Question 1

For a given short-run Phillips curve, if expected inflation is 8% but actual inflation is 10%, is the unemployment rate above or below its natural rate?

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Question 2

What is meant by the natural rate of unemployment?

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Question 3

List three things that shift the short-run Phillips curve to the right.

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Question 4

Friedman and Phelps argued that it was dangerous to think of the short-run Phillips curve as a menu of options for policymakers to choose from. Explain the logic of their argument.

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Question 5

For a given short-run Phillips curve, if expected inflation is 10% but actual inflation is 8%, is the unemployment rate above or below its natural rate?

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Question 6

If expected inflation decreases does the short-run Phillips curve shift? If so, what direction does it shift? Does the long-run Phillips curve shift? If so, what direction does it shift?

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Question 7

Write the equation representing the short-run Phillips curve.

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Question 8

A central bank raises the money supply growth rate and keeps it at that higher rate. Explain the process by which the economy moves to long-run equilibrium.

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Question 9

Use the sticky-wage theory of aggregate demand to explain the short-run Phillips curve.

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Question 10

An increase in the natural rate of unemployment shifts the short-run Phillips curve to the _____. If the central bank sees the increase in the unemployment rate, but thinks the natural rate has remained the same and so wants to reduce unemployment, it would ________ the money supply growth rate. If it maintains this money supply growth rate, eventually the short run Phillips curve will shift _____ and unemployment will be _____.

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Question 11

If the Fed raised the money supply growth by more than expected then the unemployment rate would _____ in the short run. Explain the process by which the economy moves to the long run if the Fed maintains the higher money supply growth rate.

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Question 12

How is a decrease in the natural rate of unemployment shown in the Phillips curve diagram? Does this decrease change the inflation rate?

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Question 13

List one specific policy that would shift the long-run Phillips curve to the right.

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Question 14

Suppose, as in the 1970's in the U.S., that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force. Would this have any effect on the long-run Phillips curve?

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Question 15

A central bank raises the money supply growth rate and keeps it higher. As the economy moves from the short-run equilibrium created by the increase in the money supply growth back to long-run equilibrium what happens to the unemployment rate?

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Question 16

What does the natural-rate hypothesis claim?

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Question 17

What does an unexpected decrease in the growth rate of the money supply do to inflation and unemployment in the short-run? What does it do to inflation and unemployment in the long run?

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Question 18

If expected inflation rises but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

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Question 19

If expected inflation falls but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.

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Question 20

The Fed increases the money supply growth rate. Assuming inflation expectations remain constant, use a Phillips curve diagram to show the short-run effects of the Fed's policy.

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Quiz 35: The Short-Run Tradeoff Between Inflation and Unemployment