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Exam 13: The Short-Run Policy Tradeoff

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Question 1

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In the short run, an increase in inflation initiated by the Reserve Bank and not matched by an increase in the expected inflation rate results in ________ in the long-run Phillips curve and ________ in the short-run Phillips curve.

A) a rightward shift; a downward shift
B) a rightward shift; an upward shift
C) no change; a downward shift
D) no change; no change
E) a leftward shift; an upward shift

F) A) and D)
G) B) and C)

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Question 2

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Suppose the natural unemployment rate is 5 per cent, the actual unemployment rate is 6 per cent, and potential GDP is $500 billion. Based on Okun's Law, real GDP is equal to ________ billion.

A) $490
B) $510
C) $400
D) $500
E) $590

F) D) and E)
G) None of the above

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Question 3

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-The curve shown in the figure above is the

Along a short-run Phillips curve, the

If aggregate demand increases, thereby leading to an increase in real GDP and inflation, there is

If the inflation that results from targeting unemployment becomes unacceptably high, low inflation can be restored. Lower inflation can be obtained by ________ the growth rate of aggregate demand, by ________ money growth and by ________ interest rates.

According to Okun's Law, if the unemployment rate is 7 per cent and the natural unemployment rate is 5 per cent, potential GDP is ________ than real GDP.

According to Okun's Law, when the natural employment rate is 6 per cent and potential GDP is $10 trillion, then when actual employment is 5 percent, real GDP is

When the aggregate demand curve shifts,

Changes in which of the following do NOT affect the natural unemployment rate?

At full employment, the expected inflation rate is

If the Reserve Bank decides that it wants to lower the unemployment rate, it ________ the growth rate of aggregate demand by ________ the growth rate of money and ________ interest rates.

The long-run Phillips curve applies when the economy is at full employment, so the long-run Phillips curve is ________, which demonstrates that changes in the inflation rate ________ effect on unemployment.

Both the long-run and the short-run Phillips curves shift if

The short-run Phillips curve shows ________ between the unemployment rate and the inflation rate, and the long-run Phillips curve shows ________ between the unemployment rate and the inflation rate.

The figure above shows some Phillips curves for an economy. -In the figure above, the shift from the short-run Phillips curve SRPC₀ and the long-run Phillips curve LRPC₀ to the short-run Phillips curve SRPC₁ and the long-run Phillips curve LRPC₁ is the result of ________ in the expected inflation rate and ________ in the natural unemployment rate.

Data from the United States and the United Kingdom show that the short-run Phillips curve exhibits

A country reports that its inflation rate and unemployment rate have both increased. These changes could be the result of

A rational expectation of the inflation rate is

If the Reserve Bank lowers the inflation rate and initially expected inflation does not change, in the short run the unemployment rate ________, and in the long run the unemployment rate ________ the natural unemployment rate.