ECON 1000 Chapter Notes - Chapter 16: Phillips Curve, Aggregate Supply, Aggregate Demand

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29 Nov 2017

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Chapter 16 the short-run tradeoff between inflation and unemployment. The phillips curve: a curve that shows the short-run tradeoff between inflation and unemployment. Therefore, monetary and fiscal policy can move the economy along the phillips curve. Shifts in the phillips curve: the role of expectation. Regardless of the inflation rate, the unemployment gravitates toward its natural rate. The meaning of natural : the natural rate of unemployment is the unemployment rate toward which the economy tends to gravitate in the long run. In the sr, the b of cc can take expected inflation (the sr as curve) as already determined: when the money supply changes, the ad curve shifts, and the economy moves along a given sr as curve. In the sr, therefore, monetary changes lead to unexpected fluctuations in output, prices, unemployment, and inflation. In the lr, people come to expect whatever inflation rate the b of c chooses to produce.

Related Questions

8) What can be concluded from Milton Friedman and Edmund Phelps' expectations-augmented Phillips curve?

A) that there is no long run tradeoff between unemployment and inflation

B) that there is a short run tradeoff between unemployment and inflation

C) that there are two types of Phillips curves

D) all of the above

E) none of the above

9) Given the accelerationist Phillips curve ?? = - 0.3 (U - 6) + ?, suppose that inflation in the preceding period was 3 percent, unemployment is 6 percent, and there is a price shock of 2 percent. The current inflation rate is ________.

A) 3 percent

B) 0.2 percent

C) 5 percent

D) 1 percent

E) none of the above

10) Which of the following shows a negative relationship between the output and unemployment gaps?

A) the AS curve

B) the Phillips curve

C) Okun's law

D) the classical dichotomy

E) none of the above

Suppose an economy that is initially at full employment faces a substantial fall in exports.

1. Discuss the short-run effect of a substantial decrease in exports on output, general price level, and interest rate.

2. Using the Phillips curve, discuss what happens to inflation and unemployment in the short-run.

3. Explain two arguments against the use of active stabilization policies to minimize economic fluctuations due to the short-term demand or supply shocks.

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Determine the effect on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift left or right, or does the vertical portion of the LAS curve shift to the right or the left?). Also determine the effect on the price level, the real output level, and employment/unemployment. Explain and express this graphically using the AS/AD macro model.

In late 2004, oil prices increased sharply while the rate of growth in labor productivity declined. The combination of these two factors should shift the short-run aggregate supply curve up (left). The increase in oil prices, when combined with the slowdown in productivity growth, will likely result in higher costs for firms at each output level. To offset these higher costs, firms increase their prices at each output level, causing the short-run aggregate supply curve to shift up (left).

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ECON 1000 Chapter Notes - Chapter 16: Phillips Curve, Aggregate Supply, Aggregate Demand

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