macro95ex12

# In the expectations augmented phillips curve π π e

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10. In the expectations-augmented Phillips curve, π = π e – 3( u u ). If π = 0.03 when π e = 0.06 and u = 0.06, then u = (a) 0.02. (b) 0.03. (c) 0.04. (d) 0.05. Answer: D Level of difficulty: 2 Section: 12.1 11. In the expectations-augmented Phillips curve, π = π e – 3( u – 0.06). When π = 0.06 and π e = 0.03, the unemployment rate is 12. The Phillips curve is the relation between inflation and unemployment that holds for a given natural rate of unemployment and a 13. Suppose most people had anticipated that inflation would be 3% in the coming year because the Fed would increase the money supply by 3%. Instead, the Fed increases the money supply by 5%. In the short run, this would cause actual output to be _____ full-employment output and prices to increase by _____ 3%.

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Chapter 12 Unemployment and Inflation 187 14. An increase in the expected rate of inflation would (a) shift the Phillips curve upward. (b) shift the Phillips curve downward. (c) shift the long-run Phillips curve to the right. (d) shift the long-run Phillips curve to the left. Answer: A Level of difficulty: 1 Section: 12.1 15. If the expected inflation rate is unchanged, a fall in the natural rate of unemployment would 16. If the expected rate of inflation rose at the same time the natural rate of unemployment rose, the Phillips curve 17. A beneficial supply shock would cause
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• Spring '11
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