Question 1

When will a decrease in aggregate demand not result in a lower inflation rate in the short run?

Accepted Answer

The answer of When will a decrease in aggregate demand...

Question 2

If the actual rate of inflation exceeds the expected rate of inflation,the actual real wage is greater than the expected real wage and unemployment falls.

Accepted Answer

If the actual rate of inflation exceeds the expected rate of inflation, then the actual real wage is lower than the expected real wage. This is because the expected real wage is based on the expected inflation rate, so if inflation is higher than expected, the real wage will be lower than expected. Additionally, there is no direct relationship between inflation and unemployment, so it cannot be concluded that unemployment will fall.

Question 3

Figure 13.2  Alt text for Figure 13.2: In figure 13.2,a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.2: The x-axis is labelled,unemployment rate (percent).The y-axis is labelled,inflation rate (percent per year).3 points; A (5,3),B (3.8%,5.5%),C (6,1)are plotted on the graph.The points are connected to their respective coordinates on the x and y-axes with dotted lines.A straight line labelled,short-run Philips Curve,begins at the top left corner and slopes down to the bottom center,and passes through points A,B,and C.A straight line labelled,long-run Philips Curve,is perpendicular to the x-axis,begins from the x-axis value 5,and intersects the Short-run Philips Curve at point A.
-Refer to Figure 13.2.Suppose the economy is at point B.If the Bank of Canada increases the money supply so that inflation increases,the economy will ________ in the short run,holding all else constant.

Accepted Answer

The answer of Figure 13.2  Alt text for Figure...

Question 4

The expansionary monetary and fiscal policies of the 1960s resulted in

Accepted Answer

The expansionary monetary and fiscal policies of the 1960s, which involved increasing government spending and lowering interest rates, were aimed at stimulating economic growth and reducing unemployment. However, they also led to increased inflation as demand for goods and services outstripped supply. The result was a period of "stagflation" characterized by both high inflation rates and low rates of unemployment. Therefore, the best choice is D.

Question 5

Figure 13.2  Alt text for Figure 13.2: In figure 13.2,a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.2: The x-axis is labelled,unemployment rate (percent).The y-axis is labelled,inflation rate (percent per year).3 points; A (5,3),B (3.8%,5.5%),C (6,1)are plotted on the graph.The points are connected to their respective coordinates on the x and y-axes with dotted lines.A straight line labelled,short-run Philips Curve,begins at the top left corner and slopes down to the bottom center,and passes through points A,B,and C.A straight line labelled,long-run Philips Curve,is perpendicular to the x-axis,begins from the x-axis value 5,and intersects the Short-run Philips Curve at point A.
-Refer to Figure 13.2.Suppose the economy is at point C.If the Bank of Canada decreases the money supply so that inflation falls,the economy will ________ in the long run,holding all else constant.

Accepted Answer

If the Bank of Canada decreases the money supply and inflation falls, the short-run Phillips curve will shift inward, and the economy will move along the long-run Phillips curve towards point A in the long run, where unemployment rate is higher than the initial point C but the inflation rate is lower.

Question 6

Figure 13.2  Alt text for Figure 13.2: In figure 13.2,a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.2: The x-axis is labelled,unemployment rate (percent).The y-axis is labelled,inflation rate (percent per year).3 points; A (5,3),B (3.8%,5.5%),C (6,1)are plotted on the graph.The points are connected to their respective coordinates on the x and y-axes with dotted lines.A straight line labelled,short-run Philips Curve,begins at the top left corner and slopes down to the bottom center,and passes through points A,B,and C.A straight line labelled,long-run Philips Curve,is perpendicular to the x-axis,begins from the x-axis value 5,and intersects the Short-run Philips Curve at point A.
-Refer to Figure 13.2.Suppose the economy is at point C in the figure above.If workers adjust their expectations of inflation,which of the following will be true?

Accepted Answer

The answer of Figure 13.2  Alt text for Figure...

Question 7

In the 1960s,many economists and policymakers believed the trade-off between inflation and unemployment was permanent.

Accepted Answer

This is known as the Phillips Curve, which suggested that inflation and unemployment had an inverse relationship, and reducing one would increase the other. However, this theory became less relevant in the 1970s with the emergence of stagflation, where both inflation and unemployment were high at the same time.

Question 8

If the unemployment rate in the economy is steady at 4 percent per year,how does the short-run Phillips curve predict that the inflation rate will be changing,if at all? What will happen if the unemployment rate now rises to 7 percent per year? Assume there are no changes to inflation expectations.Provide an appropriate graph to support your discussion.

Accepted Answer

The answer of If the unemployment rate in the economy...

Question 9

Figure 13.2  Alt text for Figure 13.2: In figure 13.2,a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.2: The x-axis is labelled,unemployment rate (percent).The y-axis is labelled,inflation rate (percent per year).3 points; A (5,3),B (3.8%,5.5%),C (6,1)are plotted on the graph.The points are connected to their respective coordinates on the x and y-axes with dotted lines.A straight line labelled,short-run Philips Curve,begins at the top left corner and slopes down to the bottom center,and passes through points A,B,and C.A straight line labelled,long-run Philips Curve,is perpendicular to the x-axis,begins from the x-axis value 5,and intersects the Short-run Philips Curve at point A.
-Refer to Figure 13.2.Suppose the economy is at point A in the figure above.Which of the following is true?

Accepted Answer

At point A, the actual inflation rate and expected inflation rate are the same according to the short-run Phillips curve. There is no information to suggest a shift in either the short-run or long-run Phillips curve.

Question 10

Figure 13.2  Alt text for Figure 13.2: In figure 13.2,a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.2: The x-axis is labelled,unemployment rate (percent).The y-axis is labelled,inflation rate (percent per year).3 points; A (5,3),B (3.8%,5.5%),C (6,1)are plotted on the graph.The points are connected to their respective coordinates on the x and y-axes with dotted lines.A straight line labelled,short-run Philips Curve,begins at the top left corner and slopes down to the bottom center,and passes through points A,B,and C.A straight line labelled,long-run Philips Curve,is perpendicular to the x-axis,begins from the x-axis value 5,and intersects the Short-run Philips Curve at point A.
-Refer to Figure 13.2.Suppose the economy is at point B in the figure above.Which of the following is true?

Accepted Answer

The answer of Figure 13.2  Alt text for Figure...

Question 11

What action should the Bank of Canada take if it wants to move from a point on the short-run Phillips curve representing low unemployment and high inflation to a point representing higher unemployment and lower inflation?

Accepted Answer

The answer of What action should the Bank of Canada...

Question 12

Robert Shiller posed the following question to workers: "Imagine that next year the inflation rate unexpectedly doubles.How long would it probably take,in these times,before your income is increased enough so that you can afford the same things as you do today?" Shiller found that ________ percent of the workers he interviewed reported that it would take several years to restore the purchasing power of their wages or that this power would never be restored.

Accepted Answer

The answer of Robert Shiller posed the following question to...

Question 13

If changes in inflation are higher than expected,

Accepted Answer

The answer of If changes in inflation are higher than...

Question 14

Ceteris paribus,in the short run following an increase in the rate of growth in aggregate demand,we would expect to see an increase in the rate of inflation and an increase in the rate of unemployment.

Accepted Answer

An increase in the rate of growth in aggregate demand in the short run typically leads to an increase in inflation and a decrease in unemployment, according to the Phillips Curve, which shows an inverse relationship between inflation and unemployment.

Question 15

In a survey,Robert Shiller found that most workers believe that an increase in inflation will lead quickly to an increase in wages.

Accepted Answer

The answer of In a survey,Robert Shiller found that most...

Question 16

Workers at a local construction company are paid $32.50 per hour,and they have incorporated a 4 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 2 percent will affect the real wages earned by these workers and the unemployment rate of these workers.

Accepted Answer

The answer of Workers at a local construction company are...

Question 17

In an effort to discover whether or not workers understand inflation,economist Robert Shiller conducted a survey.When asked about the effect of general inflation on their wages or salary,the most popular response coming from workers was:

Accepted Answer

The answer of In an effort to discover whether or...

Question 18

Figure 13.2  Alt text for Figure 13.2: In figure 13.2,a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.2: The x-axis is labelled,unemployment rate (percent).The y-axis is labelled,inflation rate (percent per year).3 points; A (5,3),B (3.8%,5.5%),C (6,1)are plotted on the graph.The points are connected to their respective coordinates on the x and y-axes with dotted lines.A straight line labelled,short-run Philips Curve,begins at the top left corner and slopes down to the bottom center,and passes through points A,B,and C.A straight line labelled,long-run Philips Curve,is perpendicular to the x-axis,begins from the x-axis value 5,and intersects the Short-run Philips Curve at point A.
-Refer to Figure 13.2.Suppose the economy is at point A.The Bank of Canada uses expansionary monetary policy to lower the unemployment rate permanently below the level associated with A.Which of the following will occur?

Accepted Answer

According to the graph, if the unemployment rate is permanently lowered below the level associated with point A through expansionary monetary policy, the economy will move to a point to the left of point A on the short-run Phillips curve. This means that in the short run, both inflation and unemployment will decrease. However, in the long run, the economy will move along the long-run Phillips curve and inflation will accelerate. This is because in the long run, expectations adjust and the natural rate of unemployment increases, leading to higher inflation. Therefore, the correct answer is A, inflation will accelerate in the long run.

Question 19

If actual inflation is greater than expected inflation,what is the relationship between the actual real wage and the expected real wage?

Accepted Answer

If actual inflation is greater than expected inflation, it means that prices are rising faster than anticipated. Since the expected real wage is calculated based on expected inflation, it would have been higher. However, since inflation is greater than expected, the actual real wage will buy fewer goods and services than expected, resulting in a lower real wage.

Question 20

Figure 13.2  Alt text for Figure 13.2: In figure 13.2,a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.2: The x-axis is labelled,unemployment rate (percent).The y-axis is labelled,inflation rate (percent per year).3 points; A (5,3),B (3.8%,5.5%),C (6,1)are plotted on the graph.The points are connected to their respective coordinates on the x and y-axes with dotted lines.A straight line labelled,short-run Philips Curve,begins at the top left corner and slopes down to the bottom center,and passes through points A,B,and C.A straight line labelled,long-run Philips Curve,is perpendicular to the x-axis,begins from the x-axis value 5,and intersects the Short-run Philips Curve at point A.
-Refer to Figure 13.2.Suppose the economy is at point A in the figure above.Which of the following is true?

Accepted Answer

At point A, the short-run Phillips curve intersects the long-run Phillips curve, indicating that the economy is at its natural rate of unemployment. Therefore, the current unemployment rate is equal to the natural rate of unemployment. The other options are not necessarily true based on the information provided in the graph.

Quiz 13: Inflation, Unemployment, and Bank of Canada Policy

When will a decrease in aggregate demand not result in a lower inflation rate in the short run?

If the actual rate of inflation exceeds the expected rate of inflation,the actual real wage is greater than the expected real wage and unemployment falls.

The expansionary monetary and fiscal policies of the 1960s resulted in

In the 1960s,many economists and policymakers believed the trade-off between inflation and unemployment was permanent.

What action should the Bank of Canada take if it wants to move from a point on the short-run Phillips curve representing low unemployment and high inflation to a point representing higher unemployment and lower inflation?

If changes in inflation are higher than expected,

Ceteris paribus,in the short run following an increase in the rate of growth in aggregate demand,we would expect to see an increase in the rate of inflation and an increase in the rate of unemployment.

In a survey,Robert Shiller found that most workers believe that an increase in inflation will lead quickly to an increase in wages.

In an effort to discover whether or not workers understand inflation,economist Robert Shiller conducted a survey.When asked about the effect of general inflation on their wages or salary,the most popular response coming from workers was:

If actual inflation is greater than expected inflation,what is the relationship between the actual real wage and the expected real wage?