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Macro - Chap. 12

QuestionAnswer
Phillipsʹs research looked at British data on unemployment and nominal wage growth.
The negative relationship between unemployment and inflation is known as the Phillips curve.
The Phillips curve appeared to fit the data well for the United States in the 1960s.
Milton Friedman and Edmund Phelps questioned the stability of the relationship between inflation and unemployment.
In the extended classical model, an anticipated decrease in the money supply would cause output to________ and the price level to ________ in the short run. remain unchanged; decrease
In the extended classical model, an unexpected decrease in aggregate demand would cause unanticipatedinflation to be ________ and cyclical unemployment to be ________. negative; positive
The Phillips curve is the relation between inflation and unemployment that holds for a given natural rate ofunemployment and aA) given rate of inflation. given expected rate of inflation.
An increase in the expected rate of inflation would shift the Phillips curve upward.
If the expected rate of inflation rose at the same time the natural rate of unemployment rose, the Phillipscurve would shift up.
A beneficial supply shock would cause the short-run Phillips curve to shift downward and to the left.
Classicals argue that an adverse supply shock would raise both the natural rate of unemployment and the actual rate of unemployment.
The Friedman-Phelps analysis shows that a negative relationship between inflation and unemployment holds as long as the expected inflation rate and the natural rate of unemployment are approximately constant.
The Phillips curve shifted during the 1970s primarily because of the two large oil price shocks.
Examining data on cyclical unemployment plotted against unanticipated inflation shows a negative relationship.
An analysis of the American economy since 1960 shows that there is a stable relationship between inflationand unemployment only in the short run.
Both classicals and Keynesians agree that policymakers cannot keep the unemployment rate permanently below the natural rate by permanently running a high rate of inflation.
The long-run Phillips curve is vertical.
The fact that the long-run Phillips curve is vertical implies that money is neutral in the long run.
When the economy goes into a recession, thereʹs an increase in cyclical unemployment.
The natural rate of unemployment in the United States generally ________ from 1960 to 1980 and ________from 1980 to 1995. rose; fell
One reason for the fall in the natural rate of unemployment since 1980 is changes in the demographic composition of the work force.
The bulk of the decline in the natural rate of unemployment since 1980 is because of a decline in the share of young workers in the labor force.
A difficulty faced by policymakers who wish to use the unemployment rate as a guide to whether the economy is weak or strong is that the natural rate of unemployment is hard to measure.
One cost of a perfectly anticipated inflation is that it increases menu costs.
The costs in time and effort incurred by people and firms who are trying to minimize their holdings of cashbecause of inflation are called shoe leather costs.
Shoe leather costs are the costs in time and effort incurred by people and firms who are trying to minimize their holdings ofcash because of inflation.
One cost of an unanticipated inflation is that it transfers wealth from lenders to borrowers.
A COLA is a cost of living adjustment.
Hyperinflation occurs when the inflation rate is extremely high.
The reduction of the inflation rate is called disinflation.
A rapid and decisive reduction in the rate of growth of the money supply for the purpose of disinflation iscalled a cold turkey policy.
Keynesians prefer a disinflation policy of gradualism.
The sacrifice ratio is the amount of output lost when the inflation rate is reduced by one percentage point.
The amount of output lost when the inflation rate is reduced by one percentage point is called the sacrifice ratio.
Countries in which wages adjust slowly to changes in the supply of and demand for labor are likely to have________ sacrifice ratio. a high
Countries in which the government does not regulate the labor market are likely to have ________ sacrificeratio. a low
If a rapid disinflation has a lower sacrifice ratio than a slow disinflation, then reducing inflation is best accomplished by a cold-turkey approach.
The main determinant of how quickly expected inflation adjusts to changes in monetary policy is the credibility of the central bank.
Created by: miaftballa80
 

 



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