SectionF Flashcards
Advocates of the rational-expectations approach predict that a credible policy to lower inflation will ______ the sacrifice ratio.
sometimes raise and sometimes lower
raise
lower
not change
lower
The percentage of a year’s real GDP that must be foregone to reduce inflation by 1 percentage point is called the:
NAIRU.
Okun’s law.
sacrifice ratio.
short-run Phillips curve.
Sacrifice Ratio
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 ______.
output; unemployment
sticky prices; sticky wages
sticky wages; sticky prices
unemployment; output
unemployment; output
Inflation inertia is represented in the aggregate supply-aggregate demand model by continuing upward shifts in the:
long-run aggregate supply curve.
short-run aggregate supply curve.
aggregate demand curve
aggregate demand and short-run aggregate supply curves.
aggregate demand and short-run aggregate supply curves.
long an aggregate supply curve, if the level of output is less than the natural level of output, then the price level is:
stuck at the existing price level.
greater than the expected price level.
less than the expected price level.
equal to the natural price level.
Less than the expected price level
In the case of demand-pull inflation, other things being equal:
both the inflation rate and the unemployment rate rise at the same time.
the inflation rate rises but the unemployment rate falls.
both the inflation rate and the unemployment rate fall.
the unemployment rate rises but the inflation rate falls.
the inflation rate rises but the unemployment rate falls
Assume that an economy has the usual type of Phillips curve, but the natural rate of unemployment is the average of the last four year’s unemployment rates. In that case, there would be:
no long-run tradeoff between inflation and unemployment.
a long-run tradeoff between inflation and unemployment.
a very small sacrifice ratio.
a very large sacrifice ratio.
a long-run tradeoff between inflation and unemployment.
Assume that an economy has the Phillips curve π = π-1 - 0.5(u - 0.06). Then the natural rate of unemployment is:
- 03.
- 06.
- 12.
- 5.
0.06
According to the Phillips curve, other things being equal, inflation depends positively on:
the rate of technological change.
the quantities of capital and labor.
the unemployment rate.
expected inflation.
expected inflation
According to the natural-rate hypothesis, output will be at the natural rate:
if inflation exceeds expected inflation.
if aggregate demand affects output in the long run.
in the long run.
if inflation falls below expected inflation.
in the long run
The government can lower inflation with a low sacrifice ratio if the:
public believes that policymakers are committed to reducing inflation.
short-run aggregate supply schedule is relatively flat.
public has adaptive expectations.
money supply is reduced slowly.
public believes that policymakers are committed to reducing inflation.
The tradeoff between inflation and unemployment does not exist in the long run because people will adjust their expectations so that expected inflation:
is below the inflation rate.
equals the inflation rate of the previous year.
equals the inflation rate.
exceeds the inflation rate.
equals the inflation rate.
According to the imperfect-information model, when the price level rises by the amount the producer expected it to rise, the producer:
decreases production.
hires more workers.
does not change production.
increases production
does not change production
The short-run aggregate supply curve is drawn for a given:
output level.
level of aggregate demand.
expected price level.
price level.
expected price level
