Question 1

If workers and firms know that the Bank of Canada is following an expansionary monetary policy, workers and firms will expect inflation to ________ and will adjust wages so that the real wage ________.

Accepted Answer

A) increase; increases 
B) increase; remains unchanged 
C) decrease; decreases 
D) increase; decreases 
E) decrease; remains unchanged

Question 2

According to the short-run Phillips curve, if unemployment is 3.2% and inflation is 1.3%, an increase in the inflation rate might result in which of the following?

Accepted Answer

A) an increase in the unemployment rate to 3.4% 
B) a decrease in the unemployment rate to 3.0% 
C) a decrease in the demand for labour in the economy 
D) a return to the original inflation rate of 1.3% 
E) permanently higher inflation and an unemployment rate of 3.2%

Question 3

Figure 13.1  Alt text for Figure 13.1: In figure 13.1, a short-run Phillips curve.
Long description for Figure 13.1: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, Philips curve, begins at the top left corner and slopes down to the end of the x-axis.Point A is plotted half way along the line.Point B is plotted to the right of point A.Point C is plotted is to the left of point A.Point D is plotted above this line, in the left center of the quadrant.Point E is plotted below this line, directly beneath point A.
-Refer to Figure 13.1.Suppose that the economy is currently at point A, and the unemployment rate at A is the natural rate.What policy would the Bank of Canada pursue if it wanted the economy to move to point B in the long run?

Accepted Answer

A) Buy Canada bonds. 
B) Sell Canada bonds. 
C) Raise the discount rate. 
D) Decrease the money supply. 
E) No policy will move the economy to point B in the long run.

Question 4

Which of the following best explains the negative slope of the short-run Phillips curve?

Accepted Answer

A) Weak growth in aggregate demand keeps the economy below potential GDP, so unemployment rises but the rate of inflation falls. 
B) Aggregate demand grows so quickly that the inflation rate rises as unemployment rises. 
C) Long-run aggregate supply increases quickly enough that inflation falls as unemployment also falls. 
D) Short-run aggregate supply increases at the same pace as aggregate demand increases so that inflation and unemployment do not change. 
E) Strong growth in technology causes the short-run aggregate supply curve to shift rightward faster than aggregate demand, so unemployment falls and the inflation rate falls.

Question 5

Workers at a local mining company are paid $25.60 per hour, and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.

Accepted Answer

The answer of Workers at a local mining company are...

Exam 13: Inflation, Unemployment, and Bank of Canada Policy

If workers and firms know that the Bank of Canada is following an expansionary monetary policy, workers and firms will expect inflation to and will adjust wages so that the real wage .

According to the short-run Phillips curve, if unemployment is 3.2% and inflation is 1.3%, an increase in the inflation rate might result in which of the following?

Which of the following best explains the negative slope of the short-run Phillips curve?

Workers at a local mining company are paid $25.60 per hour, and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.