Macroeconomics Ch 17 Word Scramble
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| Question | Answer |
| T/F: Higher employment is usually accompanied by higher inflation. | FALSE. Higher inflation usually leads to LOWER inflation. While lower employment leads to higher inflation. *There is an inverse relationship between unemployment and inflation. |
| Phillips Curve | A curve showing the short-run relationship between the unemployment rate and the inflation rate. |
| Structural Relationship | A relationship that depends on the basic behavior of consumers and firms and that remains unchanged over long periods. |
| T/F: The Phillips Curve does NOT represent a permanent trade-off between unemployment and inflation. | TRUE. |
| Natural Rate of Unemployment | The unemployment rate that exists when the economy is at potential GDP. |
| T/F: The long-run Phillips Curve is a vertical line at the natural rate of unemployment. | TRUE. |
| How do you calculate Real Wage? | Nominal Wage /Price Level x 100 = Real Wage |
| If actual inflation is greater than expected inflation... | The actual wage is less than the expected real wage, and the unemployment rate falls. |
| If actual inflation is less than expected inflation... | The actual real wage is greater than the expected real wage and the unemployment rate rises. |
| T/F: Expected inflation increases the value of total production and the value of total income by an amount GREATER than the rate of inflation. | FALSE. It increases by the same amount. |
| Nonaccelerating inflation rate of unemployment (NAIRU) | The unemployment rate at which the inflation rate has no tendency to increase or decrease. |
| T/F: In the long-run the Federal Reserve can affect the inflation rate but not the unemployment rate. | TRUE. |
| Frictional or structural unemployment can change the natural rate of unemployment by: | 1) Demographic changes 2) Labor Market Institutions 3) Past high rates of unemployment |
| Rational Expectations | Expectations formed by using all available information about an economic variable. |
| Real Business cycle models | Models that focus on real rather than monetary explanations or fluctuations in real GDP. |
| Disinflation | A significant reduction in the inflation rate. |
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