations are unchanged, then in the short run

Considering a plot of the inflation rate and the unemployment rate, one might conjecture that the short run Phillips curve was further to the right in the first part of the 2000's than it was in the last part of the 1990s and 2000.

Disinflation is a reduction in

If expected inflation decreases does the short-run Phillips curve shift? If so, what direction does it shift? Does the long-run Phillips curve shift? If so, what direction does it shift?

An increase in the inflation rate permanently reduces the natural rate of unemployment.

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?

The proliferation of Internet usage serves as an example of a favorable supply shock.

According to Friedman and Phelps, policymakers face a tradeoff between inflation and unemployment

Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 4%.

More flexible labor markets will shift

If consumption expenditures fall, then in the short run

In the long run an increase in the money supply growth rate affects

Friedman and Phelps concluded that

If the central bank increases the money supply, in the short run, the price level

The equation, Unemployment rate = Natural rate of unemployment - a × Αctual inflation - Expected inflation),

According to Friedman and Phelps, the unemployment rate is above the natural rate when actual inflation

Figure 35-7 Use the two graphs in the diagram to answer the following questions. -Refer to Figure 35-7. The economy would move from C to B

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% and that it actually reduces inflation to that level. Suppose that the public was very skeptical and in fact thought the Flosserland Department of Finance was going to raise inflation to 30% so it could increase its expenditures. Then