Chapter 17

Growth in aggregate demand will

move the economy to a higher point on the short−run Phillips curve.

According to the short−run Phillips​ curve, the unemployment rate and the inflation rate are

negatively (or inversely) related

If expected inflation​ falls, the long−run Phillips curve will...

not be affected.

What can the Federal Reserve do to reduce the natural rate of​ unemployment?

nothing

What is a​ "structural" relationship?

a relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods

It is inconsistent to believe that the​ long-run aggregate supply curve is vertical and the​ long-run Phillips curve is downward sloping because...

in order for the​ long-run Phillips curve to be downward​ sloping, changes in the price level​ (inflation) would have to affect the unemployment rate in the long​ run, which does not happen with a vertical​ long-run aggregate supply curve.

Such views about the Philip's Curve being stable are rare today because...

in the long run there is no tradeoff between inflation and unemployment.

People are ____ to think of the Philip's curve as a "policy menu"

incorrect

When unemployment is below its natural​ rate, the inflation rate will eventually

increase

The​ short-run trade-off between the rate of inflation and the unemployment rate is best represented​ by:

the Phillips curve.

What is the​ NAIRU?

the non accelerating inflation rate of unemployment

If inflation increases beyond expectations of​ inflation,

the real wage paid by employers and received by workers will decrease.

Milton Friedman argued that the Phillips curve did not represent a permanent​ trade-off between unemployment and​ inflation, since...

the​ long-run Phillips curve is​ vertical, there is no​ trade-off between unemployment and inflation in the long run.

All other factors held​ constant, increased growth in aggregate demand will

ALL- increase inflation. reduce unemployment. move the economy to a higher point on the short−run Phillips curve.

According to the short−run Phillips​ curve, which of the following would result in low rates of​ unemployment?

a higher inflation rate

Which of the following statements is ​correct?

In the long​ run, the Phillips curve is a vertical line at the natural rate of unemployment. In the long​ run, a higher or lower inflation rate has no effect on the unemployment rate. In the long​ run, a higher or lower price level has no effect on real GDP.

Which of the following statements concerning the Phillips curve is​ correct?

Many economists and policymakers in the 1960s viewed the Phillips curve as a structural relationship

What impact does monetary policy have on the long−run Phillips​ curve?

Monetary policy has no impact on the long−run Phillips curve.

If the Federal Reserve attempts to continue reducing unemployment by manipulating monetary​ policy, which of the following would you expect to​ see?

The Fed will follow inflationary monetary policies.

If weak aggregate demand is pushing the economy into​ recession, which of the following must be​ true?

The economy is at an equilibrium that is not on the long−run Phillips curve.

If actual inflation is higher than expected​ inflation, the...

actual real wage is less than the expected real​ wage: unemployment falls.

Which of the following would increase the natural rate of​ unemployment?

an increase in the number of​ younger, less skilled workers in the economy

The concept of a non accelerating inflation rate of unemployment​ (NAIRU) helps us to understand why in the long​ run, the Federal Reserve...

can affect the inflation rate but not the unemployment rate.

The short-run Philips curve is...

downward sloping

In the long​ run, the Federal Reserve can control which of the​ following?

inflation rate

Economists during the early 1960s thought of the Phillips curve as a​ "policy menu" because they thought that the Phillips curve...

represented a structural relationship in the economy that would not change as a result of policy changes.

A decrease in expected inflation will

shift the short−run Phillips curve to the left.

Such views of the​ trade-off between inflation and unemployment might have existed in the 1960s because the Phillips curve was widely viewed as...

stable.

If the economy is producing at potential​ GDP,

unemployment is at its natural rate.

Friedman defined the​ "natural rate of​ unemployment" as the...

unemployment rate that exists when the economy produces potential GDP.

If the Fed wants to move from a point on the​ short-run Phillips curve representing high unemployment and low inflation to a point representing lower unemployment and higher​ inflation, then it should

use expansionary monetary policy.

The long−run aggregate supply curve is​ ________, while the long run Phillips curve is​ ________.

vertical; vertical

There is a different​ short-run Phillips curve for every level of the​ ___________ inflation rate. The inflation rate at which the​ short-run Phillips curve intersects the​ long-run Phillips curve equals the​ ___________ inflation rate.

​expected; expected

If the unemployment rate is below the natural​ rate, the inflation rate tends to​ ___________, and​ eventually, the​ short-run Phillips curve will shift​ _______.

​increase; up