Question 1

The equation, Unemployment rate = Natural rate of unemployment - a * ctual inflation - Expected inflation),

Accepted Answer

The equation is the short-run Phillips curve, which implies that there can be no stable short-run Phillips curve and reflects the reasoning of Friedman and Phelps.

Question 2

In the long run, an increase in the money supply

Accepted Answer

An increase in the money supply will cause inflation and raise prices, but it may not necessarily reduce unemployment. In the short run, an increase in the money supply can stimulate demand and potentially reduce unemployment, but in the long run, prices adjust to the increase in money supply and the initial impact on employment fades. Therefore, the increase in the money supply will raise prices and leave unemployment unchanged.

Question 3

In the equation, Unemployment rate = Natural rate of unemployment - a * ctual inflation - Expected inflation),
The variable a is a parameter that measures how much

Accepted Answer

The parameter "a" measures the responsiveness of actual unemployment to unexpected inflation, which is the difference between actual and expected inflation.

Question 4

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: Unemployment rate = Natural rate of unemployment - a * ctual inflation - x).In this equation,

Accepted Answer

In the given equation, 'x' represents the expected rate of inflation, which is subtracted from actual inflation to determine its effect on the unemployment rate.

Question 5

According to Friedman and Phelps, policymakers face a tradeoff between inflation and unemployment

Accepted Answer

The answer of According to Friedman and Phelps, policymakers face...

Question 6

The short-run Phillips curve intersects the long-run Phillips curve where

Accepted Answer

The answer of The short-run Phillips curve intersects the long-run...

Question 7

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run?

Accepted Answer

If the Fed pursues a contractionary monetary policy, it will reduce the money supply and increase interest rates. This will lead to a decrease in aggregate demand and output in the short run, which will cause a decrease in the demand for labor and an increase in the unemployment rate. However, because both expected inflation and actual inflation are relatively high, there is likely to be downward pressure on real wages, which will reduce the natural rate of unemployment. As a result, unemployment will exceed its natural rate, and expected inflation will exceed actual inflation.

Question 8

The equation, Unemployment rate = Natural rate of unemployment - a * ctual inflation - Expected inflation),

Accepted Answer

This equation is the equation of the short-run Phillips curve, which shows the inverse relationship between unemployment and inflation in the short run. It suggests that when actual inflation is higher than expected inflation, unemployment will be lower than the natural rate, and vice versa. Choices B and C are not necessarily true for this equation.

Question 9

A central bank sets out to reduce unemployment by changing the money supply growth rate. The long-run Phillips curve shows that in comparison to their original rates, this policy will eventually lead to

Accepted Answer

The answer of A central bank sets out to reduce...

Question 10

In the long run, a decrease in the money supply growth rate

Accepted Answer

In the long run, a decrease in the money supply growth rate decreases inflation by reducing the aggregate demand. This leads to a shift of the short-run Phillips curve left. As there is a lower inflation rate for any given level of unemployment, it takes less inflation to reduce unemployment, hence the leftward shift.

Question 11

Suppose expected inflation and actual inflation are both low, and unemployment is at its natural rate. If the Fed then pursues an expansionary monetary policy, which of the following results would be expected in the short run?

Accepted Answer

The answer of Suppose expected inflation and actual inflation are...

Question 12

The analysis of Friedman and Phelps can be summarized in the following equation where a is positive number:

Accepted Answer

The equation accurately summarizes the theory of Friedman and Phelps, which states that unemployment deviations from the natural rate are related to the difference between actual and expected inflation, with a representing the sensitivity of unemployment to inflation.

Question 13

Friedman and Phelps concluded that

Accepted Answer

The answer of Friedman and Phelps concluded that
...

Question 14

Natural rate of unemployment - a * ctual inflation - Expected inflation) =

Accepted Answer

The equation given is the Phillips curve, which shows the negative relationship between unemployment and inflation. The natural rate of unemployment represents the level of unemployment that exists when the economy is operating at full capacity, and the equation suggests that any deviation from this rate will affect the actual inflation rate. Thus, the equation is used to analyze the tradeoff between inflation and unemployment, and the answer is related to unemployment rate.

Question 15

According to Friedman and Phelps, the unemployment rate is above the natural rate when actual inflation

Accepted Answer

The answer of According to Friedman and Phelps, the unemployment...

Question 16

According to Friedman and Phelps's analysis of the Phillips curve,

Accepted Answer

The answer of According to Friedman and Phelps's analysis of...

Question 17

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,

Accepted Answer

The point where the short-run Phillips curve intersects the long-run Phillips curve is also known as the natural rate of unemployment. At this point, unemployment equals the natural rate and expected inflation equals actual inflation. This occurs because the economy has adjusted to its long-run equilibrium where the unemployment rate is at its natural level and inflation is stable. Therefore, choice A is correct.

Question 18

According to Friedman and Phelps, the unemployment rate

Accepted Answer

According to Friedman and Phelps, if the actual inflation rate is greater than the expected inflation rate, then firms will produce more output than they would at the expected rate of inflation, resulting in lower unemployment. Therefore, the unemployment rate will be below its natural rate when actual inflation is greater than expected inflation.

Question 19

If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same, then policymakers

Accepted Answer

The answer of If people eventually adjust their inflation expectations...

Question 20

A policy intended to reduce unemployment by taking advantage of a tradeoff between inflation and unemployment leads to

Accepted Answer

The answer of A policy intended to reduce unemployment by...

Quiz 22: The Short-Run Trade-Off Between Inflation and Unemployment

The equation, Unemployment rate = Natural rate of unemployment - a * ctual inflation - Expected inflation) ,