revision questions chapter 28 pt2

Question 1

a demand pull inflation requires persistent increase in

Answer 1

the quantity of money

Question 2

moving along a short run Philips curve

Answer 2

the expected inflation rate is constant

Question 3

Initially, demand-pull inflation will ________ the price level and ________ real GDP.

Answer 3

raise; increase

Question 4

A demand-pull inflation initially is characterized by ________ real GDP and a labour ________.

Answer 4

increasing; shortage

Question 5

If the Bank of England responds to an initial increase in aggregate demand by increasing the quantity of money,

Answer 5

there is a risk of continued inflation

Question 6

what is a change that is NOT a potential start of a demand-pull inflation?

Answer 6

• in increase in the money wage rate
• increase in labour productivity
• price of oil

Question 7

what is a change that is NOT a potential start of a demand-pull inflation.

Answer 7

An increase in labour productivity

Question 8

Stagflation is characterized by

Answer 8

a decrease in real GDP and an increase in the price level.

Question 9

Suppose that wage contracts between workers and employers are based on an expected inflation rate of 3 per cent and a 5 per cent increase in money wages is agreed upon. If inflation actually equals 7 per cent, real wages

Answer 9

fall.

Question 10

During a demand-pull inflation, if the Bank of England tries to maintain real GDP above potential GDP,

Answer 10

the AD curve will shift rightward continuously and SAS curve will shift leftward continuously.