econ tip 35

If taxes rise, then aggregate demand shifts

left, making unemployment higher than otherwise.

The long-run Phillips curve would shift to the left if

effective job-training programs were implemented, but not if the money supply growth rate increased.

A favorable supply shock will cause inflation to

fall and shift the short-run Phillips curve left.

France has a higher natural rate of unemployment than the United States. This suggests that

France's Phillips curve is to the right of that of the United States, possibly because they have more generous unemployment compensation.

In the 1970s, the Fed accommodated a(n)

adverse supply shock and so contributed to higher inflation.

If the short-run Phillips curve were stable, which of the following would be unusual?

an increase in inflation and a decrease in output

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

an increase in the inflation rate and no change in the unemployment rate.

According to the Phillips curve, policymakers can reduce inflation by

contracting aggregate demand. This contraction results in a temporarily higher unemployment rate.

Proponents of rational expectations argued that the sacrifice ratio

could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.

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

decreases inflation and shifts the short-run Phillips curve left.

A. W. Phillips' findings were based on data

from 1861-1957 for the United Kingdom.

A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician's argument is

inconsistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would increase inflation.

In the long run, an increase in the money supply growth rate

increases inflation and shifts the short-run Phillips curve right.

If consumption expenditures fall, then in the short run

inflation falls and unemployment rises.

According to the short-run Phillips curve, if the central bank increases the money supply, then

inflation will rise and unemployment will fall.

If an increase in inflation permanently reduced unemployment, then

money would not be neutral and the long-run Phillips curve would slope downward.

The sacrifice ratio is the

number of percentage points annual output falls for each percentage point reduction in inflation.

If a central bank decreases the money supply, then

prices and output fall and unemployment rises.

The theory by which people optimally use all available information when forecasting the future is known as

rational expectations.

The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on

the natural rate of unemployment, but not monetary growth.

If the Federal Reserve decreases the rate at which it increases the money supply, then unemployment is higher in

the short run but not the long run.

An increase in expected inflation shifts

the short-run Phillips curve right.

A change in expected inflation shifts

the short-run Phillips curve, but not the long run Phillips curve.

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

the unemployment rate will be below its natural rate only if inflation is greater than expected.

As aggregate demand shifts left along the short-run aggregate supply curve,

unemployment is higher and inflation is lower.

Any policy change that reduced the natural rate of unemployment

would shift the long-run aggregate-supply curve to the right.

If the central bank raises the rate at which it increases the money supply, then in the short run unemployment is

below its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of unemployment.

A vertical long-run Phillips curve is consistent with

both the conclusion of Friedman and Phelps and the classical idea of monetary neutrality.

If the natural rate of unemployment falls,

both the short-run Phillips curve and the long-run Phillips curve shift.

A policy that raised the natural rate of unemployment would shift

both the short-run and the long-run Phillips curves to the right.