Ch 14
In the sticky-price model, if no firms have flexible prices, the short-run aggregate supply schedule will:
be horizontal
Along an aggregate supply curve, if the level of output is less than the natural level of output, then the price level is:
less than the expected price level
As a result of a contraction in aggregate demand, the ________ declines, but over time it returns to its former level as the expected price level ______
level of output, falls
The sticky-price model of aggregate supply explains why
output declines when prices fall below expected prices
Along a short-run aggregate supply curve, output is related to unexpected movements in the ______. Along a Phillips curve, unemployment is related to unexpected movements in the ______.
price level; inflation rate
The government can lower inflation with a low sacrifice ratio if the
public rationally believe that policymakers are committed to reducing inflation.
A central bank can reduce inflation at the smallest cost if people's expectations of inflation
quickly respond to new policy regimes
An increase in the expected price level shifts
the short-run aggregate supply curve to the left
A rightward shift in aggregate _______ moves the economy along the short-run Phillips curve to a point with _______ inflation.
demand, higher
According to the imperfect-information model, when the price level rises by the amount the producer expected it to rise, the producer:
does not change production
tradeoff between inflation and unemployment does not exist in the long run because people will adjust their expectations so that expected inflation:
equals inflation rate
According to the Phillips curve, other things being equal, inflation depends positively on
expected inflation
The short-run aggregate supply curve is drawn for a given:
expected price level
According to the sticky-price model, other things being equal, the greater the proportion, s, of firms that follow the sticky-price rule, the ______ the ______ in output in response to an unexpected price increase.
greater, increase
According to the natural-rate hypothesis, output will be at the natural rate
if inflation meets expectations in the short run
The percentage of a year's real GDP that must be foregone to reduce inflation by 1 percentage point is called the:
sacrifice ratio
The short-run Phillips curve:
shifts upward if expected inflation increases.
Advocates of the rational-expectations approach predict that a credible policy to lower inflation will ______ the sacrifice ratio
smaller
A rightward shift in aggregate _______ shifts the short-run Phillips so the economy experiences _________ inflation for any level of unemployment.
supply, lower
In the case of demand-pull inflation, other things being equal:
the inflation rate rises but the unemployment rate falls