Macro chapter 35

How could the central bank change the unemployment right?

If the central bank reduces the rate at which it increases the money supply unemployment will rise. Prices will fall and, as expected, inflation falls and the short run Phillips curve shifts to the left

With a current inflation rate of 8%, the central bank wants to reduce inflation to 4% and knows there is a sacrifice ratio of three. How much annual output must be sacrificed in the transaction?

12%. The central bank wants to reduce inflation by 4% (8% - 4% = 4%). With the sacrifice ratio given use the formula from above multiply both sides by four to get the answer.

If the sacrifice ratio is three, reducing the inflation from 12% to 6% would require sacrificing how much annual output?

18% annual output. Start by finding how much the inflation rate decreases (12% - 6% = 6%). In this question we are asked to find outlet lost so we must use the following equation: Multiply both sides by 6 to get

In what year did economist a W Phillips publishes famous article that showed a negative correlation between the rate of unemployment and the rate of inflation?

1958. The article was published in 1958 in which He showed a negative correlation between the rate of unemployment and the rate of inflation.

What is a countries sacrifice ratio if a reduction in inflation of two percentage points yells a cost of 5% of annual output?

2.5%. In this case the central bank lowered inflation by two percentage points as opposed to the normal one percentage point, and output fail by 5%. To find the sacrifice ratio (recall the definition) we need to divide output lost by inflation reduced or. (5% / 2% = 2.5%).

What is The sacrifice ratio if the Fed reduces inflation 1 percentage point and this makes output fall 6 percentage points and unemployment rises 4 percentage points for 1 year?

6%. Recall the definition of the sacrifice ratio. It is the number of percentage points of annual output last for each percentage point reduction in inflation. In the above question inflation fail 1% and output fail by 6% or (6%/1%=6%)

A significant worldwide drought would have what type of affect on the Phillips curve?

An adverse supply shock like a worldwide route shift the economic short run aggregate supply curve left but not the Phillips short run curve. That curve would shift to the right.

Which way does an increase in government expenditures make the demand curve shift?

An increase in government expenditures shift the aggregate demand curve to the right.

In the long run, what would shift the long run Phillips curve to the left?

An increase in right to work laws that limit collective-bargaining. To reduce the natural rate of unemployment and shift the long run Phillips curve to the left, policymakers should look to policies that improves the functioning of the labor market, such as right to work laws that limit collective-bargaining.

If there is an adverse supply shock and the Federal Reserve takes action that raises inflation but lowers unemployment in the short run the action must have been?

An increase in the growth rate of the money supply. An adverse supply stock causes output to fall and prices to rise. An increase in money supply causes output to rise in prices to rise.

Can fiscal policy be used to move the Phillips curve? Yes

Because physical policy can shift the aggregate demand curve, it can move in economy along the short run Phillips curve

The federal reserve might move unemployment lower in the short run by doing what?

By increasing the rate at which it increases the money supply. Policy makers can pursue expansionary monetary policy to achieve lower unemployment for a while, but eventually unemployment returns to its natural rate.

How Can deflation and disinflation be compared to driving a car?

Disinflation is a reduction in the rate of inflation that is compared to a car slowing down and reducing its rate of speed. Deflation is a reduction in price level and is compared to a car going in reverse.

Which period in US economic history featured the short run Phillips curve shifting to the left but not the long run Phillips curve?

During the volcker disinflation. After the volcker disinflation, The unemployment rate was lower for each inflation rate, consistent with the short run Phillips curve shifting left. Monetary policy does not shift the long run Phillips curve.

What could we expect if government policy moved the economy down a given short run Phillips curve?

I move down the short run Phillips curve means lower inflation and higher unemployment rates. Wage increases would be smaller but increases in the prices of goods would be smaller. They would also be fewer job opportunities for the unemployed.

If the unemployment rate is above natural rate, then inflation is less than expected.

Inflation is greater than expected. As inflation expectations are raised, the short run Phillips curve will shift to the left.

According to the short run Phillips curve,

Inflation would rise and unemployment would fall if policymakers increase the money supply. An increase in the money supply which shift the aggregate demand curve right which would cause inflation to rise in unemployment to fall

What would make unemployment increase and prices decrease?

Leftward shifts of aggregate demand move the economy to a point on the Phillips curve with lower inflation and higher unemployment.

What occurs during a housing and financial crisis?

Movement to the right along the short run Phillips curve, reduction in the rate of inflation and a steep increase in unemployment.

Is the proliferation of Internet usage an example of an adverse supply shock?

No. The proliferation of the Internet usage reduces firms cost and prices so is therefore considered a favorable supply shock.

In reference to the Phillips curve are unemployment and inflation related?

Not in the long run, but They are in the short run.

What are some things that are associated with an adverse supply shop?

Rises in price level, lower outlet rates, rises in unemployment. It also shifts the economy's short run aggregate supply curve left and the short run Phillips curve right.

What is stagflation and when did we first see it in the US?

Stagflation is the combination of falling output, rising unemployment and rising prices.

During the 1960s, the Phillips curve was almost perfect, which way did it slope?

The Phillips curve slopes downward. The data for the unemployment rate and inflation rate from 1961 to 1968 trace out an almost perfect short run Phillips curve that sloped down word

The unemployment rate is higher and the inflation rate is lower?

The aggregate demand curve shifts left word along a given aggregate supply curve.

For much of the 1960s, economic data for the United States trapped in which direction?

The data for the unemployment rate and inflation rate from 1961 to 1968 track out and almost perfect short run Phillips curve that slopes downward.

How is sacrifice ratio determined?

The rate of inflation divided by the annual percentage points.

With other things the same, if there is a decrease in the money supply growth rate that is larger than expected then in the short run what would happen?

The unemployment rate will be above its natural rate. A decrease in the money supply growth rate saves the aggregate demand curve to the left and unemployment rises above its natural state.

Long run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

The vertical long run Phillips curve is one expression of the classical idea of monetary neutrality.

What would make the long run Phillips curve shifts to the right?

To shift the long run Phillips curve, policymakers should look to policies that change the functioning of the labor market. Getting rid of effective job training programs would increase the natural rate of unemployment and shift the long run Phillips curve to the right monetary policy does not shift the long run policy current.

When will the economy move to a point on the short run Phillips curve where unemployment is lower?

When the inflation rate increases or When the feds decrease the money supply. With less money in circulation, the inflation rate will rise. Shift in aggregate demand push inflation and unemployment in opposite directions in the short run. On the Phillips curve, lower unemployment goes with higher inflation.

Samuelson and solow argued that there is a downward pressure in wages and prices win?

When unemployment is high. The reason that low unemployment was associated with high aggregate demand. Which in turn put upward pressure on wages and prices throughout the economy. High unemployment has the opposite effect downward pressure on wages and prices.

Was the Sacrifice ratio of the volcker disinflation smaller than previously estimated?

Yes, most estimates of the sacrifice ratio based on the Volcker disinflation are smaller than estimates that had been obtained from previous data.

A leftward shift of the aggregate demand curve would lead to what?

lower inflation and higher unemployment