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

In the long run a reduction in the money supply growth rate affects

What does the natural-rate hypothesis claim?

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.

If policymakers expand aggregate demand, then in the long run

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Natural rate of unemployment - a × Αctual inflation - Expected inflation) =

Suppose that the money supply increases. In the short run this decreases unemployment according to

Suppose that businesses become less optimistic about the future. Assuming no change in inflation expectations, how would the effects of this shock be shown on the Phillips curve diagram and what would happen to inflation and unemployment?

On a given short-run Phillips curve which of the following is not held constant?

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

Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.

Suppose a central bank takes actions that will lead to a higher inflation rate. The public, however, is slow to adjust its expectation of inflation. Then, in the short run, unemployment

In the long run people come to expect whatever inflation rate the Fed chooses to produce, so unemployment returns to its natural rate.

If there is a favorable supply shock which direction does the short-run Phillips curve shift? What initially happens to unemployment and inflation as a result of this shock?

In 2009 Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have

Figure 35-6 Use the graph below to answer the following questions. -Refer to Figure 35-6. If the economy starts at C and the money supply growth rate decreases, in the short run the economy moves to

Which of the following shifts aggregate supply to the right?

In the 1970's the Federal Reserve responded to an adverse supply shock. Its policy made

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to