Suppose people hold adaptive expectations about inflation. Recently, inflation has held steady at 2%. Which of the following scenarios would lead to higher unemployment according to the expectations-augmented Phillips curve? O Higher than 2% inflation Lower than 2% inflation O Exactly 2% inflation

Suppose people hold adaptive expectations about inflation. Recently, inflation has held steady at 2%. Which of the following scenarios would lead to higher unemployment according to the expectations-augmented Phillips curve? O Higher than 2% inflation Lower than 2% inflation O Exactly 2% inflation

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter35: The Short-Run Trade-off Between Inflation And Unemployment

Section: Chapter Questions

Problem 3CQQ

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Question

Suppose people hold adaptive expectations about inflation. Recently, inflation has held steady at
2%. Which of the following scenarios would lead to higher unemployment according to the
expectations-augmented Phillips curve?
O Higher than 2% inflation
Lower than 2% inflation
O Exactly 2% inflation

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In a decelerating inflation environment (e.g. with inflation rate at 20%, 18%, 14%, .. year after year), using "adaptive inflation expectations" formation, the forecasted future inflation rate is likely to be O systematically biased upward. O systematically biased downward. O always correct. O about correct on average.
If people in the economy expect inflation to be 6 percent but inflation turns out to be 3 percent, the economy is operating at point OB OC OE OF Inflation Rate 9% 6%- 3% I 1 I 1 I 1 Long-run Phillips Curve I 3 I B GEC 1 Short-run Phillips Curve for HF expected inflation of 9% Short-run Phillips Curve for expected inflation of 6% Short-run Phillips Curve for expected inflation of 3% Natural Rate of Unemployment Unemployment Rate
If inflationary expectations increase, the Phillips curve will Select one: O a. shift to the right O b. become vertical O c. shift to the left O d. become upward sloping
Which of the following events would be expected to result in an upward shift of the standard Phillips curve? O The USD is appreciating against the Euro O A positive output gap leads to a more positive unexpected inflation O Wages across the country have risen 5% in the last month O Productivity growth in the United States is increasing
Stagflation, that is, high unemployment combined with high inflation Multiple Choice O O о O cannot persist, since the economy eventually will return to full employment can only occur if expansionary monetary policy is combined with restrictive fiscal policy is inconsistent with the inflation-expectations-augmented Phillips curve cannot occur as long as the expected inflation rate is above the actual inflation rate can only occur during the period of economy expansion
Assume that last year's inflation rate is the same as the expectation of inflation for the next year. According to the expectations Phillips curve, if the inflation rate decreases relative to the expected rate, the unemployment rate O A. decreases. OB. increases. OC. does not change. O D. may increase or decrease. Click to seleoct your answer. & 24 2 4 P Q E R Y tab A D F G Ds lock C V N M
Why could inflation be persistent in times of output gaps? O a. Because of inflation expectations O b. Because of wage contracts that were signed some time ago O c. Because of menu costs in adjusting prices frequently O d. All of the answers are correct
The Short Run Phillips Curve describes what? A predictable negative relationship between the output gap and the unemployment rate When the output gap is negative (a recessionary gap), the unemployment rate is above the natural rate. O A positive output gap implies an unemployment rate below the natural rate of unemployment. The negative short-run relationship between the unemployment rate and the inflation rate.
Which of the following will increase our current inflation rate t? None of the answers are correct O a. O b. A beneficial cost shock (positive supply shock) O c. A recessionary gap in period t-1 O d. tt-1
Consider the Friedman-Phelps model of the Phillips Curve as discussed in lecture. Assume the economy is currently at Y-full employment. When the Fed sells government securities to the public, and there are no other exogenous shocks to the economy, which one of the following is predicted to happen? The actual inflation rate increases, and the unemployment rate increases permanently. O The actual inflation rate increases, and the unemployment rate increases first and then gradually goes back to the natural rate of unemployment. O The actual inflation rate decreases, and the unemployment rate increases first and then gradually goes back to the natural rate of unemployment. The actual inflation rate decreases, and the unemployment rate increases permanently. The actual inflation rate decreases, and the unemployment rate decreases first and then gradually goes back to the natural rate of unemployment.
Which of the following can shift the short-run Phillips curve upward? (i) Increase in expected inflation (ii) Presence of adverse supply shock (iii) Increase in the natural unemployment rate O a. Only (i) O b. (i), (ii), and (iii) O c. Only (i) and (ii) O d. None of the other choices is correct.
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