MacroEcon Midterm #4 Part 1

Cost-push inflation starts with

A decrease in short-run aggregate supply

In the short run, an unexpected increase in the inflation rate leads to

A lower unemployment rate

The long-run Phillips curve shows the relationship between the inflation rate and the unemployment rate when the

Actual inflation rate equals the expected inflation rate

Demand pull inflation can be started by

An increase in exports

Demand pull inflation can be started by

An increase in government expenditure

Cost-push inflation can start with

An increase in oil prices

Cost-push inflation might initially result from

An increase in the cost of resources

Oil prices increase sharply, raising the price level and decreasing real GDP. The Fed has an incentive to

Increase the quantity of money in order to reduce unemployment

The long-run Phillips curve

Is vertical

Suppose a shock causes the aggregate demand curve to shift rightward. If the Feds do nothing ...

Output initially will exceed potential GDP, but the economy will return to potential GDP with a higher price level

The short-run Phillips curve

Slopes downward

The Phillips curve shows the relationship between

The unemployment rate and the inflation rate

Stagflation is the combination of a ___ and ___

price level rising; a decreasing real GDP