ch 19 econ

Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Next year, you expect GDP to be equal to potential GDP. What is your forecast for unexpected inflation?

0%

The figure shows inflation expectations and actual inflation for U.S. consumers over time. Which of the following statements correctly describes the relationship between these rates?

actual inflation tends to follow inflation expectations

A rise in nominal wages represents:

an increase in production costs

Suppose rubber prices rise in international markets. For countries that import rubber, this scenario would lead to:

cost push inflation

Forecasts expect inflation to be 2%. Actual inflation ends up being 1.75%. Holding all else equal, if there is no supply-side change in the economy, these statistics indicate there is:

insufficient demand

If managers have an expectation of ongoing inflation, then it is likely that:

prices will rise

Consider the Phillips curve shown here. In region B:

there is excess demand

Consider the Phillips curve shown here. In region A:

there is insufficient demand

What is excess demand?

too many buyers for too few goods

The figure shows inflation from 2009 to 2018 for countries in the Organization for Economic Cooperation and Development (OECD). The country with the second-highest inflation rate was:

Russia

Which figure shows the correct effect on the Phillips curve when the domestic currency depreciates?

arrow points to new

Demand-pull inflation is inflation resulting from:

excess demand

In the long run, inflation is determined by:

inflation expectations

Which figure shows the correct effect on the Phillips curve when there are falling production costs?

old shifts down to new; arrow pointing down

Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Suppose for next year, you expect GDP to be equal to potential GDP. Current inflation expectations are at 2%. How much does your salary have to change, in nominal terms, in order to maintain your purchasing power at the current level?

2%

If expected inflation is 2%, and actual inflation is 2.8%, then unexpected inflation is:

0.8% (subtract)

Forecasts expect inflation to be 2%. Actual inflation ends up being 1.75%. Holding all else equal, if there is no supply-side change in the economy, these statistics indicate inflation is ____ less than expected.

0.25% (subtract)

When unexpected inflation is zero, the corresponding unemployment rate is the _____ unemployment rate.

equilibrium

Insufficient demand leads to a:

surplus and falling prices

Consider the Phillips curve shown here. In region B:

the output gap is positive