Question 1

Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Accepted Answer

In the short run,unemployment will rise,...

Question 2

How are the effects of the financial crisis shown using the Phillips curve diagram?

Accepted Answer

As a move down along...

Question 3

A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?

Accepted Answer

The answer of A central bank pledges to reduce the...

Question 4

Does a more steeply sloped Phillips curve make the sacrifice ratio smaller or larger than otherwise?

Accepted Answer

A steeper Phillips c...

Question 5

Government expenditures increase.What happens to the price level and output? Explain how the change in the price level and output effect the inflation rate and the unemployment rate.

Accepted Answer

The price level and output rise. Because the price level rises, the inflation rate is higher. Because output is higher, the unemployment rate is lower.

Question 6

How are the effects of a favorable supply shock shown in the Phillips curve diagram? If the Fed wants to return unemployment to its natural rate after the shock, what should it do?

Accepted Answer

The short-run Phillips curve s...

Question 7

Suppose,as in the 1970's in the U.S. ,that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force.Would this have any effect on the long-run Phillips curve?

Accepted Answer

Since this would raise the natural rate of unemployment, the long-run Phillips curve would shift to the right.

Question 8

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

Accepted Answer

Both reflect the classical dichotomy.The vertical long-run aggregate supply curve says that,in the long run,the economy will be at its natural rate of output,and that this is the same no matter what the price level.The natural rate of output depends on the natural rate of unemployment.The vertical Phillips curve says that,in the long run,the economy will be at the natural rate of unemployment (corresponding with the natural rate of output),and that this is the same no matter what the inflation rate.Both curves are consistent with the classical dichotomy that says real variables are not affected by nominal variables.

Question 9

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%.

Accepted Answer

The econom...

Question 10

What is meant by accommodation?

Accepted Answer

A central bank is said to acco...

Question 11

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?

Accepted Answer

The answer of A central bank disinflates. Output falls by...

Question 12

List one specific policy that would shift the long-run Phillips curve to the right.

Accepted Answer

More generous unempl...

Question 13

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Accepted Answer

A downward-sloping Phillips curve implie...

Question 14

If there is a large and sudden but temporary increase in the price of oil, which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

Accepted Answer

The short-run Phillips curve s...

Question 15

What is meant by the natural rate of unemployment?

Accepted Answer

It is the rate of un...

Question 16

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?

Accepted Answer

It would shift right...

Question 17

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?

Accepted Answer

The unempl...

Question 18

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?

Accepted Answer

In the long run the natural rate of unem...

Question 19

Some economists argue suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real fiscal reforms, people will expect the government will eventually need to expand the money supply to pay for its expenditures. Thus, the promise to fight inflation will not be credible. Explain why credibility is important to a reduction in the inflation rate.

Accepted Answer

If people believe that the government re...

Question 20

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 2%.

Accepted Answer

The econom...

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

Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Correct Answer
verified
In the short run,unemployment will rise,...
View Answer

How are the effects of the financial crisis shown using the Phillips curve diagram?

Correct Answer
verified
As a move down along...
View Answer

A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?

Correct Answer
verified

Does a more steeply sloped Phillips curve make the sacrifice ratio smaller or larger than otherwise?

Correct Answer
verified
A steeper Phillips c...
View Answer

Government expenditures increase.What happens to the price level and output? Explain how the change in the price level and output effect the inflation rate and the unemployment rate.

Correct Answer
verified
The price level and output rise. Because the price level rises, the inflation rate is higher. Because output is higher, the unemployment rate is lower.

How are the effects of a favorable supply shock shown in the Phillips curve diagram? If the Fed wants to return unemployment to its natural rate after the shock, what should it do?

Correct Answer
verified
The short-run Phillips curve s...
View Answer

Suppose,as in the 1970's in the U.S. ,that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force.Would this have any effect on the long-run Phillips curve?

Correct Answer
verified
Since this would raise the natural rate of unemployment, the long-run Phillips curve would shift to the right.

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

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%.

Correct Answer
verified
The econom...
View Answer

What is meant by accommodation?

Correct Answer
verified
A central bank is said to acco...
View Answer

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?

Correct Answer
verified

List one specific policy that would shift the long-run Phillips curve to the right.

Correct Answer
verified
More generous unempl...
View Answer

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Correct Answer
verified
A downward-sloping Phillips curve implie...
View Answer

If there is a large and sudden but temporary increase in the price of oil, which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

Correct Answer
verified
The short-run Phillips curve s...
View Answer

What is meant by the natural rate of unemployment?

Correct Answer
verified
It is the rate of un...
View Answer

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?

Correct Answer
verified
It would shift right...
View 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?

Correct Answer
verified
The unempl...
View Answer

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?

Correct Answer
verified
In the long run the natural rate of unem...
View Answer

Correct Answer
verified
If people believe that the government re...
View Answer

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 2%.

Correct Answer
verified
The econom...
View Answer

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

Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.

Correct AnswerverifiedIn the short run,unemployment will rise,...View AnswerShow Answer

How are the effects of the financial crisis shown using the Phillips curve diagram?

Correct AnswerverifiedAs a move down along...View AnswerShow Answer

A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?

Correct AnswerverifiedShow Answer

Does a more steeply sloped Phillips curve make the sacrifice ratio smaller or larger than otherwise?

Correct AnswerverifiedA steeper Phillips c...View AnswerShow Answer

Government expenditures increase.What happens to the price level and output? Explain how the change in the price level and output effect the inflation rate and the unemployment rate.

Correct AnswerverifiedThe price level and output rise. Because the price level rises, the inflation rate is higher. Because output is higher, the unemployment rate is lower.

How are the effects of a favorable supply shock shown in the Phillips curve diagram? If the Fed wants to return unemployment to its natural rate after the shock, what should it do?

Correct AnswerverifiedThe short-run Phillips curve s...View AnswerShow Answer

Suppose,as in the 1970's in the U.S. ,that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force.Would this have any effect on the long-run Phillips curve?

Correct AnswerverifiedSince this would raise the natural rate of unemployment, the long-run Phillips curve would shift to the right.

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

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%.

Correct AnswerverifiedThe econom...View AnswerShow Answer

What is meant by accommodation?

Correct AnswerverifiedA central bank is said to acco...View AnswerShow Answer

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?

Correct AnswerverifiedShow Answer

List one specific policy that would shift the long-run Phillips curve to the right.

Correct AnswerverifiedMore generous unempl...View AnswerShow Answer

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

Correct AnswerverifiedA downward-sloping Phillips curve implie...View AnswerShow Answer

If there is a large and sudden but temporary increase in the price of oil, which way does the short-run Phillips curve shift? If the central bank does not respond what happens to inflation and the unemployment rate in the long run?

Correct AnswerverifiedThe short-run Phillips curve s...View AnswerShow Answer

What is meant by the natural rate of unemployment?

Correct AnswerverifiedIt is the rate of un...View AnswerShow Answer

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?

Correct AnswerverifiedIt would shift right...View AnswerShow 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?

Correct AnswerverifiedThe unempl...View AnswerShow Answer

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?

Correct AnswerverifiedIn the long run the natural rate of unem...View AnswerShow Answer

Correct AnswerverifiedIf people believe that the government re...View AnswerShow Answer

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 2%.

Correct AnswerverifiedThe econom...View AnswerShow Answer

Correct Answer
verified
In the short run,unemployment will rise,...
View Answer

Correct Answer
verified
As a move down along...
View Answer

Correct Answer
verified

Correct Answer
verified
A steeper Phillips c...
View Answer

Correct Answer
verified
The price level and output rise. Because the price level rises, the inflation rate is higher. Because output is higher, the unemployment rate is lower.

Correct Answer
verified
The short-run Phillips curve s...
View Answer

Correct Answer
verified
Since this would raise the natural rate of unemployment, the long-run Phillips curve would shift to the right.

Correct Answer
verified
The econom...
View Answer

Correct Answer
verified
A central bank is said to acco...
View Answer

Correct Answer
verified

Correct Answer
verified
More generous unempl...
View Answer

Correct Answer
verified
A downward-sloping Phillips curve implie...
View Answer

Correct Answer
verified
The short-run Phillips curve s...
View Answer

Correct Answer
verified
It is the rate of un...
View Answer

Correct Answer
verified
It would shift right...
View Answer

Correct Answer
verified
The unempl...
View Answer

Correct Answer
verified
In the long run the natural rate of unem...
View Answer

Correct Answer
verified
If people believe that the government re...
View Answer

Correct Answer
verified
The econom...
View Answer