ECON 2010 Chapter Notes - Chapter 35: Aggregate Supply, Rational Expectations, Aggregate Demand

78 views8 pages

whitetoad550

5 May 2015

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

Chapter 35: the short-run trade-off between inflation and. If aggregate demand is low, output is low, and the price level is low. (b) shows the implication for the phillips curve. Point a, which arises when aggregate demand is low, has high unemployment and low inflation. Shift in the phillips curve: the role of expectations: the long-run phillips curve, monetary policymakers face a long-run phillips curve that is vertical. The rate of unemployment is the same at these two points. The short-run phillips curve: unemployment rate = natural rate of unemployment a( actually inflation- expected inflation, when expected inflation is given, the economy goes from point a to point b. Unemployment falls below its natural rate and the actual inflation rate rises above expected inflation. Firms and workers start taking higher inflation into account when setting wages and price. The economy ends up at point c, with higher inflation but with the same level of unemployment.

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

1) According to the Phillips curve :

a. there is a direct relationship between unemployment and inflation

b. there is an inverse relationship between unemployment and inflation

c. there is a direct relationship between income and unemployment

d. there is an inverse relationship between income and unemployment

e. there is a direct relationship between the money supply and inflation

2) which of the following believe that there is a Phillips curve trade-off in both the short run and the long run?

a. monetarists

b. rational expectations school

c. Keynesians

d. classical economist

e. methodists

3) Which of the following believe that there is a Phillips curve trade-off in the short run but not in the long run

a. Keynesians

b. rational expectations school

c. monetarists

d. Lithuanians

e. supply-siders

4) According to the Monetarists, the principal cause for the Phillips curve shifting to the right from the 1950s to the early 1980s was:

a. decreasing labor productivity

b. an increase in the inflationary expectation of labor

c. increase in the price of oil

d. increase in unemployment benefit

e. all of the above

5) According to the Keynesians, the reason why the Phillips curve shifted to the right from the 1950s to the early 1980s was :

a. an increase in the inflationary expectation of labor

b. "supply shocks" in the form of oil price increase

c. the changing composition of the labor force

d. all of the above

e. none of the above

skymuskrat620

1. Which of the following is likely to happen if the Fed buys Treasury securities from banks?

interest rate rises; investment falls

interest rate rises; investment rises

interest rate falls; investment rises

interest rate falls; investment falls

2. The main goal of monetary policy is to shift

3. Which of the following is true regarding the effects of an expansionary monetary policy?

Printing more money will affect real GDP only in the short run because all prices do not adjust fully in the short run.

Printing more money will affect real GDP both in the short and long run because inflation is a natural occurrence of expansionary monetary policy.

Printing more money will not lower the value of money in the short run because prices are fully flexible in the short run.

Printing more money will ultimately raise the value of money in the long run because prices are fully flexible in the long run.

4. In which of the following cases are you likely to be adversely affected by unexpected inflation?

You, the owner of a local restaurant, charge the price of lamb lasagna as per the daily market rate of lamb.

You purchase Mountain Dew every day from the dormitory vending machine, which keeps its prices fixed for the entire school year.

You, the owner of an airline company, sign a two-year contract for airline fuel.

You deposit $10,000 in a bank account for 5 years for a fixed interest rate of 1%.

5. The Phillips curve depicts the relation between

real GDP and price level.

price level and inflation rate.

unemployment rate and inflation rate.

unemployment rate and real GDP.

6. Which of the following statements is true regarding the shapes of short-run and long-run Phillips curves?

The short-run Phillips curve is vertical and the long-run Phillips curve is downward sloping.

The short-run Phillips curve is downward sloping and the long-run Phillips curve is vertical.

Both the short-run and long-run Phillips curves are downward sloping.

Both the short-run and long-run Phillips curves are vertical.

7. Suppose the table below lists the actual annual inflation rates for 2010 to 2015. What would be the most likely predictions people make about the inflation rate for 2016 based on adaptive and rational expectations theories, respectively?