Macroeconomics 1 – Seminar 11
05.05.2015
Miroslava Federičová
The original Phillips curve shows that:
a. there is no relationship between inflation and
unemployment.
b. high inflation leads to high unemployment.
c. high inflation leads to low unemployment.
d. low inflation leads to low unemployment.
When the Fed increases the money supply faster
than expected, there will be in the short run
________ the short run Phillips curve.
a. an upward shift of
b. a downward shift of
c. a movement up and to the left along
d. a movement down and to the right along
When, in the long run, people get used to, and
come to expect, a higher inflation rate, there will
be ________ the short run Phillips curve.
a. an upward shift of
b. a downward shift of
c. a movement up and to the left along
d. a movement down and to the right along
When the Fed increases the money supply
slower than expected, there will be in the short
run ________ the short run Phillips curve.
a. an upward shift of
b. a downward shift of
c. a movement up and to the left along
d. a movement down and to the right along
When, in the long run, people get used to, and
come to expect, a lower inflation rate, there will
be ________ the short run Phillips curve.
a. an upward shift of
b. a downward shift of
c. a movement up and to the left along
d. a movement down and to the right along
Friedman and Phelps argued that in the:
a. long run, inflation has no effect on
unemployment.
b. short run, inflation has no effect on
unemployment.
c. short run, unemployment has no effect over
inflation.
d. none of the above.
Friedman and Phelps argued that the Phillips
curve was:
a. downward sloping in the long run.
b. upward sloping in the short run.
c. vertical in the long run.
d. vertical in the short run.
According to Friedman and Phelps, if actual inflation is
greater than expected inflation, the unemployment rate
will:
a. be greater than the natural rate of unemployment.
b. be lower than the natural rate of unemployment.
c. increase along with the natural rate of unemployment.
d. decrease, along with the natural rate of
unemployment.
According to Friedman and Phelps, if actual inflation is
less than expected inflation, the unemployment rate will:
a. be greater than the natural rate of unemployment.
b. be lower than the natural rate of unemployment.
c. increase along with the natural rate of unemployment.
d. decrease, along with the natural rate of
unemployment.
If there is high inflation and the Fed follows a policy
to reduce the inflation rate, we can expect that in
the short run, the economy will experience
________ with ________ unemployment.
a. fast growth, low
b. fast growth, high
c. a recession, low
d. a recession, high
Suppose the natural rate of unemployment is 6%. On one
graph, draw two Phillips curves that describe the four
situations listed here. Label the point that shows the
position of economy in each case.
a. Actual inflation is 5%, and expected inflation is 3%.
b. Actual inflation is 3%, and expected inflation is 5%.
c. Actual inflation is 5%, and expected inflation is 5%.
d. Actual inflation is 3%, and expected inflation is 3%.
Suppose that a fall in consumer spending causes a recession.
a. Illustrate the immediate change in the economy using both an
aggregate-supply/aggregate-demand diagram and a Phillips-curve
diagram. On both graphs, label the initial long-run equilibrium as
point A and the resulting short-run equilibrium ads point B. What
happens to inflation and unemployment in the short run? In the
short run there is a decline in inflation and increase in
unemployment.
b. Now suppose that over time expected inflation changes in the
same direction that actual inflation changes. What happens to the
position of the short-run Phillips curve? After the recession is
over, does the economy face a better or worse set of inflationunemployment
combination? There is a downward shift in shortrun
Phillips curve. After the recession, unemployment is at its
natural rate, however there is lower inflation rate in the economy.