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Exam 14: Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

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Question 21

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All of the following are ways that the modern Phillips curve differs from the relationship observed by A. W. Phillips in 1958 except that the modern Phillips curve:

A) substitutes the output gap for unemployment.
B) includes supply shocks.
C) includes expected inflation.
D) substitutes price inflation for wage inflation.

E) A) and D)
F) B) and C)

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Question 22

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The short-run Phillips curve:

A) shifts upward if expected inflation increases.
B) shifts upward if expected inflation decreases.
C) shifts downward if expected inflation increases.
D) is vertical.

E) A) and C)
F) C) and D)

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Question 23

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When adaptive expectations are used to model inflation expectations in the Phillips curve, then the natural rate of unemployment is called the ______ rate of unemployment.

Based on the sticky-price model, the short-run aggregate supply curve will be steeper, the greater the:

According to the imperfect-information model, when the price level is greater than the expected price level, output will _____ the natural level of output

Along any aggregate supply curve, there is only one:

Starting from the natural level of output, an unexpected monetary contraction will cause output and the price level to ______ in the short run; and in the long run the expected price level will ______, causing the level of output to return to the natural level.

The idea that the natural rate of unemployment is increased following extended periods of unemployment is called:

To illustrate inflation inertia in an aggregate demand-aggregate supply model, the short-run aggregate supply curve shifts upward because of increases in ______, and the aggregate demand curve shifts upward because of increases in ______.

Use the aggregate demand-aggregate supply model to graphically illustrate the difference between demand-pull and cost-push inflation. Explain your graphs in words.

According to the imperfect-information model, in countries in which there is a great deal of variability of prices:

The percentage of a year's real GDP that must be foregone to reduce inflation by 1 percentage point is called the:

If price expectations are assumed to be correct, money demand is proportional to income, and there are no international capital flows, then the mother of all models in the Appendix to Chapter 14 corresponds to which of the following special cases?

Based on the Phillips curve, unexpected movements in inflation are related to ______, and based on the short-run aggregate supply curve, unexpected movements in the price level are related to ______.

Each of the following phenomena hinders the precise estimation of the natural rate of unemployment except:

An economy is initially in equilibrium at the natural level. The central bank increases the money supply. Graphically illustrate and explain short-run monetary nonneutrality and long-run monetary neutrality using the AD-AS model.

Use the following to answer questions : Exhibit: AD-AS Shifts -(Exhibit: AD-AS Shifts) Starting from long-run equilibrium at A with output equal to $\bar { Y }$ and the price level equal to P₁, a demand-pull inflation would be represented by a shift from:

Inflation inertia is represented in the aggregate supply-aggregate demand model by continuing upward shifts in the:

Explain the economist Robert Lucas's view on the imperfect-information model?

The hypothesis that hysteresis may play an important role in macroeconomics implies, among other things, that: