Question 1

Who gains if inflation turns out to be higher than expected: the lender or borrower? What happens if inflation turns out to be lower than expected?

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Question 2

The economy's self-correcting mechanism tends to push the unemployment rate back to a specific rate of unemployment.How?

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Question 3

When inflation comes from the supply side,inflation and unemployment are positively correlated.Does this mean that monetary and fiscal policy makers can escape the trade-off between inflation and unemployment?

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Question 4

In the 1970s,why did the short-run Phillips curve fail to depict the unemployment-inflation trade-off?

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Question 5

Some economists argue that there is no such thing as a short-run Phillips curve.Who are these economists and what is their argument?

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Question 6

What are some of the possible ways in which we could reduce the natural rate of unemployment?

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Question 7

If the income tax system were indexed,a person whose nominal income went up from $30,000 to $33,000 in a year when the price index rose by 10 percent would pay

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If the income tax system were indexed, the tax brackets and deductions would be adjusted for inflation, meaning that the person's nominal income increase from $30,000 to $33,000 would not result in a higher tax rate. Therefore, they would not pay higher real income taxes.

Question 8

Some of the promising approaches to reducing the natural rate of unemployment have to do with education,training,and job placement.What implementation problems do you anticipate?

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Question 9

The period from the late 1990s to the winter of 2000 was marked by falling unemployment rates and falling inflation rates as well.How does economic theory explain this apparent violation of the Phillips curve model?

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Question 10

Describe three arguments of why some economists object to the predictions of the rational expectations theory and do not subscribe to the conclusions of this approach.

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Question 11

At one time,policy makers interpreted the Phillips curve as offering a menu of inflation-unemployment choices.Today,the curve is no longer viewed this way.Why has the interpretation changed?

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Question 12

What reasons would economists give for an increase in the natural rate of unemployment that could have occurred from 2007 to 2011? What argument would suggest that the natural rate of unemployment may not have risen?

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Question 13

What is the effect of supply-side inflation on the short-run Phillips curve?

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Question 14

Define the following terms and explain their importance to the study of macroeconomics:
a.Phillips curve
b.rational expectations
c.indexing
d.stagflation

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Quiz 17: The Trade Off between Inflation and Unemployment