Macro Graded Assignment #7

Inflation can be started by

A decrease in aggregate supply or an increase in aggregate demand

If the government increases its expenditure on goods and services and as a result, the money wage rate increases, the economy has experienced ______________

A demand-pull rise in the price level

When the inflation rate exceeds the expected rate, the economy behaves like it does in a _________ inflation: The price level is higher than expected and real GDP _________ potential GDP

Demand-pull; rises above

The United States ________ have a stable short run Phillips curve because _______

Does not; it shifts when the expected inflation rate and natural unemployment rate change

As we move up along the LAS curve, the ________

Real wage rate is constant

Stagflation is a combination of a _________ in the price level and _________ in real GDP

Rise; decrease

The inflation and unemployment trend during the Great Depressions can be explained by a movement along the ___________ Phillips curve that ___________

Short run; lowers the inflation rate and increases the unemployment rate

An economy at a full-employment equilibrium experiences an increase in aggregate demand. The unemployment rate _________ its natural rate, and to return to the long-run equilibrium, the money wage rate begins to __________

fall below; rise

A movement ________ along the short run Phillips curve occurs when there is an _________ increase in aggregate demand

up; unexpected

If an economy at potential GDP experiences a demand shock that shifts the aggregate demand curve rightward, there will be

upward pressure on the money wage rates, unemployment below the natural rate, and an eventual leftward shift in the short run aggregate supply curve

The best forecast available, which is based on all the relevant information is called

A rational expectation

In a demand-pull inflation spiral, the economy moves from __________ to __________

An above full employment equilibrium; a full-employment equilibrium

Which of the following events would NOT cause an expected inflation?

An expected increase in taxes

A demand pull inflation begins with _________

An increase in aggregate demand

Which of the following factors could state a demand-pull inflation?

An increase in exports

Which of the following events might cause a cost-push inflation?

An increase in the money wage rate or an increase in the money prices of raw materials

During 2008, the inflation rate increased and the unemployment rate increased. These events __________

Cannot be explained by a movements along the SRPC because along this curve the inflation rate and unemployment rate move in opposite directions

Cost-push inflation causes stagflation because it occurs when ___________

Costs increase

An unexpected increase in aggregate demand ________ rate, which is shown by _________ the short run Phillips curve

Decreases unemployment and increase the inflation; a movement up along

When costs increase and the Fed want to return the economy to full employment, the Fed responds by ___________ the quantity of money. If the Fed continually responds to successive increases in costs, a ________ inflation evolves

Increasing; cost-push

What must happen to create a cost-push spiral?

The central bank must increase the quantity of money to restore full employment

Along the short-run Phillips curve, ________

The expected inflation rate and the natural unemployment rate are constant

All of the following events EXCEPT an increase in _________ might cause a demand pull inflation

The money wage rate

When it becomes obvious to everyone that the deflation is not going to occur, ___________

The money wage rate rises and the short run aggregate supply curve returns to its original position

When aggregate demand unexpectedly increases, __________

The natural unemployment rate does not change

What must happen to create a demand-pull inflation spiral?

The quantity of money must persistently increase

Along the long-run Phillips curve __________

The unemployment rate is constant at the natural unemployment rate

A cost-push inflation begins when an increase in the money wage rate or an increase in the money prices of raw materials brings __________

a decrease in short-run aggregate supply

Suppose that a shock causes the aggregate demand curve to shift rightward. If the Fed does nothing,

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

If the natural unemployment rate increase, what happens to the Phillips curve? The long-run Phillips curve _________ and the short-run Phillips curve __________ The expected inflation rate ___________

shifts rightward; shifts rightward Does not change

If the natural unemployment rate increases and the expected inflation rate remains constant, then ___________

the long run Phillips curve shifts rightward and the short run Phillips curve shifts rightward

If the expected inflation rate increase and the natural rate of unemployment remains constant, then ______________

the short run Phillips curve shifts upward and the long run Phillips curve does not shift